223: True Value of Real Estate Investing & Building a Team of Experts

Welcome to the Heroic Investing Show. As first responders, we risk our lives every day. Our financial security is under attack, our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant and we need to take care of our own financial future. The Heroic Investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Welcome to the Heroic Investing Show, a podcast for first responders, members of the military, veterans and anyone looking to improve their financial future and gain some freedom with their time. We teach America's heroes how to build passive income, build their startup business and safely grow wealth through real estate and other alternative investments. We help current and prior first responders put protections, systems and a team in place to help them build a life where they can focus on their passion, that service or product that they are uniquely gifted to share with others, making the world a better place for all of us. My name is Gary Pinkerton and I co host this show with Jason Hartman. This is episode 223, episode 2, 2, 3. So this is part two of the awesome interview video podcast interview I did of my close friend Aaron. And in this episode we're talking about somewhat about the mortgage industry, about why he does what he does. Also though about surrounding yourself with people that are like minded but also that are high integrity, that are the absolute best at what they do and then making sure that the other people in your circles understand that this person is that expert like that you talk up the people who are in your lives, they're in your circle of confidants or your advisors so that everyone around you understands the quality of that person really is. And if a person, if you can't talk them up because they don't have the quality, then you got the wrong person in your circle. And I think as I mentioned on the first half of this, this was a redo of a podcast. We went through the entire video recorded podcast and then didn't record it. So this is kind of round two. So if I'm mentioning in here about, hey, on our last one, I'm talking about the fact that we had this was hour two of recording this same conversation. This is a really good snippet of an awesome conversation. I hope you enjoy part two here with Mr. Aaron. I heard you say a couple times during our week together here while you're talking with the clients, this is a fascinating, it's an awesome discussion about. You're talking about timing the Real estate market. But this could be about timing any market, trying to cherry pick, I guess. So you talk about like the guy and you related to a sports team. Let's talk about that.

Oh, yeah, yeah, yeah. So it's basically when people ask me, what do you think is the biggest mistake people make getting into invest in real estate? And I tell them, timing the market. You're never going to be able to time the market. The only person who properly times the market is a person who's already doing it. And then they get to a certain point that they look back and like, well, wait a minute, I actually bought real estate. The best time in the market, it just so happened, right? It just happens when you're already in it. And I equate that to a football player who's the best on his team that says, well, I'm going to sit out on the bench, I'm going to watch and I'm going to preserve my energy for the best play of the game so I can get them, so I can be on the highlight reel. That's what I'm going to do. I'm going to sit here, I'm going to wait for that. And then the game's over. And he realized the best play that was made on the game was with the people who were already on the damn field. You can't sit back in the stands or on the beachers or on the bench and expect to be involved in the, in the best play when you're not out there. And Jack Welch said, the one who fields the best team is the one who wins. Always. So if you want to win, you want to be able to say, I was there and I participated, get your ass out there and participate. Quit trying to think that you're going to be able to time something because nobody ever times anything. You know, the only time that that ever does happen is if you're already doing it. And then what it really boils down to, the best time is now, if you're interested, now you have the wherewithal, you have the capability. Step out there and do it right now. Because it doesn't matter what the market's doing, inflation's paying it. For us, inflation is already eroding the dollar so much because our cost of living is in excess of 5 to 7% of where it is the year before. All the time it keeps going and going up that the dollar we have today is worth so much less tomorrow. You don't put it to work in the market now, you're already losing it. It's already declining. It's not making you any money in your bank account. In fact, actually, the money I paid here, I know I paid way more than I should have to have. This place redone is paid and done right. If I had it in my bank account, I've been worth less anyway. This is only an appreciating asset. And it's also an asset that's going to generate so stinking much revenue for me because of what we can do here. That dollar would have done nothing for me sitting in my bank account. Now, if I can just get my wife convinced that putting leaving your dollar in your bank account is not a good thing, I'd be a thousand. Well, not 1,000, but quite a bit times better than I would right now.

Yeah. So this is a blooper for you. Did we talk about why real estate or why, you know, why mortgages are not debt? I don't think so. I think that was the previous round.

It had to be the previous round. It's funny, it's all kind of bleeding together, but I think you, you were asking me in the previously unrecorded version of this.

Why I was passionate about what I do, what keeps me in this business. And it could sure as hell isn't the mortgages themselves. There is people out there and I've heard them say, well, I'm passionate about mortgages. Like, no, you're not. Who the hell can be passionate about mortgages? The process sucks, you know, and, you know, the people for people, the process for the individual just giving up the paperwork, you know, you were. You're a client of mine, 17.

How much that suck? When I say I need this paper, newspaper, and all you were doing is giving me the paper, Right? Yeah, that's it. You're just uploading the form and it's just inconvenient. I got to read the damn thing. You think I enjoy that? You know, we had a client, very famous, a singer, songwriter, he was on tour. And his.

Business managers, he had two of them. One of them was absolute pain in the ass. The other one was awesome. They finally, reluctantly gave me all the paperwork. This man had five corporations with multiple streams of income. And I had to try and sort through that as fast as I could so I can say whether or not he was qualified. He wanted to buy 10 houses in three states, closing all at the same time. And these financials just his taxes were over 1700 pages. I had yet to be able to sit down and read the Bible all the way through, even searching out over a couple years. And yet I had to dissect this in just a few days. It took me 18 hours to dissect his income. Then Ellen had to do that. Then our underwriter had to do that. And the underwriter declined the loan. We had to go back through and recalculate what he calculated to show he was wrong and get his boss to do it. And we finally got those loans done. We were done about probably three weeks late. And I was catching hell. I'm like, guys, you realize what I'm going through here? And nobody cared. Nobody cared, right? So why would anybody be passionate about a business that puts you into that? It's not the business that makes me passionate. Right. It's the people. The fact that I can use an instrument like this to short the dollar, which is what you're doing. We're doing a long term, long term leverage on property to take advantage of inflation where inflation raises. It gives us the opportunity to raise our rents. Right? Yeah, right. What's. Do you know what the national average is? And if you don't know, I'm gonna punch you in the head because you heard me all week long say it.

3.6.

3.6, that's right. Give, give this, man, I wouldn't give you a cigar. Maybe a, maybe a, you know, chocolate bar. So scars are nasty. So you've got 3.6%, but let's say you're just raising it 3%. Well, if you're buying a hundred thousand dollar property, you're doing a 1% rent to value ratio. What is that? Was that rent?

Thousand dollars.

Thousand bucks. What's 3% of a thousand?

Thirty.

Thirty bucks. Not real sexy. Right. Nobody's jumping up and down for 30 bucks. You now can get a couple of muffins with your latte and you spent your 30 bucks. Right. But is it reasonable to say that you had to make maybe $200 a month cash flow on that property?

Yep.

So if you had 200 month cash flow the first year and then you raise your rents 3%, you're getting how much the second year?

230.

230 in cash flow. How much did your cash flow Increase percentage wise?

30 is 15%.

15% increases, it's starting to get a little sexy.

That's a good return.

A little tiny bit. Right? That's a really good return. And if you're able to do that often enough, it's a compound return. Right. Because you're getting a 15% increase on the last 15%. Right. And it continues to compound. Now we know the dollars decline, Right. Do we know how fast?

Five to seven. If you do shadow stats, right. Or you do kind of a more agreeable or more appropriate inflation. But I mean, I think the government statistics say like three, three and a.

Half, something like that. They're saying two, which is really cheapening it. You add back in food costs, energy costs, the taxes. They're not factoring in the taxes. When was the last time you paid less per kilowatt hour used on your power bill?

Well, when did I say my paid less? Like every previous month to now. I mean, it's always going up, right?

Exactly.

It never went down. Never went down. Right. The only time it went down is when you just didn't turn the lights on. Right. But then, but then your candle and battery bill goes to the roof. Right. So one way or the other, using energy. What about when was the last time your dollar per gallon used on your water bill went down?

Never.

Never, Right. When was the last time you paid less per dollar earned in taxes without tax deduction?

Yeah. Never.

Never. Right. So but as a real estate investor now all of a sudden you open some things up, right? You know, because of inflation, we can raise rents because of inflation. What we're paying it back with is losing value. So I was on a podcast where the host stopped me about three quarters of the way through. He says, let's go backwards about 10 minutes ago to the inflation thing that you were talking about. He goes, and I wasn't even listening to you for the last 10 minutes anyway, because you really caught my attention with the inflation, Michael. I guess that's a thank you. I'm not sure if that's a good or a bad thing. So I took it as a good thing. Well, he said he was doing some research while I was just sitting there rambling. And the way he could find, the only way he could find to illustrate how a dollar had changed was to go back to 1930. We asked what was the value of a dollar in 1930 versus the value of a dollar today? Meaning how many dollars today would you need to have to equal $1 buying power in 1930? I don't know. I don't have a frame of reference. He claimed it was $220.

Of today's dollars equal $1 in 1930. So having a difficult time wrapping my head around that, I had to think. I said, well, listening to some recordings from some guys who talk about when they were a kid, one guy was talking about how he used to Drive cattle for somebody and his team of mules for a dollar a day back in 19, in the 30s. So let's say it's a dollar a day was not an uncommon wage. So what's $220 a day today? When you do the math, it's 57 and change. 57,000 and change per year. Is that an uncommon wage today?

Definitely not.

It's kind of a low wage anymore. Right. If you're in Northern California or if you're in Jersey where you are, you're in poverty, unfortunately. But that's, that's, that's a fairly common wage. So that kind of makes sense now. So if that's the case and we can use that as a metric, how long ago was 1930? How many years?

It's almost 90.

Close.

Close to 90.

89. 89 years. Exactly 89 years. So in just a few months it'll be 90 years. So we round up to 90 years. How many times will a 30 year fixed mortgage period fit in 90 years? Three. Three times. So if we take 220 and divide by three, what do we have?

Two hundred and twenty divided by three is seven.

There's people that have already beat you on this. I don't know why this one's catching me.

It's because it's like 10:30 at night and we're on recording too. That's why. So if it wasn't for the fact I memorized this crap, I would still be like, be like. You'd be like, I don't know. It's 73.33. So we, in the time it takes for you to close on the loan and then pay it off, the dollar loses 73.33 times its buying power. How insane is that? So while you're raising rents and getting a 15% increase in your cash flow, you are paying back that loan with something that's losing its value at an accelerated rate and you get to keep the spread. So I got one question for you. Who's screwing who in that equation? Yeah.

I feel like I'm getting the upper side. It's interesting that you call it shorting the dollar. I mean, I've heard that before. But when you short something, a stock or anything, right, you're betting that it's going to go down in value. I mean, shoot, what are the odds? It's not going to. I mean, it's a stated policy of the government.

It's happened for hundreds of years and.

It'S a stated policy.

It's been happening. Yeah. Exactly. We are intending to do this. So like, so if a company came out, right, and said, we're going to start shorting our own stock, the whole world would jump in on that. Right?

Right.

Everybody get in on that. Because then it would, then it wouldn't work. If everybody's shorting, I don't know how it works. You can't sell something that nobody's buying. Right Here we know for a fact, we've been told it's being shorted. And how many times I get people calling up, so I don't want to go into debt, or what's my interest rate, or what's my this, what's my that? Like, guys, you're doing the exact same thing that everybody else is doing. You're jerking off over this whole situation. You're not focusing your energy. I'm focusing. You're not understanding that what you're doing when you leverage the property for a long term, as high a value as you possibly can, you are literally shorting the US dollar. You're literally bidding it, betting against the economy, and you're literally making out like a bandit on it. If you watch the big short, I don't know how many people walk away from that movie thinking, damn it, if I only understood that, damn it, if I only shorted the US economy back then, right? The only thing that keeps a person from wanting to do that is the character that Brad Pitt playing. Say, hey, you're betting against other people's lives. That's the only thing that makes you feel worse about that. But once you're doing, you're already doing it. You go and finance a property, right? You finance it for 30 years, you find a renter to pay you more than what you're paying for it. You're already doing that. You're doing it on a smaller scale that you can control. So get in the game and freaking do it. Quit sitting there staring at it, saying, I wish. Too often people are saying, I wish I would have done this, I wish I would have done that. Well, freaking do it now. Because 20 years from now you're gonna be saying that about the conversation I'm having with you today. So get off your ass and get it done.

Yeah, good. Well said. Well said. I mean, shorting is simply taking US dollars, giving them away for this piece of this building, and one day trading it back again. And you get cheaper dollars, a lot more.

And you don't even get that somebody else is paying it for you.

Well, that was the other point, right, exactly. So it gets Paid back by someone else. And you were able to use other people's money to do it to begin.

With because that's the leverage and that person is paying you to be the man carrying it for him. It's almost like being a straw buyer, right? Your only job as a real estate investor is to ensure you got the right people working for you, right? To make sure that they're the ones you trust to get this done. Right? To make sure also that you buy the right property. Don't go in there just believing people are just going to do exactly what they say they're going to do. I can prove to you here they don't do that. Right? And I can prove to you at some other properties I bought they don't do that. Spend the money on the inspections, hold people accountable. They're willing to say, I give you my word, they better damn well be willing to hold. Be held to it, right? I am. If my team screws something up, that's my fault and we'll make it right. And I will call you at the end of every deal and see if there's something we did that was wrong. And if you're not telling me it's not my fault anymore, I asked, you need to tell me. If I call you and leave you a voicemail and say, hey, is everything okay? And you're not willing to step up and tell me, how do I know that I need to fix it? Help me be better at what I do, you know? And then you also, like I said, seek out the right kind of people. I have a real problem with people who like to work with others and then talk about how crappy they were and then belittle others and say how they really suck at their job. Then why are you working with them? I have to question that. You know, I have the belief that I need to work with people that are way better than me. I work with you because one. Nuclear engineer, right? Nuclear sub captain, instructor, for crap's sake, at the Naval Academy, one of the most prestigious places on the planet. And a graduate from the Naval Academy with a master's degree, also was the chairman. Worked with the Chairman of the Joint Chiefs of Staff for the. For the US Government over warfare. I mean, that's some really, really cool things. Yet I cheated my ass off to get that scene in high school. And I got to sit with John Abernathy, a PhD in accounting, rather brilliant man. And I get to use his resources to figure out ways to benefit real estate investors to show the real benefit of The. Of the. Of the. The real estate that they're purchasing. In an actual calculation, they're working on these things for me right now, which is freaking awesome. So of course I'm going to tell the whole world. These are the people I hang with. And by, hopefully by the grace of the individual I share that with, they might think I'm pretty cool too, because I hang out with those kind of people. But if I'm the kind of asshole that wants to say, well, all these people I hang around suck, they're pretty much going to easily conclude that I suck too. Yeah. So I'm here to scream to everybody, if you feel that the person you're with, you need to talk crap about them and say they suck, you better be walking away from that person because you suck by association.

Yeah. And you're certainly not going to get better and grow in life by hanging around or having that attitude about the people you are around.

Yeah. Well, what I've really found is not so much even the people, it's the attitude. It's absolutely attitude. Change your outlook on things.

Yeah, yeah, I'm with you, man.

You.

You had an awesome last. If you don't remember anything, remember this at our last one. Can you reproduce that?

Bottom line is you need to build other people up around you. There is an absolute necessity to be sure that the people that you associate with have to be the best kind of people. The people that. That you associate need to realize are the best kind of people because you tell them that and you tell others that. What are you saying to other people when they're not around? Because ultimately, what you say about the people you associate with when you're not around them is exactly what you're saying about yourself. And with that. That right there, I can't do a mic drop, but I will do the AirPod drop again because I can.

And I'm gonna pick it back up.

Ladies and gentlemen, Mr. Aaron. You rocked that one, my friend.

That was a good time.

That was a good time. Thank you, my brother.

You too, man. It's good to hang out with you.

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