How 2022 inflation and a potential recession will impact real estate investing

Welcome ladies to The Real Estate Investor Show, providing inspiration, strategies, and insight to empower women investors to live balanced and financially free lives. Now here are your co-hosts, Liz and Andresa Guidelli.

So on today's episode, we have Paula Pent back on our show. She is at the helm of Afford Anything, And she gets into such a great conversation when it comes to the economy, what is happening and what's to come, and really how to position yourself not only to thrive, not only to survive and then thrive, but more importantly, like what exactly is going on and how to position yourself so you're clear on the facts and you're just not going by hearsay. And I think she really spelled it out so well, uh, such deep information, but in a really clear and concise way. And I think you're gonna really get your head around how you can thrive right now.

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Welcome back, ladies.

This is Liz and this is Andresa.

Welcome back to the Real Estate InvestHer Show, where our mission is to empower women to live a financially free and balanced life. That is what we stand for, right, Andresa? That's what we focus on, and that's kind of what is the theme for everything we're up to these days in supporting our community and supporting all of you listening, right?

Yes, absolutely.

Excited to have Paula Pant back on our show. Second time guest. So excited to have you back on. And we're excited to jump into a bunch of things that are relevant to today's kind of real estate, what's happening with real estate these days, and also just all the good things that you're up to. So excited to have you on. Thank you again.

Thank you. Thank you so much for inviting me back on.

Yeah. So excited to, to jump back with Paula. Had her on one of our early episodes, right? Andresa, now we're Now we're rocking and rolling, as I always like to say. So always like to start with some sort of something that came up for us, some sort of like, I don't know, learning tip awareness that you can bring into not just your real estate investing business, cuz that's what we stand for, but we also stand for you having self-care. And we also stand for you having a business that is not a hobby and that actually runs like a business, right? So you are the business. So all those things are our three pillars, investing, real estate investing, business strategies and self-care. So here's what I got, Andresa. We recently, we, I don't know why we did this to ourselves, but we bought season passes to Great Adventure. The family.

Great Adventure. What is Great Adventure?

Oh, Great Adventure is a, I was gonna ask that. It's a theme park. Big theme park across the country. Yeah. Okay. Amusement park. Very large with big rides, big roller coasters, the largest roller coasters in the, in the world, whatever. Yeah. So this is what I bought season passes for, for me and my family. So with season passes, you got to get your money's worth. So we have some lists.

Liz, you're like, we're going to ride this roller coaster.

So the last—

you have to ride it. Exactly. Exactly. So the last couple of weeks, we've had a couple of hours here and there as a family. And so we went down there. It's about an hour away. And I'm just going to share something that recently happened. So my son and I rode on— we're on this ride. It's the ones that are— big roller coasters flipping up and down, like, really high. I was pretty nervous because— but I didn't want him—

he was 8.

I didn't want him riding by himself. So we get to the end, and we're— our little kind of cart, if you will. It was like 4 of us started moving in, and this little boy started moving towards us. And the person in control of the ride said— screamed, stop. So the controller stops the ride and locks it down because this kid literally almost got ran over. Kid was fine, and he just was running around, and our cart was coming in. So me and my son are watching this whole thing. We're like, oh my God, this is intense. So we're about to get our seats off. And they locked the ride down, which felt like an hour. But it wasn't an hour. It was maybe 20 minutes. And there's another people stuck up in the ride for 20 minutes. Oh, thank you.

No, thank you.

Were they stuck upside down?

Oh, yeah. Because it was an upside down ride. So we're literally the car that would have been them. We were one off of that situation.

Thank you.

So we were just sitting there, and Zach's complaining like, dude, we could be up there for 20 minutes. Uh, we could have fallen off this ride. We could have been that little boy, you know. And my point to my story is like, little things happen, and then another trickle effect, and another trickle effect, and another trickle effect. And so then I was talking to these young men because we were like all sitting next to each other. Now we're best friends with these guys, and we're talking about decisions we make. And I was like, you know, you guys make good decisions, right? Because they're older in high school, and they're like, Some decisions, I'm like, I got an 8-year-old here. So we're talking about decisions and choices and safety. And I'm like trying to teach something because I have literally 20 minutes of nothing else to do here. Might as well. Might as well. But it really got me thinking, this little boy runs, he doesn't get hurt, but then the ride shuts down and then these people get stuck and then everyone's delayed. And then this person, then security guards are coming. Like, it's amazing how, how events just unfold. And I, I say that because there's so much in our business. There's so much in our life. That sometimes we just need to look at those first choices we make, positive and negative. And it got me thinking about both because that one positive thing, me meeting Andresa, right, leads to so many good things that we don't always know that are going to unfold. Same for the negative things and the choices we make that we don't like about in our real estate investing. Not to, not to judge ourselves, but to say, what was that impetus and what could I have done differently to make a different choice next time. And I just wanted to share that because it was a very scary moment and I was like, and then peaceful in the sense that we weren't hurt, but it still showed me how one thing leads to others and we have to be mindful of our choices, all of us.

So 100%. That's what I have for you this week. Roller coaster rides. No, thank you. I'll be Cheerio. Oh, guys on. One thing that I, I wanna say for women, right? Sometimes we don't take the first step or a micro action because we want to know the entire roadmap. We want to know A to Z before we take the step further. And I would say to you, if you don't take that micro step, your return on your investment is zero. It's going to be zero, right? Because there was nothing there. But if you take 0.1% that as an action, right? There is a compound effect that you don't know who you're gonna meet, who you're gonna connect with. There is a natural development of facts and things that happen that are out of your control. You just need to take that one step further. So for all the women that are many times overwhelmed with everything that is going on, make that phone call to your lender, make that offer, go for a walk, drive for dollars, walk for dollars, do whatever that next step is. That's what we encourage you to do.

Absolutely. And if you wanna ride roller coasters, just be careful.

Roller coaster for dollars.

Exactly. There you go. Um, that's a sale. That's, that's right. Paul, without further ado, really wanna jump in to kind of refresh the women and, and men who listen to our show about your story and how, what propelled you to get involved in real estate investing. So if you can share that with us and then where you are today, just because you, you have been on the show, so it might be a nice kind of follow-up to, to that episode. Like what, what kind of inspired you to get involved originally and kind of what your focus is, is today would be, would be great.

Sure. My story is probably fairly different from a lot of people for a few reasons. Number one, I didn't intend to become a real estate investor initially. How it began, I was just trying to get my own personal out-of-pocket living costs down to zero. When I started, that was the extent of my ambition. And so at the time I was living in, I was living with roommates and there were, we were living in a triplex. So I was living with a bunch of roommates in a 3-bedroom unit. And that 3-bedroom unit was itself one of 3 units inside of a triplex, which by the way, I'm glad that I can just say that on this podcast. And I know that the audience is going to get it because the audience understands that. I cannot tell you how difficult that is to communicate to people who are not real estate investors. Get so confused when, when I'm like, yes, I lived in a 3-bedroom unit that was part of a triplex. People cannot wrap their heads around that. They were like, well, wait a minute, so you lived in a 3-bedroom house? I'm like, no, no, it was a 3-bedroom unit in a triplex. They're like, oh, okay, so you didn't have roommates, you lived in a— and I'm like, no, no, It's a 3-bedroom unit.

You gotta draw.

You gotta draw.

You gotta draw that.

So thank you for being the audience where I know I don't have to explain that. At any rate, I was living with a bunch of roommates and I just one day I Zillow'd what my landlord paid for the place and did, and because I knew what all of the units rented for, I did some very, very quick, like back of the envelope math. And I actually discovered that my landlord was getting a terrible deal. So I remember doing that back of the envelope math and being like, wow, sucks to be him. And then I noticed that the triplex across the street was for sale and it had been on the market for, I think, 16 or 18 months at that point. It had been, it had gone under contract 3 or 4 times and kept falling out of contract. And so again, just not knowing anything, I did not know how to calculate cap rate or even what that was. I didn't know any formula. I knew nothing. But just very rudimentary back of the envelope, like a beginner, like, well, I guess if the rent covers the mortgage, I'll be fine kind of thing, which is not how I would ever, ever, ever advocate anyone make decisions. But without knowing what I was doing, without knowing anything with zero sophistication whatsoever, I just kind of made a very lowball offer and it got accepted. And then I, moved with my roommates into one of the units across the street and then rented out, you know, kept renting out the other two units. And the, the revenue from all of that covered my own personal out-of-pocket living expenses. So my own living expenses went down to zero— housing expenses, I mean. You know, my, my housing expenses went down to zero. That was as far as I ever thought that this would go. But you know how it is, once you, once you buy that first rental property, it starts to become a little addictive, you know, and then you're just, yeah, you're like, well, maybe just one more and maybe just one more. But the thing is, the reason that my story is probably different from a lot of people's, number one, the fact that I got into it, you know, almost by accident. And number two, I never, never had, nor do I have ambitions of growing a large portfolio with you know, a bajillion doors. I do not have any desire to be in real estate full-time. In fact, that's the opposite of what I want. For me, real estate has become a place where I like to park my money so that I can have some residual income coming in from rental cash flow. And I like that not as a full-time thing, but rather so that I can focus on other things that interest me more.

Paula, I love so much what you're saying because you can relate to a lot of women that are listening to our show and they are thinking, oh my gosh, I kept hearing it. In order for me to be successful, I need to flip houses. I need to have X amount of doors because that's what I hear that other people are saying what success looks like. And Liz and I really stand for you to create your own success. What does that look like? As you were saying, you don't wanna be a full-time real estate investor, but you wanna benefit from investing in real estate on your own terms, whatever that looks like. So for the women that are listening, they love their careers or they wanna be a stay-at-home mom and they have different things going on and they see real estate, right? And they say, I cannot afford it. I wanna take a step back on here. You have created really like a public service with your company, with things. I love I love reading your emails. They're very entertaining, very informative, but most important, you break down finances in a way that is digestible for people. So I wanna thank you for that. So for that, women that are listening and saying, I cannot afford to invest in real estate, not sure where to even start. What would you recommend will be the first steps there? And I know we're gonna talk about inflation, Different recession. Okay, I cannot afford that. And where is it going? But let's take a step back for those that don't want to be full-time investors but would like to benefit from real estate. What will be your next steps for them?

Sure. So, well, I'll answer both questions. There's what do you do if you believe that you can't afford it? And then also what do you do if you don't want to be full-time but you do want to invest in real estate? Because those are sort of two separate answers. Starting with the first one, the idea of I can't afford it is, is so pervasive and so disempowering. The reason that my podcast is called Afford Anything is to really emphasize the idea that every choice is a trade-off and you can afford anything but not everything. So each time you make a choice, every time that you go to Target and rack up a $200 bill at Target, and you're like, what the heck did I even buy? Right. That comes at the trade-off of putting, you know, maybe some of that $200 was necessary, but some of it was discretionary, maybe half and half.

Right.

So that the $100 of that target run that was discretionary, that's $100 that could go into your down payment savings fund. Right. And it feels like when you think about something like a down payment, that feels like such a monstrous amount of money. Maybe you have to save $20,000, $30,000 that it can be easy to fall into the trap of thinking, well, well, what's $100? You know, what's $100 if the goal is to save $20 grand? But I mean, that's almost the same thing as saying, well, you know, what's one trip to the gym? What's one, you know, literally anything that you do? What's one if you're learning a musical instrument, right? What is one evening of practicing the piano or the guitar for 45 minutes, right? It's true that one in isolation will do nothing, but it's the consistency, it's the habit, and it's the patience to know that this is a multi-year process, like learning a foreign language, like playing a musical instrument, like anything that is worth doing, but that many people don't do because it takes patience and it takes years and it takes that consistency. That's what saving for a down payment is. So that's the first thing I would say. The second thing I'd say is, and this is particularly for anyone who lives in a high cost of living area, please do not fall into the trap of believing that you have to invest in your backyard. The entire nation, if you live in the United States, the entire nation is open for you. And there are places, Cincinnati, Cleveland, Dayton, Ohio, Indianapolis, right there, there are plenty of places that are still large cities with vibrant economies. You know, we're not, you necessarily talking about very rural or remote places where you can purchase homes that have a lower price point and therefore require a much lower down payment than anything that you might find if you live in LA or New York. So be open to investing out of state because I think that, you know, that's where a lot of the great deals are.

Great. Well, and then the part-time focus, if you want to cover that, circle back on that question, then we'll go to some other things.

Absolutely. So to that second question then about what do you do if you don't want to be full-time? So if we take a step back and, and sort of zoom out, right, it can be easy to get— I don't want to say brainwashed, but, you know, influenced by all of the stories out there that come from the enthusiasts who really do want to do this full-time. But think of investing in your 401k, right? Think of index fund investing. There are people who do that full-time. There are full-time stock pickers. There are full-time index fund, you know, people in the index fund industry, right? But just because you invest in index funds, or maybe you have a small selection of individual stocks, you know, for a small portion of your portfolio, you can do that without being full-time. And I think everyone sort of intuitively understands, I can invest in stocks, I can buy a handful of shares, of Tesla or Nike or Coca-Cola or whatever without being a full-time stock picker, even though there are people who do that for a living. The same is true in real estate. And I think sometimes we miss that because I think probably for two reasons. One is tangibility. Homes are, they're tangible, they're visceral. You, you can smell them, you can touch them. And that, that tangibility, that the visceralness of a home makes it feel a little bit more like quote unquote real. And therefore I get, it makes it more salient and makes, you know, sort of leads to the idea that it requires a deeper level of commitment than investing in a stock, which is just, you know, some electronic data on a screen. I think that's part of it. I think the other part of it might be barriers to entry, you know, most people who are professional full-time stock pickers on Wall Street have degrees in finance, whereas a lot of people who are professionals full-time in real estate didn't have to go to school for it. They don't have a specific degree for it. And so because there are lower barriers to entry to becoming a professional in the world of real estate, it can be easy to assume if I do real estate, I have to be professional. But that's not required in any more so than choosing stocks requires you to be a professional.

Yeah, that's a really good point. I think there's even some would say that by reading a few books, taking a few courses, you're good to go and, you know, to the low barrier of entry. So, so many people, right, try to, you know, jump in too fast. You know, for a lot of the women that are in our community, I think the opposite is right. They think they need to know everything before they start investing in a lot of ways. So that can be a barrier to that, to their entry. So I love what you're saying around the importance of really evaluating. And Andresa and I talk about this a lot too, just what do you really want to do and what are your money goals? Where are you headed? Where are you going? And then you go backwards to say, does this make sense for me to do full-time, part-time? Is this something I want to do full-time? I mean, that's a big commitment, right? And I think there's a lot of pressure sometimes, like you should just want to quit your job and do this full-time. Well, not necessarily, you know, right. For a lot of reasons. Right. So I think that's a really great point. Good point. So, you know, you have, you know, built your portfolio. You've been very, I love how straightforward you are too. And I think more of us need to kind of, more women I think need to kind of own whichever path we choose and say, this is why I've chosen it. This is what I'm doing. So for you, the portfolio you've built and what you're seeing in the market, there's a lot happening, right? You know, and, and there's, you know, since COVID it's been a little bit of a crazy market, very hot market, very competitive market, which everyone could kind of attest to. And now things are shifting a bit. Some people say we're in a, we're starting to be in a recession. Some people say we aren't. Maybe it depends on who, what you Google, where you Google, and who you're, who you're listening to, quite honestly. But what are you seeing, you know, and, and what are your thoughts when it comes to investing in today's economy? People are a little more nervous, scared. Some people are really excited, you know, it just depends on, on where they are in the spectrum. But what are you seeing when it comes to inflation and how inflation and, you know, a potential recession and everything happening with interest rates is going to affect investing and what should we do to set ourselves up for success from your perspective?

Sure. Well, first of all, inflation is real. It's here. And that is simply just a fact. And anytime that the Fed moves to tamper recession, you know, the way that the Federal Reserve tries to abate recession is by removing money from the market, removing money from the economy, because Essentially, when there's less of something, it becomes more expensive. And so if you raise interest rates or when the Fed reduces its balance sheet, it starts selling off some of the bonds that it holds. When that happens, money becomes more expensive, capital becomes more expensive, and whenever anything is more expensive, people buy less of it, right? So when money becomes more expensive to access, people tend to access less of it. That's how the Fed tries to put the brakes on inflation. Anytime that that happens, inherently there is always a risk of recession because if money is more expensive to access, then businesses and homeowners, you know, businesses and families borrow less, which means there is less spending overall, which means that there could be negative growth. And recession is defined as 2 consecutive quarters of negative growth as measured by GDP. By definition, we will only know if we are in a recession in hindsight, because again, that definition, two consecutive quarters of negative growth, we have to look back at the last two quarters to know in hindsight whether or not we are in recession. So as of the time that we're recording this, we may or may not be in a recession. It is too early to know.

Right.

That said, there are a few things that should really stand out. Number one, there is a distinction between a recession and a deflationary market. So if you think back to 2008, the Great Recession— during the Great Recession, home prices deflated, meaning that homes in the future were cheaper than they were in the past. So a home in 2008 was cheaper than it was in 2006. That's an example of deflation hitting a specific sector of the market. It's easy to conflate a recession with deflation because that is what we experienced in 2008. But that's not what we're experiencing today. And today we're experiencing the opposite. We're experiencing, well, potential recession coupled with inflation. And so the first thing that I want to emphasize is even if we are in a recession, that does not mean that home prices will backslide and be cheaper than they are now. In fact, most of the economic indicators point to the idea that homes in the future will be more, more expensive than they are today. And that is due to a number of factors. Number one, the fact that inflation is still going strong. Number two, the fact that that inflation is fueled not by a speculative bubble. You know, in 2008, there was a credit bubble with easy lending, and that speculative bubble contributed to the economic woes of 2008. What we have now We have a supply shortage, and that supply shortage comes from both a labor shortage and material shortage, right? Upstream material shortage. So that supply shortage is contributing to the fact that home prices are going up because supply and demand— if supply dwindles, assuming that demand either stays the same or increases, then the net result is prices go up. And prices go up not based on a speculative bubble, but rather based on fundamental economic indicators. Now, The demand side of things, that is an interesting question. During the pandemic, we had fewer immigrants coming to the United States. A lot of new household formation comes from population growth, right? And there was certainly a slowdown in immigration to the US during the pandemic in particular, but it was still net positive. And so what we're seeing is we still have a level of new household formation that is fueling demand for housing while simultaneously we have a supply chain shortage. You know, we have problems in the supply chain that are probably going to take at least 1 to 2 years to work through. And there's still a labor shortage. I think that will probably be solved faster than the supply chain shortage. Now that, you know, as we enter, you know, we had the great resignation, we had a lot of, you know, we have record low unemployment. That's starting to be worked through. So we're starting to see some of the shortfall in the labor market is starting to be absorbed again, but the fundamental supply and demand imbalance, that's the contribution to the fact that home prices are rising and whether or not we end up being in a recession, that those fundamental economic indicators point to, you know, that problem not being worked through the system for a few more years.

Well, we all have our own like crystal ball, right? We're like, There's two ways. Either something are gonna change or things are not gonna change. And either way, there is opportunities on that. And that's why I think that we all need to focus as investors, as realtors, as buyers and sellers, where do we need to use our patience instead of, you know, looking back and say, I'm gonna do the same thing that I learned from 2008. But we are not, this is not apples to apples. We're dealing with different scenario. What do you think about that thought process that people are saying? There's a lot, a lot of chatting about interest rate. Oh my gosh, it's so high now. Well, high compared to when, right? And if the deal's gonna work, the deal's gonna work. If it doesn't work, doesn't work. What do you think about the interest rate is gonna go up and people are not gonna be able to afford, quote unquote, the same house that they afforded couple of months ago. Therefore, many times the pricing is not selling. So many people are going to drop the price of the house in order to sell it, and then the price is going to be lower and the interest rate is going to be a little bit higher. Therefore, they might be paying the same thing as before. What do you think about that theory?

Well, if we look back historically at the correlation between home prices and interest rate increases, We don't see historically that pattern play out. So if you look back at the history of interest rate fluctuations in the United States and you compare that to the Case-Shiller Index of home prices, what we see is home prices continually increasing at different rates, certainly. Like sometimes they'll increase at 2 or 3%, sometimes they'll increase at 5%, but we've seen a pattern historically over the past several decades of home prices continuing to increase regardless of interest rate fluctuations in the market. So there just— there isn't historic data to back that theory.

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Well, you know, in terms of women listening and they're on the sidelines, right? And they're, you know, maybe been active investors, maybe they've been taking it slow. They're just, asking themselves, right, when is the best time to buy? And is this— are we heading towards something where there's gonna be a course correction, things are gonna be a little cheaper? Because, you know, investors want things that— properties that are, are cheaper, right, are opportunities. So everything works in terms of cash flow, and we get into great properties unless we're just parking cash, and it's a different strategy. But if you're looking for cash flow, you got to buy at a certain level so you can yield that. What do you say to the women listening that are kind of watching everything, being mindful, but also they want to, you know, make decisions. They want to be able to move on things. What advice would you give them as they're navigating what's happening in the economy and not to feel stopped, but to feel educated and where there are opportunities and ways to thrive right now? So I'm curious to get your insight into that.

So I think that there are two factors that should not be conflated. One are broad macroeconomic conditions that are outside of our control. And then the other are our own personal finances and the way that we manage them. So let me address both of those separately. To the idea of some people waiting for prices to become cheaper, that falls under the classification of making a bet about some broad macroeconomic factor outside of your control. And specifically, that is a bet that housing will enter a deflationary market, which to me, given that we're in an inflationary market, an inflationary economic environment, and also given what we see from supply chain shortages, it seems very aggressive to me to put your money by virtue of opportunity cost to put your money towards a bet that the housing market will become deflationary. But, you know, if a person has a lot of data to get, you know, and that is a contrarian view, like a deflationary expectation is a contrarian view. So it's not one that I would back, but If a person has sufficient data to make a case for that, then I would just encourage that person to make sure that they've really gathered the data and that they have sound research behind that bet. That being said, outside of any macroeconomic forecasting, I think what is more important at the individual level is the question of, are your own personal finances in a place where you can take on this commitment and this level of, you know, I'll use the word risk, but when I say risk, I don't mean— I mean it in the form of uncertainty rather than in the form of volatility. And those are two distinct definitions of risk, right? So are your personal finances in a place where you can absorb both the outlay of capital as well as a degree of uncertainty? And if your personal finances are in that place, meaning you do not have a lot of credit card debt, right? Where, and we're seeing credit card debt increase. In fact, I think one of the real risks that we face that not enough people are talking about right now is a growing consumer credit bubble. And we can see that based on all of the data around the average credit card balances that the, you know, the average American household faces, the, you know, the way that that has increased over the past few years, right? So if you are personally in a place where you are not struggling with credit card debt or other forms of consumer credit, if you have a sufficient emergency fund, if you know that your retirement accounts or your children's college accounts, 529 plans are being funded, if you're HSA eligible, if you've got money set aside in that, right? Those are the fundamental cornerstones of your personal financial life. And so long as those are on stable footing, then you do have the leeway to be able to diversify your investment portfolio and say, hey, I'm going to put some money aside into a down payment fund, and then I'm going to use that down payment to buy a duplex in Indianapolis, right, or a fourplex in Cincinnati, or wherever. And by virtue of doing so, you then diversify the assets in your overall portfolio. You buy some of those assets— assuming you're a buy-and-hold rental property investor— you buy some of those assets towards cash flow, you park some of your money into an asset that tends to perform very well in periods of inflation, typically tangible assets such as real estate, commodities, jewelry. Tangible assets tend to do well in inflationary environments. So you have that diversification, and by virtue of that, you sort of de-risk some of your portfolio, you know, because you're not entirely in equities and bonds. But that said, that de-risking by virtue of asset diversification, that also carries with it a certain degree of uncertainty, right? And so you also have to ask yourself in terms of your investor psychology, are you okay with that uncertainty?

Listen, I always ask this question to a lot of investors, right? Can you afford to lose it, what you have there? And many times the answer is no, because that's all they have. That $50,000, that $100,000, that's all they have. Savings or as whatever, that's all they have. Oh, if you had $100,000 in your account, what would you do? What, where would you park your money in a property? If that's all you have, right? To us, it's an extremely high risk if you are doing it by yourself for the first time and pivoting in areas that you just watch on HGTV or read one book or two in order to do it. So one thing that Liz and I always talk about is to leverage, leverage what you bring to the table, leverage your experience, leverage your skill sets and things like that in order to mitigate the risk. You mentioned about the having the emergency fund and other things. So for the women that are watching the market right now, right? Are there strategies that are quote unquote less riskier than others in your opinion?

Well, so leverage is a form of risk. And so the way that I like to conceptualize risk in, in terms of real estate is that I think of different types of risk, each of which exist along independent spectrums. So you will have the risk spectrum of leverage, right? And that can, if you think of a sliding scale, low to high, right? At the lowest end, you have zero leverage, you're all cash. Which means that you don't face any foreclosure risk. You're unlikely to lose your property if it's held free and clear, unless you don't pay property taxes on it. That's the only way that I can think of. So in that regard, leverage is a form of risk. A different form of risk is the age of the property. A different form of risk is the condition of the property. A different form of risk is the type of neighborhood that the property is in, right? All of those are separate and independent forms of risk, and each of those slide along the spectrum from low to high. And so what I often advise my students— I teach a course on rental property investing— and what I tell my students is that if you're going to dial up risk in one of those, counterbalance it by dialing down the risk in others. So if you are going to, you know, buy a property with a lot of leverage, then you might want to look for a property that is maybe a little newer or in better condition or in a better neighborhood, because That way you're de-risking in some of those spectrums, right? In some of, in some of those other arenas, because you are increasing your risk by virtue of borrowing money, like borrowed money inherently is risky. Debt is necessarily risky, you know, and, and vice versa. Like if you decide to go free and clear, I am much likely, much more likely to go free and clear on a property that is older and in bad condition. That's a total fixer-upper. And it's in an area with high tenant turnover, right? I am way more comfortable being free and clear on a property like that because I know that by virtue of dialing up the risk in those other verticals, I can dial down the risk in terms of what I'm borrowing, you know? And that means that I'm unlikely to get foreclosed on, which means that, you know, I'm not going to lose my money. Like, you don't lose your money if you don't have a loan against it, right? There's no bank that could foreclose on it. That's a way to think about it. Think holistically about the risk all around and counterbalance different forms of risk.

Yeah, no, I love that. I often will say that too. If people are looking to outdo out-of-state investing, right, that's a risk because it's a new area, right? I've never been to Cincinnati, never been to, you know, Atlanta, what have you, or I, I don't know as much. I'm learning, right? And so how do you mitigate that? And I remember a woman in our community was saying that she wanted a start her first flip out of state with a whole new team. Like, you know, I risk, risk, risk is what I'm hearing. So it's almost like, okay, what, what can you do out of state? You know? And I know when we scaled and we started to build our portfolio, we went with the asset class and the type of asset class actually more importantly, it wasn't just multifamily, it was a dilapidated turnaround type of multifamily, right? It wasn't just, you know, just buy it and fix it up a little bit. It was a real big big, big turnaround. We bought that outside of the state 'cause we had an expertise in that locally. So that mitigated our risk of just from an out-of-state perspective. So I always say if you're going out of state and you're looking to buy more properties, look at what you've had success with locally and if it's possible, right? To look at that same type outside your area. 'Cause at least you're mitigating why. So I love what you're dialing up, dialing down. I love that, that analogy. I'm curious too to get your insight, Paul. You've worked with a lot of, you know, you, you're a thought leader in this space. And you know, a lot of the women listening are scaling. They're, they are looking to take their maybe 5 properties and make them 10 or 15 or 20, and maybe stop then or, or go on. Right. But they're just looking to do more and buy more. What have you seen in your perspective, in your community, and all the things that you've kind of, all the people you've interviewed are just the mistakes of the woman who's looking to build her portfolio. What's a mistake, a blind spot? That sometimes you don't always know you're going through it until after. So I'm just curious to get your insight into that, especially for that woman who's looking to maybe take that duplex and make it and get to 10 or 20. It's a very common woman in our community.

Yeah.

Maybe it's a different woman, right? That's never bought their first property. So curious to get your insight of what you think is like the biggest area that's blocking them, the biggest mistake that they make.

So one common mistake is not valuing your own time. I've heard so many people say, well, if I do XYZ myself, if I do this work myself, then it will cost zero, right? They imagine that the value of their labor, their own labor is zero, but the value of somebody else's labor is greater than zero. And by virtue of doing that, number one, you can't make an apples-to-apples comparison, right? And number two, You don't actually know what the numbers on your property are because for math to be math, math must be identity agnostic. So if you're valuing your own labor at zero and then you're plugging that into your spreadsheet, then you're actually not putting the right numbers into your spreadsheet. So you don't actually even know what your returns are. Number 3, you're also overlooking all of the opportunity costs. What else could you be doing with your time that may or may not be income producing, right? It may be you could spend alternatively spend those hours doing some other income-producing work, or maybe you could spend those hours going to the gym or calling your mom or doing all of the other things that you cannot outsource. Like, you know, you cannot outsource calling your mom. So I like, and I got this from Laura Vanderkam, who is a time management expert. She came on my podcast and she gave me advice because I was struggling. Let me back up. I was really struggling with the idea of How can I pay somebody else to do something? How can I delegate a task knowing that there are so many hours of my time that I squander? There are hours that I'm watching Netflix or taking a bath or just staring at the ceiling, like vacantly staring into space, right? Knowing that I do that, how can I possibly justify delegating something to somebody else? And what she said, and I thought this really helped, she said, you know what, fill your schedule first and foremost with all of the things that you cannot outsource. And you know, you can't outsource exercise. You can't outsource the time that you spend with your family and friends, which is valuable for your social and spiritual health. Like frankly, you can't outsource giving your brain a break. The reason that you sometimes watch Netflix or take a bath or stare vacantly into space is because your brain needs that break.

Amen, Paula, to that, right?

And you can't outsource that either. So first and foremost, fill your schedule with all the things that you can't outsource. And then if there is remaining time left over, then you can choose to do something that is outsourcable, but fill your schedule first with the things that you cannot pass off.

That's great insight. So much. You got an amen from our justice. So clearly that, that was a good thing. No, it's a real struggle. I think. You know, for women who have always done it themselves, right? They have this like recipe, they know they can get it done. And it's really, it takes a real mindfulness, right? It takes space to think about it. Right. And to say, okay, I want to do this differently, especially if you're going to buy something out of state, talk about, you know, the ability to let go physically, you cannot do everything. If you had a local, a local property, you just, just, you know, you're not gonna get on an airplane every time you wanna show an apartment. Logistically, it's impossible. So it actually forces you, right? It can force an investor to say, okay, how can I leverage my time and a team and, and everything along that? So, which comes along with a whole process and learning, learning growth through that. And, and it's not just hire someone and go, but I love what you're saying. I think it's something we need to value our time, right?

Mm-hmm.

I was, I was list— I was reading The Power of Now. I'm like an old school person who actually reads books still. I know Andresa laughs at me, but I actually haven't, I am reading the book because I really like holding the book. And it says something about how time is actually not precious. Time is not the preciousness. I always say time is precious. Time is precious. And he basically just says time is not precious. He says a lot of things in that book. You're just like, oh, I got to read that again. But he goes on to say it's about the present moment, right? So for, for, for someone to get clear on what I can't outsource, that's pretty important stuff. Like they have to get present to those things, right? What are those things? And there's a present, a necessary present you have to be in order to even get clear on that list so that you can start to say, what can I let go? I just think that's, I think that's great and important. Paul, this has been great. We've covered some, some economics. We've covered some time management. We've covered a lot of cool things here. Uh, where can the ladies listening learn more about you and follow you along? Your great journey?

Oh, well, thank you. Thank you so much for having me on. We have a free ebook, it's called, uh, 7 Expensive Mistakes That Real Estate Investors Make, and you can download it for free at affordanything.com/mistakes. And we also, we have a course on rental property investing. If people want to learn more about that, uh, go to affordanything.com/viplist And that will put you on our VIP list. And that is an email list where we send you all kinds of information about real estate investing generally. So whether or not you're interested in the course, by virtue of being on the VIP list, we just, we send you loads and loads and loads of knowledge and information, some of which is, you know, classic and evergreen, timeless, and some of which is specific to inflation and recession and the economic factors of this year. So we'll send you a mix of both.

Great. All of this information you guys can find on our show notes. Now we're gonna transition to our fabulous 3 questions. And the first one, Paula, is what's the most transformational book you ever read?

Oof.

Wow. Just one.

We'll give you a, a, a little room here. You can mention a book if you want.

I'll, I'll give the caveat that the reason this, the book that I'm about to mention was so transformational Oh yeah, I'm going to mention two. The part of the reason they were so transformational is because I read them at the beginning of my journey. And so they elevated me from someone who did not know much about these topics to someone who did. And so the first book I'll mention is The Millionaire Next Door. And the original version was written by two researchers, Dr. Thomas Stanley and Dr. William Danko, I believe. Researchers who surveyed what they referred to first-generation millionaires, people who were the first in their family to become millionaires in the United States, and found some surprising commonalities between them that most people would not guess. So I'll, I'll leave the cliffhanger there, but there's actually a follow-up to that book. That particular book was written back in the '90s. There's a follow-up called The Next Millionaire Next Door, written, co-authored by Dr. The late Dr. Thomas Stanley and his, his daughter, Sarah Stanley Fallah, who has followed in her father's footsteps and become a researcher in the same field. So then the follow-up book takes the, that same research and builds on it for the internet era. So I would recommend both of those books, but read them sequentially because the first one is really enlightening. I will also mention Seven Habits of Highly Effective People by Dr. Stephen Covey, which is very insightful in terms— and broad-based application in terms of how to be more effective at anything you do, whether it's your career, your business, your investments, your family life. And the third one I'll mention is Rich Dad Poor Dad by Robert Kiyosaki. What that did for me— I can give you the CliffsNotes— but what it did was it brought into focus the distinction between being an employee being self-employed and being a business owner and also being an investor. You know, it, it really, those four quadrants, it really brought the, the distinction between each of those quadrants into sharper focus.

Wonderful. Yeah. Liz and I, just a, a quick plug. Liz and I were just on the Rich Dad Show with Kim Kiyosaki. We're gonna add the, the link for the show notes. Guys wanna watch the very cool interview that we had with Kim? Very real like you, Paula. She's like down to earth, say what it is. So we really appreciate that so much. The second question for you, Paula, is what's the most powerful routine that you do to live a financially free and balanced life, whatever that means to you?

Hmm.

So the number one thing is to automate as much as possible. I am a believer that there was a behavioral researcher who came onto my podcast who talked about how habits are overrated, which is in our community, that's a pretty bold statement, right? What do you mean habits are overrated? And what this researcher explained, her name's Kristen Berman. She's a behavioral scientist. And she explained that habits are actually, or, and routines, which form from habits, are your second option. The first option is to automate because if you automate, then you don't even need to develop the routine or the habit. Everything is just, it's automated. It's happening in the background and you do not need to be part of that process. So automate as much as possible. And then whatever you cannot automate, then develop a sequence of habits, which, you know, a sequence of habits then turns into a routine.

That's like music to my ears, honestly. The last question is, which woman, famous or not, has inspired you the most?

I mean, my mom. I would have to say my mom, of course, just for how hard she works, how much she contributes to me, to our family, to everyone around her. So she's kept me healthy and happy and just a very, very wonderful person. So props to my mom.

Well, thank you so much for being on our show. Thanks for sharing your wisdom and knowledge with our community. We appreciate you being here so much.

Oh, thank you. Thank you so much for having me on.

Thank you, Paula. If you enjoyed this podcast and want to receive updates on our next interviews, go to our website, therealestateinvestor.com. There you can subscribe to our show, become part of our investor community, and get updates on upcoming episodes.

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Ciao.