The Average Person Doesn't Realize How the Recession Will Affect Them

foreign [Music] [Music] hello and welcome to the Ken McElroy show I'm your host danil here with Ken what's up guys how are you calling from Florida yes he's zooming in from Florida it's really throwing me off because I have those um things in your ear where you can hear yourself so how's Florida it's good beautiful flying back today uh had a great time out here with my YPO group awesome what'd you guys do we went to uh a uh LPGA and celebrity event so hanging out with Marcus Allen Emmett Smith Michael Waltrip all they're all playing golf in this LPGA thing and I'm investing in a golf company called rad golf rad and uh you know so they're one of the sponsors down here and so it was fun on to our Twitter comment of the week while everyone gets in here Jerry can you pull that up it said what advice would you give someone uh give to someone about to purchase their first home so Eric replied after paying for two sewer repairs myself I would recommend they get a camera inspection and purchase insurance that would cover a large portion of the repair if it had to be replaced so he would look at the sewer I guess yeah I think you know one of the things I found like there's a lot of times people miss those big Capital items you know they're they're so focused on just closing the home um and I've seen this before with Landscaping with roofs even Asbestos and lead paint all those kinds of things you know sometimes I was talking to a a buddy uh that bought a golf course of all things and they put two million dollars aside to actually you know do these Clubhouse improvements all that and then they realized that they had a soil and irrigation issue and almost that two million dollars extra all went to just fix that so and I said dude that's just pure due diligence you know that's that's somebody missed that before you closed it so the big lesson is always to try to identify those things in the beginning and then you can negotiate with the seller oftentimes kind of like what you and I did Danielle with that roof on the one house that you found we identified the roof was that at the end of its life and you were able to get that knocked off the price yeah absolutely and we went with a really good inspection a really good inspector and you know the the sellers pushed back because they said listen we've already had an inspection by another seller that fell through and they said the roof was fine and our guy was like it is absolutely not fine and then once they put that on there it's now on record right so um so they they replaced you know we got a few thousand dollars to replace the roof off of the cost of the home that's just one one pro tip here you want to be careful don't use the listing agents inspector because yeah right you know I mean that's exactly what happened right yeah and don't use your Realtors inspector either you know what I mean like oh I got an inspector because guess what the realtor both Realtors want the home to close so get your own do your homework um yeah hey uh we're all noticing uh you should you could have made your bed you know haha no I'm checking out I'm checking out here in a couple hours go to the airport Leave Me Alone um yeah and let's go to Twitter question or twitter.com number two it says expect a property tax bill for the difference in property taxes the previous owner paid and your new tax amount it can be shocking if you're not prepared for it yeah another really good uh advice so when we buy a property we always take the sale price times the tax rate and then that's what we Budget moving forward so you always want to be cognizant of that issue um you know the typically there are some states that are have privacy laws around sales but somehow the assessor always figures it out but the um uh you know if you buy something then that now is a public record and then the tax assessor goes and looks at that and applies the same tax rate that was there before um you know at the new higher price if it was a higher price so that's a really good tip yep yep number three money is made at the purchase consider passive income of renting it in the future ensure the local market is favorable for a long-term investment so what I like about this one is money is made at the purchase and people a lot of times forget that that's the key in my opinion uh everything the wealth that we've created was 0.7 8 9 10 you know during that period of time when things were were depressed and lower and that is uh you know now those properties seem incredibly cheap but what saved our butt the whole time was the renters you know the renters covered our mortgages our renters covered our expenses during that entire time so um you know now it looks obviously incredibly cheap 10 10 plus years later so yes he's right um always always take a look and he says it needs to it needs to be a good deal on day one yep um and I want to throw a different one in here another one in here too just from experience is you really need to check out your HOA if you're buying in an HOA and make sure that it's funded correctly I just had a friend buy a place and he didn't consult us but um you know he now has a 25 000 I think it was because he bought a um it's a uh they're redoing a big part of the building so he had a 25 000 assessment that if he would have asked around he would have known about but because he didn't uh he didn't know about it um so you know talk to the neighbors if you're in HOA and then also you can look at the hoa's financials and make sure they're they have money in their account because if you buy and there's not much money in the account you can expect assessments yeah it's a good it's a good point so there there's your HOA operating account that pays for all your normal expenses your Landscaping your water maybe some electric exterior electric or something like that you know even a paint so uh but then there's what's called The Reserve account which is separate from operations so that would be um you know some of the bigger capital projects that come up from day to day like maybe somebody runs into the gates if there are Gates and you know that's a twenty thousand dollar bill or maybe there's an underground plumbing leak or sewer issue or something that's common so those are things that happen in HOAs and if the HOA doesn't have that money set aside then they do what's called a special assessment to the people that actually own the condos because the money always comes from the homeowners um and so that's what Daniel's talking about you're going to have your normal operating expenses and your normal operating account just like you would a personal savings account then you would have let's call it like a money market account which would be like a reserve account which they should be putting money away for those big ticket items and so what she's saying and I've seen this a lot you can step in to a situation where maybe a property needs a new roof maybe it needs a whole new paint job maybe it needs asphalt repairs anything that's exterior in common and if the HOA doesn't have that money set aside then they go ahead and do that work and they allocate it equally amongst the homeowners and that's something that a lot of people can get tagged with after they um after they purchase yeah and in this specific particular situation you know there was only five homeowners in the HOA because it was like a small building and so that's why the burden was so heavy on when a big bill came through so right and yeah also as you could imagine there's no homeowners that want their HOAs um to go up so we're seeing all these costs going up right now so insurance is up taxes are up utilities are up those are typically HOA expenses landscape is up I know this because I just did 33 of our budgets and all our landscaping's up because their Labor's higher so all the stuff's up but the homeowners never almost ever vote for Homeowner dues increases so so what you have is you have Rising costs and your HOA dollars don't ever cover oftentimes those Rising costs and so therefore there's no money to put away into a reserve account absolutely and a couple things Eli is saying you know Florida's HOAs have had huge increases due to new insurance requirements which is true I actually was just talking to my parents about that yesterday because they have friends that own property in Florida and then Adrian was saying I've had many transactions canceled because of my recommended inspectors findings Adrian's um a realtor and we we don't like we don't bash Realtors on here people just need to be careful who they're using there's really good Realtors with really good intentions and inspectors and all of that but there's a lot of realtors that just need their deal closed and they don't they don't care how they get it closed so yeah yeah most I would say uh the realtors that we use are amazing and and you know because again season 20 30 years in the business they've seen a lot and they don't want issues from they want they want their clients to buy again later so you know so they're trying to be as thorough as they can um and then there's some that maybe just don't have that experience maybe they don't even know what to ask so that and a lot of times they're not even doing anything wrong they just don't know any better so um that's why that's where you know experience and wisdom certainly Trump um you know uh somebody that's new yep absolutely so before we hop into our topic I do want you to hit the like button if you're enjoying the show it really helps us out it makes YouTube promote us a little bit more uh and then secondly um we have a football draft going on where you need to beat Ken's picks so if you go to his Instagram Ken McElroy official at the top link there and you go ahead and you register to see if you can beat Ken and he's no football expert so he does talk to Seth Joyner his friend though so he does get a little bit better hey all right I got three of the four picks this weekend well I think there was five picks right oh there's four okay all right so um yeah clearly you guys now know who the football expert is in this relationship so I don't even have to say anything but no the Bills lost you know I would not have uh foreseen but uh you know two by the way your hometown Cincinnati uh Bengals won um being an Ohio I'm from Cleveland but but you know the one of our biggest competitors in Cincinnati so but uh but anyways go ahead and register if you beat Ken you get entered into a drawing to win a b infinite sweatshirt and then everybody is going to be in the final drawing which gets a year free of Premium all right I know Brandon says Cleveland I'm so sorry and I agree with you so anyways uh to move on here um today we're going to talk about the average person doesn't understand how a recession is going to affect them and I I I agree with this what do you think Ken yeah well it's interesting and I uh thank you uh you know this is a great topic we started talking about this well we have been talking about this over the last few weeks and and we decided to talk about today I think first of all I've seen people go through this 08 9 10. the you know the habits that people have now um you know oftentimes you know I think until the pain his creator then the issue it doesn't change their behavior so I uh that's I think what we're what we're going to start to see is if if I were to make any recommendations is people need to take a look at you know the difference between a need and a want and they need to change some of their financial behavior moving forward now I went and looked online this is very interesting to me credit card debt could exceed listen to this one trillion this year so right now it's in the low 900 billion range which is huge um and it could exceed one trillion in addition to that you guys might already know this um the personal savings rates at the end of the year which is not very long ago just a month ago we're at 3.3 percent of their disposable income that's the lowest it's been in a long long time so personal savings rates are way down by the way during the pandemic it was over 16 so what's happened it looks like to me is people are using their savings and they're not changing their behaviors and they're putting it on credit cards because credit cards are going up so uh it's very concerning that people are racking up debt because that credit card debt as you know is going up the the rate the annual percentage rate of what you owe is going up as the FED continues to raise their federal funds rates so um you know two things are going in the wrong direction credit card amounts are going up personal savings or personal amounts that they have on their credit cards and the the rate that they're um you know is also going up in in fact many credit cards are up over 20 percent if that just blows my mind if you have ten thousand dollars worth of credit card debt you actually might be paying somebody else two thousand um and you're not even reducing the 10. so it's it costs you two thousand dollars on Ten Thousand at twenty percent just to break even so you know if nothing changes if you don't pay down that 10 at all then you will always be paying that too that's ridiculous so um the the very first thing I would suggest people do is to is to eliminate that credit card go find a credit card balance or a like an introductory card and move the balance over to a zero uh uh uh annual percentage rate card they're out there they're right now is the time to do it guys I do think that these deals will start to go away um as they kind of move up and down but the the credit card industry is a very interesting history because it's almost like a crystal ball on what they think is going to happen um and uh it's not looking good if you know if you're going to be falling behind you've got higher priced food higher price gas higher price rent higher price mortgage payment let's say higher price in interests on anything that you're buying higher price on the credit card and wage growth is not keeping up so this credit card these credit card balances if you can move them to a zero percent card at least you're paying down that ten thousand you're not actually paying the two first and this does not take a lot of time to do just go online and move your balances over from these high interest cards you know the credit cards have not got these credit card companies are not loyal to you just get your you know get your balance and moved over right yeah I mean it depends I mean it's easy if you are qualified it's harder if you're not qualified so that's kind of the challenge sometimes for people that's a good point uh that's a good point but you know you got to figure it out because the one thing that's gonna the one easy move that people can make this is not investing this is this is is looking at your your expense on a balance that you already have and trying to get it to zero um and credit card companies want you uh to move over to them so it's competitive just like it is on on buying a car or finding an apartment or anything like that credit card companies are looking for uh you know people so uh there are introductory rates over there I I looked at one before this call um and I saw that there was one out there that that there's it's zero percent for all of 2023. so um you know and and isn't this the exact issue you had when you were coming out of college Daniel yeah yeah I I paid off mine and I do think that I transferred it to a zero balance card but I used to work at the bank and you got to be a little bit careful because sometimes if you don't pay off the zero balance card you're charged the back interest on the whole balance by the end of the interesting period yeah but you do have to worry that you have to read the fine print yeah but it it you're right you're right about that it is a good but if you can get disciplined and pay that off guys trust me uh you'll be in a better situation absolutely and you know I think too you know people don't really absorb the whole recession is coming because a lot of younger people you know they've never been through a recession so I'm 39 and I was just through the first recession right out of college so anybody younger than me really hasn't you know anyone under 35 really hasn't even seen a recession or been through a recession before and even with me I was so young and I didn't have anything anyways so you know I didn't really it didn't affect me as much so I think that that's part of the reason people aren't really they don't really understand what to expect foreign I think that again the the pain once the pain is greater than the behavior changes you know so typically a lot of times people take action on things you know when something happens you know something on their health something on their finances something with their job you know whatever um oftentimes they don't take action beforehand and I would hope that you guys start to look at the tea leaves here and you'll see that there's a lot of layoffs happening it's all over the news and and you know there's a lot more applicants for the jobs um and um you know we I believe that you're going to see some higher unemployment numbers uh in this first quarter and then they'll officially be uh we'll have officially a recession on the good side of that is that these higher rates interest rates I should say the federal funds rates they are reducing the inflation rate at least the reported inflation rate which is right now at six and a half and that's significantly down from 9.1 um you know maybe six six months ago so that's a that's a that's a good thing yeah yeah and then I I think too you know the media right like every time you listen to the media like we're not in a recession or you know the the hiring is highest it's ever been but they don't account that the jobs are low paying or part-time you know so it's very skewed um to make people think that maybe we aren't in a recession you know that's what they're trying to do right now is play that we're not in a recession or not going to be in a recession yeah I've talked to a whole bunch of people about the the BL uh the Bureau of Labor Statistics numbers on unemployment a lot of people don't believe that they're being that's completely accurate that there are a bunch of other household surveys for example that are showing that that employment is quite a bit higher so I'm not quite sure um if that's true um but it just feels like that you know we continue to see these layoffs and we're specifically I guess you're seeing it a lot more in the tech area but I'm hearing about it too if if if if real estate rates have gone up so much and that means that Realtors are making less title companies are making less mortgage companies are making less property inspectors are making less laborers you know the renovations are making less hard money lenders are making less so all of that stuff is a reflection of just the higher rates so those companies are making less money those people are making less money they have to be as consumption goes down so you know and I think that that's what's going to start to show up late first quarter and and second quarter right now you're seeing the big companies show the numbers you know on their layoffs and you know these are obviously in the thousands so I wanted to discuss so you know we have a lot of people and we hear a lot of times you know rates aren't going to keep elevating they're going to come down like that's kind of everyone's shtick is like this year you know rates are going to come down so but but the interesting part about that is that whenever you ask somebody why they think that the really only answer is that well because they have to because people can't afford to buy things like they have to come down there's not really a um calculated reason why they think that rates need to come down and in truth like you know they're trying to squash down inflation like they don't need need to bring rates down anytime soon well I think I understand where they're coming from you know if you're a builder a realtor um you know selling something that requires financing uh you have to have hope right so and and you know low rates do create consumption so lower priced money people finance things um you know the Auto industry the real estate industry it all um is pinned up by you know high or low rates and so it can dramatically affect a lot of things um and and so I understand that but the I think you got to take a look at the what the Federal Reserve is seeing versus where they are so they've always been saying that they're trying to get to two percent inflation um that is if that's on their own website if you go to the federal reserve's own website you'll see that two percent is their target they believe that's healthy if you go back and look at history you know let's say a year prior to this you'll see that they did a pretty good job trying to be right around that two percent Sometimes some years they were a little bit over some years are a little bit under but that's what they believe is a good number so we're a long way from there we're at six and a half as of December so um you know I don't know what will happen with the interest rates this year I have gone publicly and said I still believe that they're going to continue to raise them little by little in the next three meetings that the Federal Reserve is going to have and then our federal funds rate is going to be up in the mid fives and then from there we will see we will see how far real estate has fallen you know and by the way these are all asset bubbles that were created by these low rates so the low rates created asset Bubbles and the only thing that's happening is that those asset bubbles are actually coming down it's not good if you're trying to time something so if you bought a house at 500 Grand you're hoping it was going to 600 you probably are going to be a little bit disappointed unless you're in like Florida or some of these markets that are growing crazy you know with the net migration of over 100 000 people a year Texas being another one so there's a couple states that are doing pretty well but generally there's a net migration out of a lot of places that people are moving um you know based on you know where their money's treated best so that's why I always like to say where it's safe where the weather's great or the there's not a lot of political craziness going on and their money is treated best from uh in other words it's it's um there's uh affordability in those particular markets that's what I think we're going to see in 2023 is people are going to as inflation starts to erode uh people's uh um own savings or their ability to to buy things then I think they're going to start to make adjustments whatever those might be uh on on the on where they live on the cars that they purchase um even the food that they eat all that stuff I think you're going to start to see really show up in 2023. so Scott brought up a good point he said the recession might be overplayed because everyone is sitting on on cash what are your thoughts on that because that's what we're hearing a lot that comes down to also the late rates lowering you know it's very similar yeah well he's right I think um in a lot of respects the the professional investors a lot of the big big companies are sitting on a lot of cash that is I believe true but if you look at people's personal savings rates then you know you just type that in personal savings rates 2023 which is what I did this morning before this you'll see that that people are sitting that their savings uh is about 3.3 percent of their personal income or disposal income so um you know not necessarily good for most but I don't disagree that there are a lot of people sitting on cash most of my friends most of the guys that that we develop or build have relationships with are waiting for the the the the the price prices to go down on a lot of these different kinds of assets including us and that's why I did that video um over a month ago called pencils down you know it's a great time because there's a big big discrepancy between the seller and the buyer the bid and the ask are really off right now still in many circumstances and I think think the sellers are saying you know I'm going to wait and see whether or not it um comes back to where it was and the buyers are saying I can't afford to pay that because the interest costs on if I'm financing it has gone up so much that I don't have the cash flow that I once had well done and so there's a kind of a everybody's kind of on a uh you know on a holding pattern well and it's got a cash flow right like so if you're a first time home buyer and you're going to be or you're just living in your home you have to be able to afford it right so that's really not it just comes down it doesn't matter how much money you're sitting on you have to be able to afford it and then if you're an investor it's got a cash flow so I mean people can be sitting on money but until the numbers start to work then they're just not going to work yeah I was looking the other day uh with the one of the videos I did is I think the average home price was somewhere around 450 so um it's somewhere in there I think um but with the interest rate changes just to that six month period it increased the mortgage payment almost a thousand a month so the same house so you know so you know that what that does is it it just makes people be able to buy less so um you know so and also the people that have that 450 000 house maybe with that three percent mortgage they're not going to move to a 450 000 house um and you know they're gonna stay put because they probably have a lot of equity and they have a low payment so uh everything's in in a little bit of a stalemate at the moment um because of these high rates and I think that's why people are so optimistic about these low rates the the or the potential low rates in the future and obviously the low rates will uh it's like lighting a fuse um you know it will definitely create another asset bubble it'll create people buying again but what has to happen first is these prices have to adjust and that's what we're starting to see now we're starting to see it in the majority of the single family Market uh most markets there are some that were not um and certainly we're seeing it in the commercial Market because that's really based on cash flow and and people can't pay the same amount that they were even six months ago yeah absolutely and Eli made a good point too you know he said the in the savings rates are going to go up too which is enticing to a lot of people to save instead of invest um you know maybe not hardcore investors like some of our audience but your average person like my parents are super excited that their CD rates are going up and they're doing you know six month you know CD Investments and bond Investments and things so that does take some money out of the market because it makes it more ideal to save I think people got to be careful about that though you know I agree with him by the way it is if it's so funny like it's like what are you gonna do during this recession what are some really good moves and they always uh have this you know uh all you know it's good to save money now because your rates in the two or three percent range so I think people need to realize that if you have you know three percent savings rates and six and a half percent inflation rate you're going backwards three and a half percent so in other words now that's all obviously based on the bucket of things that make up that six and a half percent but you're you're actually going backwards uh if you're not covering the inflation rate and I think that's the big issue is if you had 10 grand in the bank two years ago and you still have 10 grand in the bank today it just buys you less on your statement it still says 10 grand nothing's changed your balance has stayed the same but it buys less so if it went from one percent to say three percent um that's good obviously for your savings rates but you still have to look at the bigger picture and that is your inflation rate is more than double your savings rate and that's why you know the back in the the book uh Rich Dad Poor Dad um you know Robert always says Savers are losers you know he's not saying they're personally losers what he's saying is that if your savings rate is below inflation then you're losing traction with the money that you your hard-earned money that you made in sitting in savings and I think that's something to watch yeah and what what advice would you give people listening you know that the recession's coming like what should they do like what are some things that they should be doing the very first thing and I think the easiest thing is that is to pay off that credit card debt uh to move the the move the balance to a zero amount and you know move it to a zero annual percentage rate if you can you know as I explained earlier uh that's that's easy it doesn't require much it just requires a little bit of effort and hopefully you have the credit to be able to do that but if you can if you have ten thousand dollars in credit card debt and you're paying 20 on it by the way which is not an unusual number um you can immediately uh get yourself two grand if you can move it to a zero balance so that would be the first thing um this the second thing is I think that we've talked a little bit about this you really do need I believe six months emergency fund um in living expenses and and you know and you got to be diligent you have to have a plan around this and this might take a year or might take two but regardless if we see more inflation or higher unemployment or even better there's nothing wrong with you having six months of reserves it'll make you uh feel better about all the decisions you'll be making um if you have a little bit of cash let's say let's say your monthly expenses are three grand if you could just save let's say 18 Grand six months at times three um you know and just make sure that that's your you know I do not touch this money fund um and and then you're always kind of solving to that that's just good physical management I think the um the other thing is you you got to pay attention to what your needs versus your wants so you can go and look you know these little these apps these these streaming apps these these these things that get you at a buck 99 999 7.99 you know whatever it is I think you could clean that up take a look at those little balances um you know there's a lot of things you could do around you know needs versus wants and that you can you can you can actually uh do quite a bit in that Arena it's really really hard to um you know we were talking we were laughing I think Danielle you and I the other day about how some people uh you know go out and they buy a cup of coffee every day let's say well you know let's count that four or five dollars no it's like it's like seven eight dollars now yeah yeah so I I think you know those are things that that you know that you have that's a habit um even you know me I go I I put one in my Keurig and I walk around the house and and that's my coffee um you know um and I just saying that I I obviously can afford a Starbucks but the point is that that's the difference you can still drink your coffee but it doesn't have to be seven or eight bucks each day of those little things do out of um and then the one thing I think that oftentimes people don't budget for or what I would consider to be big expenses so like a medical issue you know or God forbid somebody has that but those are the kinds of things you know maybe you got to cover some deductible if you don't have health insurance or maybe if you do something that happens with your car I know uh you know I have employees that you know they just save enough and then they have a two thousand dollar issue with their car um you know and you know all of a sudden it goes to that and they're always frustrated they're always trying to you know uh save a little bit so they are being diligent but those big expenses do happen to people and and I think this is in addition to your emergency fund which is your living expenses so I I always suggest six months of living expenses um and and and and a little bit of Slash fun for you know any kind of emergencies that you might have just call it life interruptions um and and so those are those are the main things but the credit card one is by far the easiest one that people could tackle anything that has high interest on it even a hard money you know go figure out a way to you know that that interest that you're paying you're paying that to someone else so go find cheaper money somehow that is the key uh that is a quick expense that you can reduce with just a little bit of research yeah and I think the the last thing to add is that if you see the writing on the wall at your job you probably need to find another job before you get laid off so you know like I have a client she's in the mortgage industry they've let go of a ton of people in our office she has nothing to do all day she said she went from being super busy to now playing games on her phone like don't just sit and wait to get laid off actively look for a job if you're in an industry that's not recession-proof and you know your company's not doing well you know don't just sit and wait around until they let you go find a job now it's going to be easier now than it is six months from now that's a really good point I don't think a lot of employees really pay attention to how a company is doing financially I I mean some do for sure but I find it very interesting you know when interest rates continue to go up as an example um you know like we have an office building that I own and we had a pretty big tenant that was a mortgage is a mortgage company and when they're you know their lease is up soon and they're already negotiating on one-third of the space as a result because they don't need that much space well there's people in that bigger space it'll all get moved down to the smaller space so this is happening everywhere it's happening in you know real estate offices it's happening with home builders it's happening in title companies it's happening on the construction and Renovations so so those are things that you should be aware of and of course there are other industries that I think are going to do very very very well you know in the future and you know but at some point if a company doesn't have the income to support their expenses then that that you know they're going to start to look at their expenses and and um you know those are real things and the other thing uh also on the other side of that is companies are also getting hit on their expenses so as you guys know things have gotten very expensive for people but they've also gotten very expensive for business owners so we are also seeing uh prices go up um you know in a lot of areas so um you know so as you start to roll out these 2023 budgets the business owners obviously we're not people aren't in business to lose money they're in business to make money and so as expenses go up let's say income was the same from last year then they're making less and they start to look at expenses so it's really interesting it's the same same philosophy as if you know you're at home and you have your W-2 check coming in and you know what your expenses are the company looks at it the exact same way where's my income coming in from what are my expenses including payroll including rent including Insurance including internet costs including all of those things those are all expenses that a company pays for and it's much easier to identify on the smaller companies and in my opinion those are the ones you you'd be easier for you to identify and take a look at because if you're not seeing people come through the door or your sales are down and you've got a bunch of people sitting there waiting uh you know for business then the company's going to start to take a look at okay how do I reduce my expenses right now so I'm not losing money absolutely so if you're watching and enjoying please make sure to hit the like button we love that it helps us out also I have a webinar on Wednesday speaking of budgeting I'm going to show you guys how I budget and how I got myself out of credit card debt I hate that picture uh by the way so please disregard uh Jerry made that uh so but anyways by the way Jerry and I are used to that look so um but no it's a great it's gonna be great you just go to come mcroy.com forward slash webinar and I'll put that in the notes and um it's going to be free and I'm going to show you how I budgeted let your goal this year to be get out of credit card debt so you can start saving for your first investment and paying off your credit cards is your first step um and then Ken has something on Thursday with the advisors um yeah by the way at four yeah this is gonna be great so you guys this is an opportunity talking about Eric okay obviously a very high paid CPA um and ask him questions about tax there's a lot of stuff happening around tax with this new Administration and there are things that you can do which are very very cool I always tell people the tax code literally um is a is a guide to tell you you know what the investor or I'm sorry what the IRS wants you to do and they reward you for doing those kinds of things and then you got Mauricio who's a Securities attorney and so there's a lot of stuff that that's happening around um you know people raising money and investing money and so uh you got two highly paid highly successful people that are going to be on here for for free to be able to tell you guys um you know Inner Circle members of course um and ask her any questions that you have regarding any of those types of issues so um and then of course I'll be on there as well to hopefully answer any anything that you have that are I'm not in those two general areas so uh it's going to be fun it's going to be exciting we're gonna we're gonna continue to do these um and um you know I look forward to your questions awesome yeah and I I posted in there the comebackword.com forward slash webinar for the webinar because some people were asking um so now we're going to move to our Inner Circle questions um make sure we love these questions and there's some good YouTube ones as well that we're going to touch on here um so Tori is asking my renter keeps getting HOA violations how do I make her pay for them because she's refusing to yeah well you should this is a good one for you actually don't you have a few of these well I do have a tenant that that right now we're good but you know um he hasn't had to pay for one yet because I got them waived but the next one he's going to have to pay for yes so a couple things one um this is an opportunity for you to tighten up your lease so maybe perhaps there are some things that um the HOAs identified that you just need to stick in your lease and that you could uh I know there are things that um the you know the tenants do like putting things over like foil over their windows or or not picking up after their pets or or whatever it is uh on the other side of that um you know Denise had some situations where there have been some common area issues that have particularly uh affect the tenants but they want the tenants to pay for them things like um uh sewer backups things like water uh water leaks things like Pest Control issues so if you live in a big building um you might have a pest control issue it might not necessarily be your tenant um it could be if it's a test the tenant next door or the homeowner next door let's say if it's a if it's a if it's a renter and a homeowner the homeowners will be pointing at the tenant the tents can be pointed at the homeowner the homeowners association is going to be pointing at both of you so anyway so but this is an opportunity for you you to be able to put some of these in in your lease you know this can be around Landscaping it could be around all kinds of things but mostly it's it's quite simple if you believe that it is a tenant issue then it's enforceable in the lease then there are some mechanisms based on your landlord tenant law for your State uh to be able to move forward uh with that just like it would be anything else and obviously just make sure it's it's reasonable because I find a lot of times that these these HOAs are um you know they're a little unreasonable I guess is maybe a good way to say it on some things it could be handled very easily um you know like I know Daniel had literally um a very very different shade of paint on like a like a gate um that you know they were all over her on and another one was a light bulb that was out uh you know on the garage well yeah right the light bulb that was out that wasn't out they said that my light bulb was burning out too fast so there had to be something wrong with the you know where you screw it in and I'm not I mean like what does that even mean like you know what I mean I'm just like no that's not there was also a time remember when she had a she had an orange tree in the backyard behind you the backyard uh in her yard um and the orange would fall to the ground you know as a fruit tree would and then somebody was like would check to see if there's any oranges on the ground and they would issue her a notice right remember that one yeah I had to threaten to take them to court for that like literally I would pick up oranges every day but they would come by like in the middle of the day and if there's one on the ground they're like oh you have a fine and uh like even when we went to Florida one time I had to recruit my neighbor to come over morning and evening to pick up oranges and it was getting so ridiculous and I had to threaten a lawsuit and then they backed off and it's not even in the bylaws they couldn't even regulate fruit it wasn't even in there so then they don't say anything now but it they can get a they can get real crazy sometimes you know yeah we should do a whole show just on the crazy HOAs out there because I'll tell you what I'm sure you know we have this many stories compared to everyone else so that would be a funny one oh my gosh I know I have one ongoing one now where um you know the dog poop issue right so like my tenants are getting blamed for dog poop and it's not even theirs and then the HOA is like freaking out and like you know I offered to like put cameras up and they said that they purposely took the dogs around the camera like all this stuff so it's just funny you just gotta fight it but if it is your tenant because I've had tenants that deserved you know like my one guy that I was talking about that deserved the the tickets as well and you just have to charge them for it or you can a victim like if they're not listening to the HOA laws that is probably in your lease or it should be where they can get evicted for not following Community guidelines yep that's why it's important to take a look at that stuff and make sure it's on your lease the most common ones are you know clutter on the patios and storage and you know and and uh you know exterior paint and you know blocking the windows or our Broken Window you know we had I never did you know I had one situation where the uh Rock broke a window from the outside um and um you know obviously and um they uh uh the the HOA was saying that the tenant needs to replace the window and she's like well you know like this from a you know from a mower a landscaper you know the Rocks you know broke the window and so she had to argue with the HOA for that so there are things that you do uh don't always have to uh hit the tenant with um that you you kind of push back but uh a lot of times it is a tenant issue too yeah definitely it definitely is and Carl said that's the reason that he never got a condo but in Arizona and a lot of places a lot of these housing developments have a HOAs too I mean our two of ours are houses you know and there's HOAs um so uh let's see here So Justin's asking what is an ideal situation for a real estate investor all properties under one LLC or each in their own LLC so this is an interesting one I've talked to Garrett Sutton a lot about this uh obviously he recommends that you have one uh entity in one llc at a time um you know the the the pros and there's pros and cons around that you know here's here's what you have to think about uh you have to think about how comfortable you are when um Naf somebody sues you so let's say let's say a tenant sues you for a slip and fall which has happened to me you know we have a properties in areas where it snows uh and uh sometimes it melts and then freezes again quickly and our maintenance guys let's say happening so we've had somebody slip and fall and then they suit us so if you have multiple Partnerships in one LLC then they sue that LLC and everything inside of that LLC is subject to the lawsuit if you have one property in the LLC then they sue the one LLC and there's only one property in there so it just depends on how comfortable you are with having multiple assets inside of one partnership it's highly recommended that you don't have anything in your personal name um and you're the most exposed that you can be so for me I almost have nothing in my personal name they're all in individual llc's and that is a form of asset protection I believe because when something happens a fire a slip and fall you know and people get upset what happens is they sue and um and that they they sue the the the partnership or the LLC the limited liability company and then they have to pierce the corporate veil to get into the um you know add to the asset so there's a lot more to it as opposed to just getting suing you directly so um you know if everything was in my name and Ken McElroy then ev Everything would be on the table for an attorney to sue but because it's broken up into different things then now they have to Sue that one entity so it it's just a comfort level but Garrett Sutton um an attorney who specializes in this would say uh he believes there should be one paralysis nice and uh we had a good comment on YouTube so um Robert wanted to discuss um this bridge loan debt right and he said that there is concern with this bridge loan debt so I think that's a really good question so what would you say to that comment sure so if you think of what bridge loan is first let me just explain a bridge loan is literally a bridge so think of it as a short-term loan to get you from point A to point B that is the purpose of a bridge low um and so when would you find those Bridge loans um a bridge loan would be let's say let's say you don't have the money to buy something um let's say it's a flip literally that's a bridge loan you could call it hard money you can call it whatever you want but a bridge loan is a short-term loan and and uh so you know the hard money could be let's say eight percent could be 16 it could be 12 10 whatever you know it's just what is the price of that bridge so again but why would you do that because you buy something low you put a short-term Bridge Loan on it and then you sell it high you're able to pay everyone back okay so the bridge loans that are longer you know might they might be for renovations so we're starting to see those let's say you buy a 200 unit apartment building you uh that has um you know that that hasn't been really renovated or touched since the 80s or the 90s and you want to you know bring that whole property up to Market you want to paint it put new roofs on you want to do a bunch of the interiors and you want to increase the rents so that you would put a bridge loan on there the reason you would put a bridge load on there is because there's a very low prepayment penalty so you put a short-term loan on there and prove it then you put a long-term loan on if you put a long-term loan on the beginning then you potentially have a large prepayment penalty at the end of the time that you renovated so that's why you do a bridge so what's happening on the bridges is that a lot of people got these Bridge loans and um let's say they were three four percent um you know a year ago and now they're in the six let's say so same loan same property but you have now a much higher payment on that exact same loan and so that's what's um that's what everybody's watching right now is um you know can the people who got those loans cover that higher mortgage payment with the existing property that they bought just a year ago and of course there's a lot of different scenarios around this in our case we bought what was called a rate cap so the rate cap literally is something that you buy to cap the rate so you're hedging um that the rate doesn't go up too high um but there are some people that didn't buy those rate caps and there are some people that are facing rate cap expirations where they have maybe a rate cap expiring this year or next year and so you know at the end of the day what's going to pay all that back the property itself so if the property itself isn't performing better than the mortgage increase than potentially whoever got that loan could be in trouble if they didn't have the right reserves so that's what's happening on bridge loans um and there's a lot of different scenarios and um you know there is no right answer here because it's going to be specifically based on the property that the that the bridge loan is for or the business so obviously in a short-term scenario somebody thought that a property or a business or whatever it was was going to be worth a lot more later and that is what was going to pay off the bridge loan so the key is is the property really going to be worth more later and is there sufficient cash flow to pay off the increased price of the mortgage payment on that bridge loan so those are the things I think you'll start to see in 2023 is you know where is all this headed and are people property capitalized properly capitalized um and you know time will tell awesome um so make sure that uh you guys check out my webinar on Wednesday five o'clock P.M gonna show you how to budget it is Ken mcelroy.com forward slash webinar and hit the like button and we'll see you next week hey see you guys good seeing you all [Music]

Channel: Ken McElroy

Views: 27,211

Keywords:

Id: HVLQBms8yKE

Length: 58min 20sec (3500 seconds)

Published: Mon Jan 23 2023