How Student Loan Forgiveness Affects Real Estate Investors

Dropped out before I could finish it.

Uh, I actually made it through economics before I dropped.

There we go.

Yeah, I took every economics and statistics class offered at my college. This is my jam.

Yeah, so that's gonna be the topic for today. We're gonna give it 2 minutes, see if anybody else drops in. But this is really important to understand because there's a lot of scared money right now, and there's a lot of excited people, especially in our age demographic. We got a lot of young folks on the call. Everybody, Christian, where did you go to college?

I went to Washington State University. Oh, that's the—

that's not the purple one, that's the red one, right?

Yep, that's the red one.

That's this one.

Cougs. Yeah, go Cougs!

Klay Thompson. Yeah, we like that.

We like the Huskies better.

I took, um, uh, what was it? I took Intro to Business Operations and The mandatory human resources class with Clay Thompson. He graduated business school, uh, I think 1 or 2 years ahead of me. But yeah, I've had classes with him. He did okay.

I don't know that his degree did fine.

Yeah, and most people's degrees don't help them today, which is why we really want to talk about this. It's not the fact of going to college or not, but who here wants to borrow for something that's not economically beneficial? Anybody? No? Why?

I mean, or what do we call an economically beneficial?

Let's put it like—

okay, like, let's define that.

What does beneficial mean? Let's break it down.

Well, it's bettering someone, but who, who are you bettering? Like, like Is it for myself, my own betterment, or for somebody else?

I like that.

What is the economy?

An economic system. But that's economy, it's a system.

Okay, and a system is comprised of the masses or one?

The masses.

Okay, so should we borrow money on things that are not economically beneficial? Should you take out debt? Should you bring on payments for something that doesn't benefit the system?

No, no.

I mean, that, that's for each person to decide, right?

Unless you put through an executive order through the government, so then it's for the government to decide.

I'm not going to lie, I need— I do need that $10K deducted. So this is—

we, we literally right before this posted a quick 1-minute video on this.

It's a quick win.

Yeah, so I'm gonna share, I'm gonna share some of our story, and if you guys are cool for this one, I am gonna— I think I'm probably gonna just take this one Zoom meeting and we might post this online because I think we're gonna have a really good discussion here. And for once, it's actually like, I think we'll just have good discussion with, uh, the political economic climate. Um, so we might have some good takeaways here, but When I started investing in real estate, I started investing in real estate during COVID Should I have done that sooner? Absolutely. However, my reasoning for going as fast as Cody and I did and why we sprinted through this is because they announced we're shutting down everything, rents are optional, which made most landlords go, "Oh my gosh, I don't want rentals." For me, I went, "Government is going to try to support all these systems. They're printing tons and tons of money." to the extent that they're just mailing checks to Americans as a, hey, thanks for letting us shut down the economy. When they do that, it devalues debt. So what do we do? We picked up as much debt as we could as soon as possible. So to your student loan point, Evan, we are stoked for you and any individual who gets debt forgiven. That's awesome. Just because it's a terrible policy doesn't mean that it shouldn't benefit you, because we've benefited from terrible policies astronomically over the last couple of years.

Yeah. What happens when they print a bunch of money? What happens when tax dollars create a bigger deficit by paying off other obligations? Well, when you print more money, asset values go up. It's not like they're worth more, but the reality of that is it's not worth more, it's just the debt is worth less. So you're going to benefit, we're going to benefit, but the problem is that it's going to degrade the ability for people that don't own assets yet. You're in a good position, you've got a house, right? But for those who don't, which is most of the population, and they're out of luck, they don't have a paddle. So the waterfall's, you know, a mile away now. What are you gonna do? But doesn't it, uh, benefit you guys though since— oh yeah, that's what you said. Oh yeah, it's huge.

Astronomically, this is excellent for us.

We are excited, but the problem is this is how you get the super wealthy and the super poor, because you're winning a short-term battle and you're losing the long-term war. Like, you will— like, people that don't own assets— I'm not saying you guys, because, you know, Caleb and Chuck, you're about to own a terrible roof with some buildings underneath it, um, but they're gonna have some real estate, right? You guys all have real estate. It's great for people like us, but the problem is if you're not big enough yet, it makes it way harder to get ahead as fast as you could have, you know, a couple years ago. It's very difficult.

Yeah, you're going to hear a bunch of debate on this over the next few weeks if you guys are on any form of media. Like, this, this will be the topic for the upcoming weeks. It's fine to benefit, but it's good to know what's going on because as you guys get farther into real estate, when you start thinking like an investor, economic environment really opens up new opportunity for you. And where a lot of people get nervous, if you just have a basic understanding of it, you can make very simple decisions. Printing more money, probably want more debt. Whatever game the government's playing, you want to play a similar game because who makes the rules at the end of the day? It's going to be the Fed. And to a lesser level, you should start to learn some of your state rules and what they want to push through. If you're in a state that's about to have rent control, for example, another bad economic policy. If you hold assets before rent control is put in and you've stabilized your assets, well, now they just give you a built-in rent increase every year. They'll set the max and every landlord will increase by the max every year. Now, if you bought after they do this, after they do a rent control in an area, well, now it's much harder to stabilize assets. So if you're in before, Your rents are going to skyrocket. You're in after. So benefit from economic policy, just know that a lot of it is bad. In this case, it's going to cause inflation. What most people did is they picked up a degree that they probably aren't going to use. I do not remember the statistics, so I'm not going to throw it out there. Above 50% though of people, astronomically above 50%, go into a field not directly related to their degree. An even higher number say, I never actually used my degree once I got into my field. So you have— that's something you don't really need.

There's no economic benefit.

And it's not like no one's paying for it, right? Business owners are paying for it. Taxpayers are paying for it. Everyone pays for it. It's just taking the debt and spreading it among a whole bunch of people.

Now, I'd like to share this example. Evan, how did you feel when you heard they were going to forgive $10K of your debt? Feel pretty good, right? Yeah, definitely felt I mean, free money, right? Yeah. Or just deduct some. Yeah. As you guys start building up the portfolio, you build out your systems, it's really important to be able to look objectively at stuff. Everybody's feeling how you just felt. And for people that don't own assets, they're like, oh my goodness, this is huge, because $10,000 is more money than most people see in a bank account ever, right? And they're not going to see it in their bank account, but they're going to see it just wiped off of their obligations. It's huge on the emotional front. Do you guys know what it means to look objectively at something without emotion? Yeah, without emotion. And so we've got the emotional aspect of it now. Now let's separate that out. If you can look at this objectively, what are your next logical steps now that you know this is happening? Anybody?

Buy as many assets as we can in the next month before this kicks in. Why? Um, I mean, that was more of a joke, to be honest. No, that's— that is correct. And not just over the next month. The nice thing with the economic impact is it does trickle through the economy. So the money saved, people spend it over time. So it's not going to be just the next 30 days.

And it's not just about picking up assets, right? On the flip side of this, you also want to pick up some liabilities, liabilities tied to said assets. You can go pay cash for stuff, but if you know stuff's going to get devalued, you might as well get some debt to go along with it. That's why this is so important. But people are looking at like, oh, I'm getting free money. It's like, well, as soon as your student loans go away, now you can afford more, rents are going to go up. If you can fix long-term debt, If you know the rents are going to go up, because people typically have a 3-to-1 on rent, if they make $3,000, they can afford $1,000. If they have a $300 payment go away, rent can go up $100 and it can still be deemed affordable. This is going to tax the taxpayers. I mean, the people that are actually doing well and benefiting the economy. And so as they don't get the direct benefit, rents are about to go up. Everything is doing this. Just everything's leading to rents just going up because as soon as someone can afford more, it will go somewhere else. That's how an economy works. Money has to transfer. And so right now we're transferring a whole bunch of liabilities, but the flip side of that is all of the currency is going to transfer to those who didn't economically benefit. So as you guys can start building this out, start thinking about this stuff. You guys have some assets. Caleb and Chuckie, you guys are looking at getting into that 10. The inspection report wasn't for the 10, right? The really dumpy property? Okay, good. So close your 10. We'll talk about the dumpy property later. That might be over your head.

It might be. See what the inspection report is. We'll talk more about that one. I had a chance to review that late, late last night.

I stopped getting inspection reports because one of the properties I bought was so dumpy, I didn't want to see. I already knew it was bad. Yeah.

That's the nice thing. If you're buying a property that you already know is just absolutely terrible, the nice thing is it doesn't matter because you already factored.

If you can afford. —to keep it. But you guys, first, second deal, don't do that.

Who on the call remembers the 4 income generators? This is on the calculator, but the 4 ways that you make money, either multiplying it or adding it in real estate.

What was it? Cash flow, appreciation, depreciation. Principal, beta?

Yep.

And debt reduction.

There's a hidden piece in this, which is so beautiful. And it's debt devaluation. You make money in those 4 key sectors, as long as you're not borrowing interest only, you're going to pay down the debt. Your property is probably going to appreciate. That's a function of income on the type of assets we look at. You're probably going to cash flow as long as you guys are underwriting it correctly and you get long-term fixed-rate debt. And there's some wicked tax benefits if you play the game with the right people people. But the best part about it all, and the reason we were able to multiply our net worth was debt devaluation. And that is a function of what's happening right now. And when you can project that out into the future, real estate always lags. So when you can project it into the future, it gives you a huge edge over everyone else because everyone was worried during COVID We're like, all this debt's just going to get devalued because the government wants to help. That's what they're saying anyway. And so they want to help out. If they're going to print money to help a whole bunch of people out with stimulus, that is where that fifth hidden key component comes in of debt devaluation. What is the only function? What's the only way that we get inflation? There's only one.

It prints more money.

Printing more money. That's it. People that say, oh, just lower your prices, that doesn't matter. We're listening to the news today and we rarely do that., but one of the reporters was talking about how colleges are causing inflation. That— no, it doesn't happen like that.

Prices going up does not cause inflation. Inflation causes prices to go up.

It's a logical fallacy of causation, but it's not a fact of, or a matter of fact of, hey, values are actually worth more. It's just the currency being used to transact is worth less. And very few people actually understand that. And when you understand that, you're like, okay, debt is money. And you guys know this. But when you can get a whole bunch of debt, it's other people's money, and you can have the government devalue it. You can project this out. Real estate always lags. One of the reasons it lags is what? Why does real estate lag behind everything else? It's illiquid. Okay. It takes a little while to transact. You can't just press a button. Why else? There's this thing called leases, right? So you don't see the direct benefit of rents going up if someone's in a 12-month lease, because you're going to go 12 months. If they leave, then you got to turn the unit. Things take time in real estate. And so a lot of people are like, oh, this is going to go really wrong because all the stuff going on now. You're not going to see that stuff for a little while. So if you can just think about this, that's why we were able to go so quickly, because we acknowledged, hey, this stuff's happening. It's not going to happen today, but we're going to feel the effects a year, 2 years, 3 years from now. Now it went a lot faster than we thought, but when you can identify those things, really think about it. Who was thinking about this stuff this morning? Anybody? We were. Nobody is thinking about it, but it will happen to you or because of you. Now you can go build this if you keep this in mind, or it'll happen to you, and you got to decide which one you want to be.

But something we really wanted to share, like, if you— it's basic economic factors. So what you guys will face, and increasingly so if you opt to go the way Cody and I have of being very, very public with our story, that's That is a strategy. That's not the only strategy. We have friends who have astronomically more real estate and their whole goal is to be as quiet as possible. They don't want the attention. So it's not the only strategy, but if you are public, something you're gonna get is a lot of hate on, oh, the economy's gonna do this and you're gonna get pinched. Or how do you feel? I get this question all the time. It's dumb. How do you feel about being an entrepreneur in free enterprise while the government's trying to eliminate all free enterprise? It's like, Fine, because I bought cash flowing assets and I own them and we have long-term fixed rate debt. So we have less variables. And that is what you're trying to do, get cash flow. Because when they make bad policy, which they tend to do, and this is not, this is not a left or right thing. It's not. Yeah. If we end up posting this on YouTube, which I'm kind of inclined to, if you guys are okay with it, we'll post it.

If you guys are cool with it, we'll just post it today.

It'll be Yeah, someone might hear this as these are two entrepreneurs and this is the right side of the aisle thinking.

I'm just going to say it. Look objectively.

Both parties suck and create a lot of just bad inflationary decisions. This wasn't one group or one administration that has led to the problems that we have. This has been decades and decades and decades.

Before any of us on the call were born.

But if you want to know how they will make decisions, the goal of a politician— my goodness— who is elected in a position is to get reelected and keep their party in power, which means they make short-term decisions. What is our big problem? Oodles of trillions of debt. That is an exact number. Oodles of trillions.

Well, that clock passed $30 trillion.

There's no way to repay it. It's too much debt. So the only thing they can do is continue to devalue it and kick it down the line so the next party has the bigger problem. It just keeps going on. There's not an economic way that I've seen anyone model where you can actually get out of the debt. We're way too far. You're just trying to delay it. So the decisions they make are mostly going to be in inflationary decisions to devalue the debt because there's no way to pay it off.

It's not possible. Now that they were doing— I think it was a climate change, it was like $300 billion. It was supposed to reduce from the deficit over 10 years. That's what I heard on the news today. You guys are good at ratios. What's $300 billion over 10 years compared to $30 trillion today? Anybody really good at math at how stupid that is?

Yeah, it's not going to be very—

it's like 1%, I think.

Yeah, yeah, around there. So inflation is like 9%, by the way, right now, and actual is probably between 17 and 20.

So if we can reduce 1%, and now there's going to be people out there that say that's great, that's a start, Really? I mean, you got to be doing way bigger steps. Like, who here would be happy if they went from 100 units to 101 units apartment investing in 10 years? It's insignificant. People are looking at it as a big number, but that's because they're looking from an individual basis. So $300 billion is a lot of money. It's all ratios. And that's nothing. If you guys went from 100 units to 101 in 10 years, be like going from 10 units to 11 in a— I think it's 100 years. Yeah, that's pretty pathetic, right? So keep this stuff in mind. Nobody's thinking about this at this level. But when you use that, when you're going out buying all these seller finance deals and people like, oh, you're going too quickly, you know, who are you getting your advice from? Because they're probably not thinking like this.

Yeah, the point of this illustration and why we chose to share this today, because we never do economic macro stuff, it's always real estate-specific individual topics. The reason we're talking about this today is, one, it's— I think it's topically important, but two, this plays into a few of our rules. Why do we make everything so simple so it's repeatable? How do we analyze the economy? I took a lot of classes on microeconomics. I like all of economics. However, Macroeconomics is macro and micro is micro. It's just bigger. Know the general trends and it helps inform you for when, like, hey, I'm a little nervous to do this deal. If it follows all the principles, if you know how you're going to buy it and how you're never going to lose it, if you're getting it into long-term fixed rate debt that cash flows, if you're buying in a location where the population is going up, if you do these simple things, the reason we share all this and make it simple is because that is how money is made. Policy is not going to change substantially, foreseeably, that will change that. The way that this country and the world has always worked is, well, we have a problem, let's print more money and throw it at it. We've done that since, if memory serves correctly, Nixon detached us from the gold standard. We just have printable money. Illustration here is printing money. It cycles through the economy. For example, majority, not all, of college students go to college without an idea of exactly what they want to do after college. Majority, but not all, of college students party their way all the way through, and they're infamous for this. This is in every TV show, movie, real life. This is just how that works. So what you're looking at is how are we going to have— like, what is the impact of all this going to be on a basic, basic level if we take bad debt and assign it to everyone else? People who are bad with money save $10,000. Most but not all people are going to go out and spend it on something stupid. They're going to go, I can afford that car I've always wanted. Where does that money go? It goes to the auto dealership and the person who owns it. When you put new money into the economy, it cycles to the top. So when they talk about lessening the gap between the rich and the poor, when you print money and devalue money, it widens the gap under the brand of, "Let's help the lower class and devalue their debt." If people get debt devalued, they think all money's free and they go and spend it. That's just what humans do. So You decide really early, and everyone on this call has done this, what side of this do I want to be on? If you read Rich Dad Poor Dad, this is a perfect illustration. Do I want to be on the rich side or do I want to be on the poor side? The gap's getting wider. So if you're not on this side yet, start swimming.

So quick little lesson, uh, I don't know if you guys see that. How much money is that? Can you see it? 100? Okay. What if I had another one of those?

How much is this?

We get $200, right? Money. Uh, is 1 greater than 2? What if I told you that this is the same amount of money in the economy if you have 1 or 2? Why is that? How— let's say I have $200, right? I put $100 in my pocket and I got $100 left. How could this be $200 in an economy of transactions? Let's, let's say I'm out of town and I need Christian to mow my lawn. I give him $100, but he stays in the resort because I'm going to be living there. All right, he has to pay me $100 a night for the resort. Well, now that comes back. Well, that's $200 in transactions, and I kept money in my pocket, right? You guys understand that? Yeah. Makes sense. Most people don't think about it like that. They're like, oh, it's just $200. That's all that can transact. And so I kept this in my pocket and we still had $200 of transactions. Money has to flow. And so the importance of this lesson related back to wiping out all this debt is now people are going to start flowing more money or they're not. They're just going to start trying to save and you can't do that. You can't save away because they're going to keep devaluing it. The only way this stuff's useful is if it transfers. You're not supposed to keep it. And so many people have that backwards. It's great that we have money sitting in, you know, $200. If we can keep adding money to that, cool. But unless it flows around the room, unless it flows around the economy, you're screwed. So you have anything else you want to add for econ class?

Well, the only way this money flows, it went from Cody to Christian. So I'm going to go ahead and pocket— I'm kidding.

This is, this is my money.

Yeah, we got to go deposit that. That is why on a macro level, we do exactly what we do. You look at the trend of where everything is flowing and you try to get on the right end of it. That's as simple as the game is. And I would prefer that just everyone invested because if everyone was investing in the economy, we don't have economic downturns. The reason that we have downturns is sentiment changes, people sideline money, they stop the flow, and that is what causes everything to crash. Things need to flow. So everyone on this call, you already know this. Yeah, and you're thinking like an entrepreneur, and so you're going to be on the right side of this. But just know, like, on a basic level, that's how the world works.

And make sure that you're conscious of that because you can be What are the four? You can be consciously competent, consciously incompetent— we've seen a lot of that— unconsciously— I think that unconscious competence and unconscious incompetence, and there's a lot of those in society. You got to pick which one you're going to be, and so we encourage you to be the first. Be conscious of what you're doing and be competent in your field. There's a lot of conscious people out there that are actually knowing, oh, there's a matrix, seeing it outside of that. And that doesn't make them competent. So if you guys look at this, remove the emotion. I know it's exciting, you know, Evan, $10,000.

I want $10,000, but I know I wish I didn't, you know, work at an industrial laundry to pay for my school. I could get $10,000 free dollars.

Yeah, the meme of how do you— how to make money in a book, page 1: work. Uh, it's great, but there's impact. And if you guys can navigate this objectively, then you'll do a lot better than the rest of the people that are around you. Yep.

That's what I had to share for this. Yeah. Do you have anything else to add to that? That's it. What, if any, questions you guys have on the topic, and then we'll just open up to a general forum because, Caleb, I want to talk a little bit about your inspection report deal too. So this—

will this specifically impact your strategy at all, this policy? This validates everything that we're doing. Okay, this is going to accentuate the speed at which we grow our net worth.

As far as the strategy, the strategy has always been Government is printing money. We want to take debt to buy cash-flowing assets. And every time we close on a cash-flowing asset, long-term fixed-rate debt, we make more money every month. And that's, that's it. Now, some people go, oh, that's super greedy. Well, what does the money go to? We employ multiple teams of contractors in multiple areas of our state. We have employees. We pay property tax. We pay employment tax. We pay My gosh, if you guys look at all the things you pay for as an employer, I mean, we pay for a ton of systems, positive economic benefit. We renovate buildings in towns that have a bunch of old buildings. Everything we do creates value and creates new net worth for other people without blowing the dollar out of proportion. We just create value. So if they're going to do more things to reduce the value of money, we do benefit. I'm just not a fan of it because it's bad policy. But every policy, you should have a strategy that makes sure that it benefits you. If they were— which they would not do for any reason— if they were to try to reduce inflation and go, hey, we're going to try to make the dollar stronger and just stop printing for a year, well, our debt would actually start to hurt us because money pulls slowly out of circulation, right? You have printed dollars and $100 gets thrown away, you know, someone loses their quarters, the money slowly erodes. If you don't replace it, that would hurt us, but that's not going to happen. So like Cody said, it validates what we do. Bad policy is what we count on, unfortunately.

So do you see inflation going even higher than the actual 17 to 20% after this is through, if it goes through?

I don't know that the percentage will go up, but I definitely don't think it's going to go to 2.

Yeah, I Without actually running the economics on it, which would be really hard, without, without doing a whole bunch of research on it, I can't say if we're printing enough to push us way up or if this is gonna just hold us at the same super high inflation we have.

And it's like, you know, a drug addict, they start out with a little bit, they get high, and then you have to get more and more and more. So they would have to keep progressively printing more and more and more, like the numbers would get ridiculous. To keep it at that high of a percentage. However, we're inflating inflated, inflated, inflated dollars. So it's just going to get progressively worse.

At the very least, it's enough to sustain above acceptable inflation.

And think about it like a return on a deal, right? Would you rather make 2% on $100 million or 12% on $100,000, right? If the number's that inflated, it doesn't really matter.

Great questions though. Anything else on the, uh, the economics of either this or just general economic factors?

That's it for this.

Cool, we can end recording and then we'll post that. Thanks, guys.