Why You Shouldn't Wait For Interest Rates | Real Estate | REIal Talk | EP. 72

Foreign.

Hello, Freedom fans. Aaron Davis, President CEO of Freedom Real Estate Group. And this is Mark. He is our investment guru.

There we are.

Realtor.

That's right.

Oh, man.

Talk to our customers, do a bunch of marketing stuff.

The handyman around here, right?

Handyman. Who does more handyman chores, me or you?

Yeah, I was gonna say you're out.

In the properties more than we both do a fair share of dirty work. Anyway, Mark and Aaron, your handyman team over here. This is Real Talk podcast number 73.

Okay, nice.

And we talked a little bit about the subject reasons why waiting is costing you.

Right.

Missing big opportunity. We talked about that in vlog number 89. We're going to talk a little bit longer about it now.

Sure.

I feel like we were all over the place and wanted to go deeper on all those little points we made.

Yeah, absolutely.

But tried to organize my thoughts a little bit and it's really two big things that are making people wait. They're speculating about a recession.

Yep.

And they're speculating about interest rates declining or they're hesitating because interest rates have, have climbed.

Sure.

Eating their cash flow a little bit. So we've got this hesitation. I'm seeing a little bit of a hesitation in real estate. I just talked to my brother in law the other day.

Right.

And it was like, I'm going to wait. Are you sure? There are, there are reasons why people are getting scared a little bit by things that are happening in the market. I feel like the biggest risk factor right now is that fear.

Yeah.

People keeping people from executing on their long term real estate investment strategy. So that's what we're going to talk about today, right?

Yeah, I mean, yeah. I mean basically they say fear is giving credit or credence to something that has no value.

That's right.

Yeah.

I mean like, so it's 100% like.

Yeah.

You know, so this fear, you know, obviously is just the not knowing, you know, I mean, and so hopefully what we can do while we're talking to our investors here or future investors is, is why not, you know, maybe to help alleviate some of the fear and be confident in moving forward with, with your game plan. We, we kind of hinted about like your game plan, you know, and executing it, you know, I mean, so there.

Are good reasons to hesitate. You know, you're saying that I was thinking about, you know, somebody bursted into this recording studio and waved a gun at us. I would be afraid that would be valid.

Right, right.

Like there are, there are times to be afraid that Makes sense, right. Like I don't have enough cash to address, you know, roof, you know, a hurricane blows the roof off or I don't know, I'm just making stuff up, but I don't have enough cash to address maintenance issues that come up on my property. You should be a little bit afraid. Investing in real estate. Real estate is real.

Right.

There's actual physical hard assets there that need addressed from time to time.

Right.

Sometimes it's a $50 fix, sometimes it's a $5,000 fix. If you can't afford those things when they come up like, just in terms of like having that reserve, don't mess with, don't mess with real estate.

You know what I mean?

Buy baseball cards or something. Right.

You're not gonna buy a fixer upper car.

Yeah.

And then, you know, and park in the garage. I think it's going to be worked for.

Right, exactly. And hope that like, oh gosh, I hope nothing breaks down on this because you know, they don't make that part anymore. Yeah, I mean like. Yes, that's right.

Better be ready to do some dirty work.

Exactly. So you got to have.

So there are good reasons, there are reasons you should or could be afraid in a rational way.

Yep.

What I'm, what I'm more concerned about the risk that I think real estate investors are facing right now is this the speculative fear where there's this kind of like vague boogie monster out there. And when you, when you see a, when you have it, I guess the guidance that I think about in terms of fear is like I can see what the risk is there and I, I can make a plan around that because it's specific and it makes sense. But I think what a lot of times people do is they, they haven't figured out how to make sense of the danger that they're faced with.

Yeah.

And so they just, they, they get deer in headlights.

Right.

And I think that's kind of what we want to do is try to make sense a little bit of those two big things that, you know, recessionary threats and the higher interest rates and reasons why and how you can mitigate those risks and still execute on your long term, let's say your 10 year vision for building your real estate portfolio.

Right.

So which one we want to start with? I guess the big thing is start here.

Okay.

Let's start with the 10 year vision.

Right.

When you're building a real estate portfolio and really any investment strategy. So I do a little bit of like mutual fund stock investments and real estate and when you're building any kind of portfolio, time is your friend. Any investment that has a recurring gaining value.

Right.

Capital appreciation or dividends or whatever, cash flow or whatever, time is your friend.

Right.

You know, so sitting around waiting, you know, collecting, you know, bank interest rates or whatever the heck you're doing while you're waiting sure becomes its own kind of risk.

Right.

Because you're not leveraging that time.

Right.

And so when I see people talk about wait, I want to wait, what I immediately think is, okay, what's the cost of waiting?

Yeah.

And then let's compare that to a couple of scenarios where this change or that change happens.

Right? Right.

So, you know, when you. The first year. So when I think about that 10 year plan, let's say I want to buy 20 properties, you know, 28 doors or whatever.

Right.

Over the course of 10 years, that would be, you know, pretty ambitious. But impact, you know, high impact plan to execute on.

Right.

So let's say I want to buy, I want to make 20 acquisitions once every two years over 10 years.

Yep.

And then, you know, I wait. I want to wait for interest rates to. I want to wait for interest rates to go back to 4% or whatever.

Right.

When's that going to happen, you know? Yeah, I don't either.

If, if I knew.

So what does that do to your ten year plan?

Right.

Yeah.

So what are you going to do with that? You know, I've saved up my 30 grand that I'm going to put into this real, this rental property.

Right.

And per my plan, now's the time to buy. But interest rates are high, so I'm going to wait. Okay. So I'm going to do what with that 30 grand? Put in the bank or.

Right.

Put it in whatever.

Right.

To grow or something. A half of a half a percent.

Yeah.

Whatever that is. It's either something has its own risk or something that has its own risk, know rates or whatever. And then I'm going to wait. Okay. So let's say six months goes down or goes by and interest rates move a little bit. Let's say a year go by and interest rates finally hit some magic number where, where you think it's comfortable. What's the impact of that?

Sure.

You kind of did an analysis on that, which I thought was pretty smart.

Yep.

You know, the, the big risk there is, you know, you've, you've waited a year.

Mm.

Let's say interest rates are lower and that property is going to cash flow better, right?

Yep.

But will it? Because now the price is higher.

Right, Right.

You have to come out of pocket more, you know, for your down payment.

That's right.

Your mortgage is maybe less on paper, but you owe more, you know, I mean, so you may have like a lesser amount, you know, because the 4% versus the 7%. But now I'm mortgaging a higher amount versus the lower amount now.

Mortgage in 165 instead of 150.

Right, right, exactly.

Or whatever the numbers are.

Yeah.

So that's a fact. Just, just the capital appreciation impact of waiting has cost you something.

Correct. Right.

So let's add to that scenario. We're just kind of a fictitious scenario. But not to exaggerate, I don't think it's an exaggerated or implausible scenario. So let's say this property you're looking at today, cash makes you 200 bucks. After you pay for some maintenance or whatever, you kind of average 200 bucks a month.

Yep.

Modest cash flow. And over the course of two years you can, you can cash flow 2,400 bucks. That's your, that's your refinancing expense. Right. So that you know your closing costs or whatever to refinance the property, grab a hold of that lower interest rate is paid for with the cash flow for that year. But instead of waiting, you've gained that, you've made capital appreciation in the property. Whatever the, you know, the appraised value of the property goes up.

Right.

Over time.

Right.

And you've paid down some principal, at least your first year's worth. It may not be a lot then, but as you look at it, over a 30 year plan or whatever.

Right.

Or 30 year mortgage, that first year matters.

Right? Right.

So you've got somebody else paying your mortgage. The value of the property has gone up.

Right.

You've gone through, let's say you had to turn over a tenant in that first year. Now you've got a good one in there. So you, you've gone through that exercise and improved your cash flow position on the property. There's, there's a net gain there. And so what do you gain if you wait?

Right.

Whatever else you did with your money.

Exactly.

That's it.

Yeah.

So is it going to be better than that? Capital appreciation and paying down that principle, Is it going to be better than that?

Well, the one thing. So when we put together this, you know, side by side comparison of like what it would look like, you know, if you bought now, let's just say, you know, sky's falling 7% and you're waiting for 4%, what I should have done is then done the third one, you know, I mean, so we did this side by side, but do the third one to show what it would look like now at that original purchase price back at 4%.

Yeah.

That cash flow might even be higher than what it is, you know, so. Because we were talking like, don't get me wrong, like if you took these two guarantee, that's going to be better.

Just because the interest rate's lower. Because multiple things impact.

Exactly. So whether, you know, say, say the real estate, you know, because I did like a. Just a 3, 3% year over year of the value of the home increasing, which is modest and it could happen. It's probably normal, you know, even in a slower market. But, you know, so you're waiting for that interest rate, but taxes could have gone up. You know, there's other variables, of course, that could go up and you take those into consideration. But yeah, then to think you've now paid for a refinance, you're refinancing a lower amount because it's been paid down over those two, three years. I mean, your cash position, like, you know, so what I did here was a side by side. It was a purchase price of $150,000. House, you know, that's renting for 1500. And in three years, this house, you know, with the 3% would be worth 165, you know, and let's just say that the rents bumped up, you know, year over year as well. So 1500, 1575, 1650. So let's just say that we're just keeping keeping up with that, you know, let's just say the taxes go up a little bit, insurance goes up a little bit, but everything kind of follows with it. Yes. At the 4%, when you buy that 165 house, you make cash flow a couple bucks more, but you only have what you did in the down payment for equity, you know what I mean? So like 30 to 33 grand, that's what you have. And you can't touch it because you just put it in. Versus if I bought that property at 150, I have that 30 grand in equity plus what I paid down the principal, plus the appreciation. So now I probably got closer to 50 grand in equity. And let's just say that interest rate went back down to 4%. Now I'm paying 4% on $100,000.

That's right.

Versus paying 4% on $130,000.

Yeah.

So your cash flow position is in. And I Mean that's on one property.

Yeah.

You know, multiply that by sticking to the plan.

That's right. You mentioned something in the, in the blog that was insightful about your purchasing power increasing. Right. So that kind of leads me we're staying on this.

Interest rate. Sorry, I get all over subject.

No, you're right in line. But you mentioned something about your authority as a buyer, your credit worthiness as a buyer. Is one property better if you, if you don't wait, if you buy now. So where that kind of took me was this quantitative tightening potential, that other variable, other tools that the Fed and the lenders can use to constrict, you know, to manage how much assets the Fed holds or whatever.

Right.

And how that kind of trickles down to us. Other factors that could come into play in this, you know, kind of speculative scenario or whatever where more tightening happens is the debt to income ratio could change, the loan to value ratios could change.

Right.

When those.

Yeah.

The number of investment properties you own might be limited. Right. So when those variables, if those factors change in terms of your ability to, to gain financing, the interest rate will be secondary. The question will be can I get.

Can you even purchase?

Right. Can I get money? And a year's worth of income on a property, a year's worth of proven experience as a, as an investor can be an asset to you in that scenario as opposed to just. Okay, so I'm thinking about that first time or almost first time investor who's never done it before, maybe they bought one property, adding that extra year of cash flowing to your kind of your resume as a borrower.

Sure.

For a year from now is another lost opportunity if you just sit and wait.

Right.

Yeah, no, excellent point. I mean, I know that we work with lenders that say that exact same thing. You know, if you're a novice or first time investor, you know, the, the lens in which they look at and even the lending that they do is way different than somebody that's on their.

Third or fourth property.

Right. Yeah.

I mean, and so you've shown a proven success and a track record that you've, you've gotten in, you've got your feet wet, you know what you're doing. There are all kinds of programs that are specifically for that investor.

Yeah.

You know, where it's equity lines or things, you know, so. Yeah.

The flip side of that is that investor who owns eight, nine properties and their, you know, lenders are comfortable with that.

Right.

Now let's imagine some fictitious future where lenders are saying now we don't want to mess with, we don't want to lend you on more than six properties.

Right.

So is now the time or is that scenario the time? So you want to wait for that.

Right?

Right.

Like I want to wait on interest rates and then instead you run into that.

Sure.

So if you're trying to execute, again, you're trying to execute your 10 year plan of building this portfolio over time.

Right.

We know now that interest rates are higher now than they were a year ago. We also know now that you can get credit.

Right.

Like you can get a loan.

Yeah.

So we, we don't know either of those things. Flip. You know, for two years from now, we don't know what interest rates are going to be or what the standards are going to be to give you a loan.

Sure.

So if you, if you're executing a long term strategy to build that portfolio, now is the time. Assuming the cash, the property cash flows.

Right.

The 30 year fixed mortgage is like, I mean that's our economy's great gift that it gives us. Right.

Right.

I don't have, I, all I have to know is that the property is going to make me money. My, my costs aren't going to change significantly if I've got a, if I've got a fixed mortgage and I forecast appropriately for some maintenance costs.

Right.

Which then takes us to the other big variable that people are pausing and hesitating and worrying about, which is the income.

Sure.

And this whole threat of a recession and how's that going to impact rents and all that fun stuff.

Well, it kind of ties into what you were talking about as far as cash flow. I mean, so let's just say that I showed you a property that's cash flowing, $200 a month. I showed you the same Property cash flowing, 200amonth. But what I'm not showing you is one's a 4% interest, one's a 7%.

Yeah.

They don't make, it doesn't even matter. They're both cash flowing $200 a month. So at the end it shouldn't matter.

Right.

Is this property cash flowing?

Yeah, that's right.

And are you going to be in a better position in the future?

Let's take that same property.

Right.

Three bed, two bath. And let's say it's, you know, Kettering, Ohio or whatever.

Right.

In our neighborhood, our backyard today it's cash flowing, $200 a month. And that same exact property, let's say 18 months from now, is cash flowing $350 per month. Because you know, economic factors are such that it's just way better.

Right.

Which one do you buy?

Both.

You buy.

Wait, so you're telling me this property and this. I wish you could buy the same property multiple times, but close to it.

Right.

It's making me money, all costs considered.

Right.

It makes me more money than I put in at a really good return on my cash.

Right.

Why would you not? So, like, you don't give me good. I only want great. Well, how about. How about great and good?

Right.

So right now, interest rates are, you know, closer to seven than they are to. Than they were to three or whatever a couple years ago. You can only get good.

Right.

You want to. So. So you want to sit around and wait for great.

Right?

That's it. That logically doesn't make sense. I think a lot of people who are doing that are people who haven't been. They're not. They're not as old as us.

Right.

And so they think this last decade or so of just crazy economic growth and cash and all this.

Yeah, you kind of touched on it in the vlog. Is that, you know, for someone that's younger than us, they've only seen, you know, that really good economic times of just great economic and home prices, like every month, multiple offers, just, you know.

So they want to sit and wait for that to happen again.

Right.

I want money to be loaned to me for free at a time when properties are appreciating 10% a year.

Sure.

Bad news. That's not going to happen.

Right.

Because, I mean, yeah, it will at some point, but because sometimes you'll talk.

To investors that, you know, I mean, like, I mean, again, obviously this comes down to your own numbers, is like, do you pull monies from other things that may not be performing in order to put into something that is.

Yeah.

And so even when it was at that explosion, would you pull that money to put it in the explosion?

Right.

You know, I mean, so there's, I don't know, there's just so many things.

There is something to be said for like a leveling or whatever, you know, you're, you know, this, you know, keeping your ratio similar in terms of managing risks in your portfolio, whatever it is. But. Yeah, that's a good point.

But, but like, as we were talking about, like that time is your friend, of course, in any investment. And, you know, it made me think of a story where I was, I was listening to a broker who's, who's older than us was talking about, you know, buying in the 80s yeah. Now interest rates then were like 11 to 13%. So I mean you were paying a ton of money to borrow money. People were still buying back then.

It doesn't because.

And if you bought in 1980, do you think your home's worth more in 2022? I mean, yeah, like interest rates is 20 fold.

Interest rates matter when it creates a pro forma or a forecast for that property. It doesn't cash flow.

Right, Right.

It matters to that extent. But if the price, if the rent, if the, you know, ancillary costs and so on are such that you can forecast with reasonable confidence a cash flowing investment, it doesn't matter what, it doesn't matter which part of that equation was, was this, that or the other.

Right.

The bottom line is what matters. And so if you, you can create, I mean, a 12% return on your cash, but part of that analysis is a higher interest rate than it was two years ago. It's a 12% return on your cash. Who cares?

Right, Right.

What it's made up. I mean we do care about the. Whatever.

But.

Anyway, so let's go to the other side of the equation, which I think people are. There's a little less hesitancy when people think about a recession threat and whatever else. And I think there's less concern about that for a reason. But you know, recession threat or recession with a long tail that drags out for a while has people worried about their income and so their investment into a real estate makes them worry about rents and employment and all that kind of stuff. I think that's, there's some validity to that.

Sure.

And I think we should be.

You.

Know, you shouldn't be forecast, you shouldn't be forecasting rent increases too dramatically. In fact, you should run your, I would recommend running your. Just assume that it's not going to go up.

Right.

Is it still a good deal for you if rent doesn't go up next year, in the year after because you don't know what's going to happen to the economy.

Right.

Let's assume rent doesn't go up next year. Let's assume it doesn't go up for two years. But the reality is rents, particularly in B and C class properties, don't go down.

Right.

You look at every, they've not gone down for 100 years. If you look at every five year period, there's never been a five year period where rents went down for the last hundred years in BNC class properties. So you know, again, I kind of mentioned that in the blog. That's not necessarily true in luxury apartments and whatever else, but kind of the staple, fundamental, necessary brick and mortar that we, that we all occupy. Rents don't go down over five year periods. So, you know, the, the more important factors to look at there are wages and employment.

Right.

And we might be in a kind of receding gross domestic product measurement or whatever, but wages and employment are through the roof and still going up.

Right.

I spent a lot of, you know, I came out of the staffing world. Yeah, I know. I used to run gyms, I used to run staffing. Right, Right. So I still kind of keep my finger on that pulse. And wages are still going up.

Oh, absolutely.

And there's still excess of demand for. We're still in this, like, despite the fact that it's, that has also slowed a little bit, there's still more demand for, for talent and employment than there are people.

Right.

So.

Right.

So it's almost like what would you say to, you know, John the investor? You know, I'm worried about, you know, the uncertainty of economic times. Would I rather have 30 grand sitting in my bank account for just in case, or would I use this 30 grand on an investment that may, you know, return me three or $4,000 a year?

You know, there is something to be said for having enough cash set aside.

Right.

Particularly as we go into potential recession.

Right.

Don't spend your last dollar. That's a dumb move on a. Not anything in a bear market when everything's growing and whatever. Don't spend your last dollar. Maintenance costs are going to come up at some point your tenant's going to leave.

Right.

And you gotta, you know, you gotta turn, turn the property.

Right.

Somebody might not pay you for a month or whatever, you gotta, you gotta kick them out and two months later you're finally seeing cash flow again or. Right. So you have to be prepared for those scenarios. Real estate investment is not, you're not buying a, you know, a bond fund or something. Guaranteed, fixed, whatever. You know, it is a, it does vary a little bit with some hiccups that come in. Those hiccups are a lot less impactful as you build that portfolio out.

Right.

You know, if you own 10 doors, there's a lot less variance than there are when you own two doors and so on.

Right.

20 doors less variance than 10. So you do have to have some cash.

Yeah.

But I, you know, bank your reserves, Build that reserve up along with your down payment, prepare for the variance. The variables that come at you as you own real estate and buy cash flow and here's, here's why I think that's the move. Because let's say a recession lasts a while and then you know what's going to happen eight years from now? It's going to happen again. And when that happens again, do you want to be beholden to your job and your income at a time when maybe wages and employment is not as secure in a recession that's associated more to bigger volume layoffs and bigger wage contraction and whatever else? Do you want to be sitting on eight doors that provide you a nice little income buffer?

Right.

When you're, when you lose your job in the next recession? Right. Or do you want to have been sitting and waiting and I got my. I have more cash. I don't, I don't have more income. But.

Right.

So.

Exactly.

I think there's a, there's a balance there. It matters. You do need to have, you know, everybody should have rainy day fund.

Right.

If you're investing in real estate, you should have a, an appropriate reserve to address maintenance and turnover issues that happen.

Well, I think that's because, like what you're saying is, is like the reason that investors get into turnkey solutions. Like this is passive income.

That's right.

No matter what happens, whether you want to retire early, whether you want to work until you're dead and this money coming in to leave to your kids.

Wealthier or lazier, either one, it's about creating alternative income.

Exactly. So you're right. Like, let's just say, you know, okay, I keep that. Let's just make it. I got a crazy amount.

Right.

I got 100 grand saved aside, but I own no properties.

Right.

And I get laid off. You know what I mean? I still have my mortgage, I still have my bills.

You know what I mean?

Like end of days. Right. You know what I mean? So how quickly will that hundred grand disappear?

That cash is not going to move up in value as fast as rent prices go up. So your income or as fast as the capital appreciation of those properties. So just capital appreciate. So both your dividend and your capital, both of those things are going to go up way faster than the value of that cash sitting there.

Right? Correct.

Like even if put it in the bank and I put it into, you know, some sort of money market and I'm growing at 2%.

You know, that's a big risk.

That is a very big risk versus, let's just say, like for your example, like I have, you know, seven, eight properties.

Yeah.

And they're, they're bringing me in you know, say $300 a month.

Yeah.

You know, I mean, and I'm bringing in three grand a month. Yeah, that's 36,000 that's coming in, you know, or whatever. $3,000 a month is coming in, plus I still have all the equity, you know, I mean, if I had to refinance, if I had to do. If I had to sell one off, you know, I mean, if I had to just sell one, yeah, there's my hundred grand back, plus now I'm still making $36,000 a month. So it's. It's the reason why people get in the vesting.

Yeah.

Because you have a real asset.

I think it makes sense that there are a lot of. I mean, I sometimes forget how old I am because I still feel like I'm in my 20s. But I guess now we're old enough that we've seen the. We've been through like a couple of different economic times or whatever. Not say we have it all figured out or anything, but emotionally, like, I'm not impacted much by. I think I even said something on social media recently about recession because I've been through a couple uglier ones.

Right.

The O3 thing and the 08 thing, whatever. And this feels like nothing to me. And it's because wages and employment are still high. So, like, everybody's still able to make a good income or whatever else. Inflation is crazy and hurting people bad. I think that's real.

That is real.

Home prices, rent prices, food prices, gas prices are killing people. And I think that's real. That's going to hurt.

Right.

But you know, when you're building a real estate portfolio, rents are what drive your income. And rents are good. Rents are healthy. Not good for the renter, not great for the renter at all. And my heart goes out to him. But for the investor, they're healthy.

Sure.

And they're not. I mean, you should run your numbers, accounting for the potential that they're going to go down, but they probably won't. You know that the scenario in which they drop is. Those are rare, Right. Yeah.

I mean, this could almost be that inflation stopgap. You know, let's just say that you're paying an extra $200 a month for gas, you know, for groceries, for whatever. You know, even if that one rental property, maybe you're not able to take that $200 and put it back towards principal, but you now have $200. That helps maybe offset the inflation.

Yeah.

You know what I mean? So it could be a tool for that.

Yeah, yeah. I think the biggest risk that people are running into right now is hesitating to continue to execute the plan for building their real estate portfolio over a long period of time because they think they're forecasting a better future in which interest rates are lower and the recession's past us. And the risk is giving up. Let's say it's two years giving up. Two years of building capital, realizing cash flow and, and having bought at a time when prices are lower than they will be two years from now.

Right.

And so the risk of just this kind of vague haunting threat of unknown economic. There's always, it's always there.

Right.

I'm just telling you from experience, it's always, for the last 10 years, somebody has cited every year or two a reason why we're about to have a correction in the market.

Right.

And what's happened, it hasn't really happened. Now corrections generally happen more frequently than that.

Right.

And it will happen at some point. Will it be this year? Did we already see part of it? Will it be next year, the year after? Let's say it's the year after and we waste this entire year waiting.

Right.

People have been doing that for. I alluded to it in the blog. There's something to be said for executing that dollar cost average principle. And instead of trying to forecast when interest rates are going to go to whatever marker you think they need to be at for you to make a move, your criteria for buying a real estate investment should be the big. It should be the cost and the income.

Right.

The 30 year fixed mortgage gives you a lot of security about a realistic expectation for what the cost should be.

Right.

Your mortgage, your maintenance, your taxes, etc.

Right.

You can forecast those things in a pretty fixed way. The income is affected by recession threats and job loss potential, blah, blah, blah. But in general, when you're buying in C, B and C class properties, rents don't go down. Could it happen? It could happen. But build your buffer into your pro forma, into your Bryant buying credit. Make sure that it's, you know, that's why you don't buy a property that cash flows you $1. Because dollars and cents wise, a property that cash flows you $1. Like if you could tell me with a certainty that that property would cash flow $1 for the next 10, I would buy it.

Right?

Because.

Because it's not negative one.

Because it's not negative one dollar. As long as the returns are sufficient.

Right.

Ten years from now, it's going to be worth More than it is now. It's still.

Right, Right.

The reason you build it, look, you build a little extra buffer is to account for those variables. So build a little extra, that's cool. But sitting in, but don't do it at the expense of sitting, sitting on the sideline for a year.

Right.

While everybody else is taking advantage of today's prices instead of waiting on tomorrow. One thing we didn't even address is like, let's say interest rates drop 3%.

Right.

What's that going to do to prices?

Exactly right. Because now your buying power's up. Now you also have more investors in the market because we were talking about that as well. So the same, you know, right now, you know, you've got, you know, the people that's a savvy investor and know to buy now, you know, versus ones that may be a little tentative to buy now because of the uncertainties we're talking about. But when the floodgates are off and it's free money again, and it's, you know, mortgage rates are, you know, historic lows, everybody's cashing in their 401ks, everybody's got money. So now that demand, you know, it's just the same. Yeah, yeah, absolutely.

There's a lot of risks. There are more risks to sitting and waiting than there are to executing a well thought out decision criteria about sufficient cash flow to make the deal worth it. And I think I alluded to it earlier that if you, if you're cash flowing 200 bucks over the year, that pays for, let's say it's a B or C class property in a market like Dayton, Ohio, that pays for your refinance.

Right.

So you've gained capital appreciation. You gained, you know, principal being paid out on that mortgage over that first year. And then now you can also gain that, that lower interest rate. Let's say it's a year from now or whatever else.

Right.

If it's two years from now when it's at that point where it's worth it, even more so. Right. So the time to buy when the price is right and the income is right.

Right.

The pro forma adds up to a good cash flow that projects a good return. The time to buy is now, assuming you've got the appropriate reserve and the cash flow present provides you a good return. Like you said earlier, whether I'm making 200 bucks on a 7% or 4%, it doesn't, it doesn't matter if, if that is sufficient to justify the cash investment and gives you a good return. That's the criteria.

Yeah. It's almost like in almost any, you know, investment that you're. Of course you don't want to buy it when it's as high as. Because you know, it'll make the correction for the low, but no one knows when it's as high. Like, how do you know what the highest price?

Like, we're selling investment properties now.

Right.

We've got a bunch of other folks are as well.

Right.

You think we're just going to sit on them? You think we're not going to sell them.

Right.

You think they're just going to be sitting there waiting for. When the interest rates are low, they're not going to be.

Right.

They're going to be gone because savvy investors are going to be buying them. If they're good cash flow and good return, they're going to be gone.

Right.

And yeah, there'll be something else down the line. Sure. But the price will be higher.

Yeah.

Anyway, you know, I just kind of wanted to speak to that whole. Oh, I want to wait it out or. There's so much risk associated to that.

Absolutely. I mean, and I know this. I don't know if this, you know, has any bearing on what we're talking about. When you were talking about rents and they're always going up, you know, just spending. Speaking to investors, you know, when you are and you buy these, sometimes you do have to put on your renter's hat for a second. You don't need to necessarily raise the rents every month or every year.

Right.

You know, I mean, there's nothing wrong with keeping them the same as long as you're still cash flowing. Now, I know that, like, you take into some other consideration like inflation and cost of living and things may have gone up for you. You still have this protected investment. It's still paying your mortgage. You still are cash flowing. I mean, maybe the tax went up and maybe you have to adjust a couple bucks just to kind of offset that. But like, you know, what would you rather pay for? Yeah, a turn.

Yeah, that's right. There is like raising.

Yeah. Raising that rent and being like, okay, well now you just priced me out of the market. I can't afford to live here anymore. Because you need a hundred bucks a month.

Yeah.

There is something is said about being, being modest.

Right.

And patient. And, you know, that's. That brings up a whole nother point, you know, I mean, the sitting and waiting also cost you the discovery of landing that right tenant.

Right, Right.

Because a turn is not always A bad thing. Sometimes it costs you a little bit of money. You lose a month's rent or whatever, but that next tenant could be the better tenant. And then when you find. The point you're making is when you find that better tenant who consistently pays on time, cares for the property, doesn't create hassle for you, dude. Enjoy that.

Exactly.

But another thing lower is rent.

Yeah, right.

Another thing you lose by waiting is that there's a little bit of, like, a vetting and learning process. It may not be the first tenant.

Right.

You. Let's say two years, you know, 18 months in, that tenant leaves, and they, you know, the dog pisses all over the carpet or whatever. And that's a disappointing experience. And that second tenant is the one. And they stay for eight years.

Right.

Pay on time, 100% every time. And exactly. Over the years is paid, lost that year of. Of experience and discovery, access to that. To that. That second perfect tenant that made that exceptional investment. You don't get that.

Right.

That extra year is lost.

Right?

Absolutely.

And anyway, time is your friend when it comes to compounding investments. So, sure, sitting and waiting is. Is risky. All right, we're repeating ourselves, which is good. It means we've made our points, right?

Very good. Yeah.

Maybe it's time to wrap this up.

No worries.

Call it a day on this conversation. We can have the rest of the conversation over a beer later.

There we are.

All right, thanks for listening, folks. As always, appreciate your. Your attention and your. Your trust in us. Hope this was helpful to you as you're kind of addressing the kind of weird shifts in our economy right now. And what do we always say?

Invest smart, live happy.

Take care.

Thanks, guys. See you. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.