kathy fettke 118

Today we’re talking with Kathy Fettke of RealWealthNetwork.com.

This is our second conversation with her (you can hear the first one back in episode 80). Kathy is the host of the Real Wealth show, which was one of the first podcasts on iTunes with thousands of episodes and millions of downloads. She’s a well-established name in the real estate industry.

She is also the co-founder of the real estate investor network and a frequent guest expert for major media outlets like CNN, CNBC, Fox News, Bloomberg, NPR, CBS Marketwatch, and the Wall Street Journal.

Think of any big name in the real estate industry, and there’s a good chance Kathy is good friends with them.

Kathy specializes in teaching people how to build multi-million dollar real estate portfolios through creative finance and planning and today, we’re talking with her about the current state of the real estate industry and where she thinks it’s going.

This is an important topic to think about because right now, we’re seeing things that have never happened before, and while nobody knows the future, it’s still pretty helpful to talk with a person like Kathy about where things might go and why.

Links and Resources

Episode 118 Transcription

Seth: Hey everyone. This is Seth and Jaren, and you're listening to the REtipser podcast. This is episode 118. Today we're talking with Kathy Fettke. This is our second conversation with Kathy. You can hear the first one back in episode 80 of the podcast.

Kathy is the host of the Real Wealth show, which was one of the first podcasts ever on iTunes with thousands of episodes and millions of downloads. Needless to say, she is a well-established name in the real estate industry.

Kathy is also the founder of the real estate investor network and a frequent guest expert on major media outlets like CNN, CNBC, Fox News, Bloomberg, NPR, CBS Marketwatch and the list goes on. Pretty much think of any big name in the real estate industry, and there's a good chance Kathy is good friends with them.

Kathy specializes in teaching people how to build multi-million-dollar real estate portfolios through creative finance and planning. And today, we're talking with her about the current state of the real estate industry in where she thinks things are going.

This is a pretty important topic to think about because right now we're seeing things that have never really happened before. And while nobody knows the future, it's still pretty helpful to talk with a person like Kathy about where things might go and why. With that, Kathy, welcome to the show. How are you doing?

Kathy Fettke: I'm doing really well. Just got back from a three-week vacation with my daughter in Europe. She's living there in Barcelona.

Seth: That sounds like fun.

Kathy Fettke: Oh my gosh. So fun.

Seth: How many times have you been over to Europe? Is that a common thing for you to go over there?

Kathy Fettke: When I was young, when I was her age, I went on a trip. I spent a couple of years living there. I didn't go back much, but I think what I learned is… I actually interviewed her on the Real Wealth show, and she said “Mom, I'm here because of you. I wanted to emulate you and walk in your footsteps.” It's so funny. The things that your kids do that you don't even know that they're watching or that they heard about or learned about. But she said, “I heard you paid your way when you were my age to live in Europe. So, I'm doing it.” And I said, “Really? You're paying your own way? We're not helping you?” Because I just didn't know. And she goes, “Yeah. You didn't know that I completely funded this myself?” And I’m like “No?” Anyway, that was really cute.

Seth: Yeah.

Jaren: That’s awesome.

Seth: That is crazy how the kids pick up on stuff. I'm seeing that at ages four and seven, which is not really surprising because we're around them all the time, but it'll be interesting as they get older to see how that continues and what else they pick up. Hopefully, it's just us doing the good stuff and not the bad stuff.

Jaren: Yeah, hopefully.

Kathy Fettke: Well, they pick it all up. They pick it all up. They are sponges. If you don't like something they're doing, look at yourself.

Seth: Yeah, seriously. Well, I guess just to kick this off, let's just start with a basic question. Where do you think we're at right now in the real estate cycle? Where have things gone since COVID-19 hit the world and where do you think things are headed over the next 12 months or so?

Kathy Fettke: Well, the obvious is that prices are very, very high. If you look at any charts, you'll see that they're just going up. But if you also expand on the charts and look at real estate over time, that's what it does. There was obviously one really big housing recession and that happened 11 years ago, or actually more like 13 years ago now. And that was unique. That was real estate related—bad mortgages.

Sometimes the market would be affected, like in 2000 and the 2000s when in Silicon Valley there was a big crash in the tech world. Well, sure it was affected then, but not overall, not the whole country.

Where are we today with prices that are high? What we have to look at besides just the fact that they're higher than they were. And if you got into real estate over the past 10 years, and specifically like 10 years ago, then it hurts. It's hard to buy real estate today because it was so cheap back then.

But what we have to understand is that it was unprecedented. That was undervalued. It tanked so far that it just wasn't normal. So, don't think that's normal. Those who got in then, they were lucky. Those who got in later just have to do real estate the way it's normally done.

Over the long term that's going to pay off. If you buy an asset with someone else's money, someone else pays that off for you, plus you get tax benefits, it's going to work out over time, right? So, we just have to go over the fundamentals.

But again, nobody wants to buy an asset and have it lose value. And I think that's what people are afraid of. If you buy today, are you buying at the peak? Is it going to be in 2006 where everybody was jumping in because prices had gone up for so long that they jumped in and then they lost money?

Overall, there is an overwhelming demand for real estate and an overwhelming underbuilding of it, undersupply of it. Big demand, low supply. One of those has to change for things to change. There has to be more supply and less demand for us to see any kind of slowdown, and see what has caused that. And that's the big question.

Seth: Yeah. I totally know what you mean. I still vividly remember those days back in 2008, 2009, when everybody was just terrified of getting into real estate because nobody thought values would ever come back. And in hindsight, it is just so absurd. Like you literally couldn't lose back then. If you bought anything, you would've won big time. It just begs the question, “Are we in 2006?” I don't know. Is there any objective way to know that or is it kind of just like, you have to make a bet and you don't really know and you could get hurt?

Kathy Fettke: Well, there are things to look at. There are demographic trends, there is affordability. There are quite a few metrics to pay attention to. The most important to us is job growth. People who are working, people who have money need a place to live. We've always followed the jobs. We've followed the population growth, where are people moving, and we have a really good idea of where that's happening.

There's massive growth to the Southeast to affordable locations. There's growth from California to the Northwest. And then to Arizona, Phoenix, Texas. You've got a lot of people retiring. The baby boomers are retiring. They're going to more affordable places. Like I just said, generally, the South, Southeast, and Arizona of course have been blowing up, and Texas.

When we follow the demographics and say we've got this huge demographic group of baby boomers wanting to downsize and be near their kids and their kids are an even bigger generation and they're looking for affordable houses and many of them can live anywhere. Then you know there's tremendous demand for certain. Now I wouldn't go buy a property in the freezing cold wilderness of North Dakota. But if I were to look at places in Alabama or Georgia or Florida or the Carolinas or anywhere in that Southeast region, we're seeing more and more growth because it's affordable, the weather's good, and you can sure get a lot for your money. And those areas are nice. They're a good place to live.

Jaren: Yeah. Kathy, I want to jump in there and I want to piggyback off of one of the major points that we brought up in our last conversation with you on the podcast. I remember vividly that the major thing we were hammering in was “Buy low and sell high.” That's like investing 101.

I feel like the problem though is right now, I think they say depending on what expert you're subscribing to, that the real estate cycle is somewhere between 7 to 10 years on average. In terms of, it peaks and the values drop and then it starts over again. But the problem is like you said, we're 13 years into a 7-to-10-year cycle.

I think a lot of people are on the fence because normally this would be like a textbook, “Hey, it's time to sell. Don't buy right now.” But it's been perpetually growing. And I don't know if it's because of the stimulus checks and other things, all that stuff is above my pay grade, but I don't know if this is artificial, actually propped up, or something, but it doesn't seem like there are any major factors that would point to a crash coming. Or maybe there is and I'm just super ignorant.

I just love your commentary on that. Is this a time where you would sell or would you encourage new real estate investors to get in the game and just enter because this is what they have available?

Kathy Fettke: We are in acquisition mode. And it's hard for me to say that because it's so hard to do compared to 2012 when we were buying stuff for $50,000 in California. It's a hard time to buy, but again, you have to go to the stats. And what we see now, yes, it's artificial, it is low-interest rate-driven, a hundred percent, but that is U.S. real estate. That's how it has always been. I don't think any countries offer a third-rate mortgage that is 100% government-financed. Because would you ever lend somebody $500,000 for a 2% or 3% return over 30? Of course, you wouldn't.

It's a lucky thing that we have here in the U.S. It’s a big push to buy real estate. And I don't know why we have that, but we do. So, take advantage of it. Other countries are usually on adjustable-rate mortgages. Here you get it fixed.

With that said, what happens if the government changes it? What if interest rates go up? Well, they will, interest rates will go up. There's no question about that. And that will slow things down. But what we have to look at is availability versus demand. And right now, I believe it's about, oh gosh, I'm going to get it wrong, I'm sure. But I think you said there were around 180 million homes and you've got like 350 million Americans. Somewhere around that.

What has been happening is you've got the baby boomers, the biggest generation before, and now their kids, the millennials who are an even bigger generation and they've been generally living together. A lot of millennials have either just gone to college and have gotten out and they're now forming households. A lot of them lived with family longer than maybe I would've. I left the house at 17. Now they're forming these households.

And they're many millennials, not all, not all, but a lot of millennials are the most educated ever in history. And they understand technology better than any other generation in history because they were born with it. Now, the younger generation, the generation Z are going to know it even better, but they're not really at working age yet. Not quite yet. It's the millennials who are.

You've got this super tech-savvy group that's highly educated and they're entering the workforce and they're making money. I talk to my nephews and they are making a lot of money. And one is only 24. He has been investing. He lives in his van because it's cool, but he makes over six figures and invests all of it. It's just like a very brilliant, interesting group of young people. He's 24 years old.

I remember when I was his age, the goal of getting to a six-figure income was something you didn't expect till you were 40. I know there has been inflation, but they're moving out.

And then there was this belief that “Okay, well, the kids are just going to take over their parents' home. Parents are going to die and the kids are going to take all that housing.” Well, that's not happening.

Baby boomers, the oldest of them are in their mid-seventies. I don't know if you've met someone in their mid-seventies lately, but they look pretty darn good. They've got access to great healthcare. They have a tremendous amount of money because it's the older generation that baby boomers who bought real estate a long time ago and hopefully held it and bought stocks. And they're rich. Again, not all, but a lot.

And so, they're not moving anywhere. They're staying in their houses and if anything, they're buying more houses, they're buying their second home and their vacation homes and they're doing this and doing that.

This whole idea that the older generation was going to leave a bunch of housing for the younger generation it's not happening, not right now.

Jaren: What do you do with the situation with cap rates, for example? If me and Seth, him more so in the self-storage space, and me more in the multifamily space, I did a deep dive and I was talking to mastermind syndication groups and really going deep in my research there.

But honestly, my conclusion was right now, people are asking for prices that don't make sense on moderate evaluation of the properties. And I guess it depends on what space you're in. The land business is absolutely amazing. But outside of that, I feel like right now, unless you're fixing up, even if we were to talk about a smaller multifamily, like two to four units. The stuff that's available, even here in Indiana, I could probably find like a rural non-growing area. I could still find some deals, but it's a totally different world where I remember selling as a wholesaler to guys who wouldn't even touch something unless they're picking up something that's a 14% cash-on-cash return, that kind of stuff. And I don't know if those numbers work anymore these days.

Would you just say that if you're going to get into multifamily or what have you, you would have more of a long game approach to it? Or are all of us that have kind of come up in real estate in the last 13 years just operating with unrealistic expectations, because I am very, very hesitant to buy right now?

Kathy Fettke: Yeah. Well, sure. I mean, it depends. Asset class matters a lot. As much as I love multifamily, I've been a little nervous about it too. It was a wrong call on my part because this is the exact same thing you said, but I said it a couple of years ago where it's like, how could cap rates really get much lower? And they did. I was wrong, but it was a gamble. We didn't know. Sometimes the best deal you have is the one you didn't do.

Jaren: Right.

Kathy Fettke: I didn't. And yet I watched these people who just got into real estate and didn't know what they were doing and got super lucky and bought when I said not to. And they made some money.

Jaren: Yeah. And that's the tough part because I have literally been hearing for the last five years that there's going to be a crash coming next year. For literally every single year I have heard experts say “It's all going to come crashing down,” and then it's just gotten better. If I were to buy real estate five years ago, things would be through the roof in terms of what I bought. We're on a gravy train that doesn't seem to be stopping.

And it's tough because what do you do with somebody who's looking to get started? Do I tell them, “Hey, most likely there's going to be a crash around the corner”? Or do I say “I don’t know, jump in where you can because this is what's available”?

Because there's the other side too, of opportunity costs. If you wait around for the infamous someday of this impending crash, how much opportunity costs have you lost that you could have been doing deals?

Kathy Fettke: Yeah. If you want to be super conservative, then you just need cash flow. And you need a property that pays for itself, at least in a market that's growing. That's kind of like my basics. Now you have to understand I grew up in California. So, I'm pretty much used to being in a mentality where cap rate wasn't even a factor and cash flow wasn't a factor because it was just all negative. Just negative cash flow is what people got knowing that they'd make more on the appreciation, but that's a gamble and that's not a super wise way to invest. Although it has worked for years in California. Again, it depends on the market.

What we have to understand, again, looking at fundamentals is we are in a time when there's not a lot of great cap rates out there. Is it possible? Can you still find it? Can you find deals? Of course, you can. There are always deals no matter what market you're in. There are always people who are facing the 4 Ds as they say—death, divorce, disease, or drugs. People who just couldn't handle their asset and it goes to foreclosure. We're going to see an uptick in foreclosure because they're out there. But that's for the people who are sophisticated and savvy to know how to do it.

The teams that we have at Real Wealth network, they are gearing up. We are gearing up to buy those foreclosures because they know how, just like you as a wholesaler. You know how but most people don't. Is there an opportunity? Of course, but even on a deal like that, you might end up with a piece of garbage. You're taking a risk in any market. Because if you're buying at an auction or something, you don't really know what you're getting until you got it. You still have to be wise and savvy.

But for someone like me, who's just, I don't want to work that hard, I don't want to get my hands too dirty. I just want to buy a property that has enough cash flow. I don't need the cash today. I'm good today. I've got a great job. My income is fine. But I want to plan for the future. I just need enough cash flow to cover all the expenses.

And knowing that I'm buying that property in an area that's growing and where rent is going to rise most likely because it's growing but the development of real estate isn't growing as quickly as the population growth, then over time, I'm probably going to see rents go up. Over time I'm going to see my loan pay down. And over time, I'm probably going to see that property go up in value. In 10 years, in 20 years, in 30 years, are you going to care that you bought a low cash flowing property? You're not. I don't think so. And if you buy a good property and hold it, you will just be so glad because you will be cash flowing eventually.

Seth: Yeah, that is true. I know the first house I ever bought. I pay $102,000 for it. And at the time it was 2006 and values plummeted after that. I think a few years after I sold the thing, the person we sold it to had to get foreclosed on, and then the property sold for $30,000. But just this past year I saw that same house sold for almost $200,000.

Even if I was overpaying in 2006, all it takes is time and it's going to find its way back and go even beyond that assuming there's not some nuclear war and the U.S. is still a country and all that stuff.

But it's interesting because, Kathy, I know you are friends with Ken McElroy and I saw a video that he did, I think it was about a year ago now, where he was talking with his property manager or one of them. I don't know that he actually said this outright, but it seemed like based on what the property manager was saying, there almost seems to be a little bit of an artificial bubble created by this pandemic and probably low-interest rates because the property manager was talking about how people didn't want to do house showings and list their house and have strangers walking through their house in the middle of a pandemic.

So, they just wouldn't list their house or maybe they don't need to move anymore because their job is remote now. The weird things that the pandemic has done. It's not that the housing supply is necessarily less than it was. It's just that properties aren't getting listed, which means there are fewer properties to choose from, which artificially restricts the supply.

I'm just wondering, do you think that's still true right now? And if so, how much longer will this go on? Do you think it'll ease up when this pandemic is done with? Any thoughts on that?

Kathy Fettke: Yeah, that's a great question. Ken McElroy is a close friend. I was just at his wedding and a group of us were there. We kind of gave him a hard time and said, “Dude, you were totally wrong on this. You missed it.” And the thing is he is a very wealthy man. He knows his stuff in multifamily but not so much single family. And I say that with only love. What he wasn't paying attention to was demographics. Basically, the pandemic just speeded up what was already happening.

When you've got this massive group of young people who make pretty good money and all have really good credit. I give all the credit in the world to these millennials who I think are just really the smartest we've ever had in the world because they have access to more information than most of us ever have and are the most educated from a higher standpoint, lot of investment in higher education.

You get these high-paid, young, smart people who are in an industry that's growing, meaning technology. And then you look at the fact that they're just like anybody. People thought millennials were going to be different. They're not, they want families. They want to get married. They have animals, they want the white picket fence eventually. They didn't want that in their twenties, but neither did I. I wanted to live downtown near a nightclub.

Jaren: That's super interesting because I think you're the first person that I've ever heard say that about millennials. What I've heard is the trends tend to be showing that most millennials rent and the trend is going towards more and more millennials renting and never owning. I think I even heard a statistic that 2018 or 2019 was the first year where there were people who ate out more than they bought groceries. That was an indication of a major culture shift of being more transient and more urban and all that. But are you seeing those trends because of the pandemic? Because now people are like, “I want to get the heck out of cities and away from people”?

Kathy Fettke: Apparently, the largest buyer in 2020 and this year were millennials: 37%. Now that doesn't mean all. When you take 88 million people, which is the millennials, not all of them are buying, but a lot of them are. And they're the largest group buying today. But look at their age. We're talking about… I don't know exactly. I think it's like 22 to 39 or something like that. In that age range, 31 is normally the time that you buy your first home. The largest group of millennials is 29 today. The older ones, in their late 30s, well... they went through some tough times for sure. Maybe that's what people were talking about, it’s the older ones. Because they went through the last recession and then they went through COVID. They maybe got a late start, but the younger ones now, they're ahead of the game.

Jaren: Yeah. Very interesting.

Seth: I don't think you actually said this, but do you think new construction is a good player right now? Just given the difficulty in finding deals, does it make a lot of sense to start building?

Kathy Fettke: Well, we're in the home building business. We've been doing that for 10 years. We have subdivisions in Reno and Park City and Florida and all over. It's been really hard quite honestly. It's been really tough. Not from demand. Demand, we have 90 people on a waitlist in each of those subdivisions. We just can't get them their product. In syndication, you guys probably know this, but we raise money for these projects and we give our investors a really high return because there's more risk associated with building. We gave too much. We were giving a 15% return. So, it’s like a big chunk of money going to these investors. And yet, the longer it takes, the more they get, the less we get.

And there's COVID and then now materials and supplies and labor and we have a waitlist of buyers. We cannot finish their gosh darn home. And then all the costs went up so we had to go back to them and use the force majeure part of the contract saying, “Look, we didn't expect COVID, we didn't expect these prices to go. We have to raise the price of this property.” And some people understood and some people walked. Then you got to find new buyers. That’s not too hard, because they're out there. But is it a good business? Absolutely. It's a hard business. That's all I can say. In some of the deals, our investors are making a lot of money, but we, as the builders? We're not.

Jaren: I just want to jump in there and speak on behalf of the land community, because I know a large portion of our audience are land investors. And I will just say, I don't know for anybody else, but the last two years have been the best years ever for flipping vacant land. It's been insane. For example, in one of the deals I did this year in the Southwestern section of Florida, there are these things called scrub jays. And there are these things called scrub jay’s territories where if you buy a piece of land that's in this territory, you have to pay a bunch of money to an obscure nonprofit or whatever to protect these birds. It's a lot, it's like $30,000, $50,000. Something like that. And so, for the longest time, the run of the mill, for example, even in coaching and all that, I literally would have a due diligence checklist and highlight “Check for scrub jays.” And I use it as a talking point that you're going to have nuanced due diligence in whatever market you're in that you need to be aware of. That's market by market.

Well, I bought a property in scrub jay territory for $17,000. And a month later, which normally for me, at least up until the last two years, was like a three-to-six-month turnaround. And in a month, we sold it for $56,000.

Kathy Fettke: Wow.

Jaren: Yeah. And it's scrub jay territory.

Seth: That shouldn't be happening.

Jaren: But there's so much influx of people moving from New York and from California to Florida and the places you mentioned earlier, Arizona, Texas, all these hubs of growth, Idaho, Colorado, even the Carolinas now. There's just so much happening there and there's so much demand that people are buying land like crazy.

Kathy Fettke: Yeah, yeah. You timed it right. Land can be incredible. Any investment can be incredible depending on supply and demand. Back in 2010, when we were buying land, if you were a landowner trying to flip, you'd sit a long time. And that's why people like me were able to come in and buy land for 10 cents on the dollar. Now obviously that's changed and there's not enough land. Anyone who does have it, it's a hot potato. Anyone who has it today can market it up.

So, yeah, you're lucky, and that's awesome. I imagine that will continue because there is so much demand for housing and building that if you can get the land for the right price and the labor for the right price and the materials for the right price, you can make a profit. But if all you're doing is flipping the land, that sounds easier.

Jaren: There are still some weird markets though, where you can still get stuff super cheap, but good luck on selling it. I'm testing out Tennessee right now and I'm getting a bunch of calls on acre lots and these subdivisions that are super nice and they have boat docks and like all these amazing amenities and all that. But I literally have people hounding me, like “Just pay my back HOA dues and my back taxes and a cup of coffee and I'll give you the property.” And I talk to agents. That's how I do the business. And they're like, “Don't buy anything in this subdivision. They won't sell.”

Kathy Fettke: Wow. Oh, interesting.

Seth: Kathy, on the whole new construction thing, just to clarify, what exactly is making it so much harder? I know the prices of lumber have gone nuts. The price of steel has gone crazy this past year. Is it those two main materials or is it all construction materials? And how big of a factor is just getting the right labor in this? Is it hard to find workers to do the work?

Kathy Fettke: All of it, just all of it. There's so much construction happening that you don't have enough workers. We've been on immigration in the past. And so, a lot of workers left or went into other industries. Then on top of that, you got the supply chain issues. You probably know that there are lots and lots of shipping containers just sitting on the ocean, backed up. And on those shipping containers are the things we need to finish our houses. You might do a renovation and think, “Okay, I'm going to replace the windows and the plumbing and this and that.” But worst case, if you can't, you can maybe still do something with that house. Just leave it as is and rent it out for less.

With a new home, nope, you got to have it finished and it has to meet the inspector's standards. And that means everything has to work and be done. And if you are just waiting on a refrigerator or a washer-dryer, or some fixture for your plumbing, and it's six to eight weeks or three months or six months out, fortunately for the national builders, they kind of get preference and they buy and bulk and they have warehouses for that. But for the small builders like me, we're kind of at the bottom of the totem pole, so to speak. We're not a priority.

We got lucky on our Park City deal because we were ready to break ground in May. And Park City is in Utah. So, you've got four or five months of building time and then it snows. We had to get on it in May. And as soon as we were ready to break ground, guess what? We had no lumber. There was no lumber, we couldn't get it. We had to let our contractor go and hire a new contractor who had another job that got stalled. For some reason, he got lucky. He had lumber from another project. But he had to go through some more stuff at the county.

We got lucky and we got a building and we're okay, but that's like a daily thing. Okay, well now what about the windows? And what about the flooring? Everything stalled, it's hard. And again, for the owner, for the builder and the equity people, the operators, the longer it takes, the less we get because a preferred return means that the investors get paid first. So, the longer it takes, the more they get out of the profit. And we want to be done in two to three years. Well, some of these are going to take five to six years.

Seth: Yeah, man. That’s a long time.

Jaren: Kathy, what do you think about the rise of short-term rentals and how much our culture is shifting among millennials? Like Airbnb and Vrbo, that kind of stuff. Obviously, that's now established as a serious investment model. There was a big scare with COVID, especially to the people who were doing Airbnb arbitrage and stuff like that.

But what do you think is going to happen to traditional hotels and traditional resorts with more and more people going in that direction? Because I'll tell you personally, as a millennial, and right there at the peak of the demographic, like you said, I just turned 30, back in July. I prefer to stay at an Airbnb than at a hotel. I'm just curious because you talked to so many leading experts in the real estate space, do you have any comment on what people who are in the hotel space are thinking? I'm sure they're threatened by it.

Kathy Fettke: Oh definitely. There's a lot of focus on buying hotels that went under during this past year. They're highly regulated. Whereas I had a rental, two of them all through the pandemic. They're separate units, one is a guest house and one is kind of like a tiny house. And they stayed, rented the whole time because they didn't have to share space with anybody. People were coming in from L.A. where they were crowded in with all these people. And they could come to these little houses where they didn't have to run into another single person. So that was great for our business. We were booked every single night. Now, as things are opening up and there are concerts and there are weddings and events and conferences, there are people that are still going to use hotels. I'm going to a conference in a couple of weeks and we're all staying at a hotel.

It's just going to depend. I actually think it's going to boom again in all of it. As people get out and want to travel, it depends on, again, supply and demand. I'm really lucky because the area that I live in, you're not allowed to have short-term rentals unless you live there. But I live right in a city, but in the county part. I don't have to fall under those rules and I can do it. So that leaves little competition for me.

If you owned a hotel in a big city and no one was traveling like Las Vegas? That had to be brutal. It had to be brutal. But now if they were able to get the PPP loans and stay alive somehow, they're going to be busier than ever.

Jaren: Yeah. I am really excited about that space. We had a guy on our podcast named Robuilt who buys land similar to the way that I do. But then what he'll do is just yurts and tiny houses and that kind of stuff. And his advice was just so awesome. He’s like if you want to test it out, just find somebody who will lease their property to you and throw a tent up there and see what happens. And that would never happen in the hotel space. There's no just throwing up a tent and seeing what happens and kind of flying under the radar. I'm pretty excited about that space.

Seth: Something that I have heard a lot of people talk about is just this idea that knowing that inflation is coming, and it's kind of already here, rates are still pretty low right now. I'm assuming this is a good time if you can find a deal that makes sense to get in at a low fixed rate because inflation's kind of going to erode that going forward. Would you agree with that? And then if so, if somebody can't get a fixed rate, say if they get an adjustable-rate that changes every three to five years, is that something that they should be scared of given that rates are probably going to change pretty soon?

Kathy Fettke: Yeah. Here we are at a time when rates are so low. Just get as many as you can just. I just keep telling my daughter, just buy, just buy. She's got enough for a down payment, and locked in that rate. Whether you're buying a rental property or buying your own residence, these are unprecedented rates and it's unlikely they'll go much lower. They could, but it's more likely that they will creep up. Then it's just the same thing. Then you're just kind of paying more.

It could slow down the fast rapid growth in prices, but it also might not depend on the demand. When you've got people today who are finding that it's cheaper to own than rent, and that's crazy. As long as that's the case, you're going to find buyers. You don't need a ton of buyers. You just need enough. Because there will be people priced out, but there will also be people who can afford it.

Seth: Yeah. Gotcha. Cool. As we wrap this up, Kathy, is there anything else people should just be aware of from a high level or just looking at the current situation and how the world is changing and the oddities going on? Anything else that you would leave us with?

Kathy Fettke: That's just the main thing. It’s to understand really the fundamentals that sometimes we're so cash flow-focused and sometimes so appreciation focused that we forget fundamentals.

Fundamentals are you get to borrow money from a bank at super, super low rates. You get to buy an asset that somebody else uses and pays you to use it. And they pay down that debt that you just got so that in 30 years you own it free and clear. And if you don't think it's going to be worth more than 30 years, well, it will be, it will be. And rents will go up too. And you guys are young. If you just turned 30, you'll just be turning 60 by the time you have it paid off. Wouldn't you love to have 10, 20 properties paid off by the time you're 60? That would be amazing, right?

So, it's a backup plan. It's not a grow rich quick kind of thing, it’s a grow rich slow. You're going to maybe need other ways to create cash flow, but at least you know that you're going to be set for life. And in most cases, if you are creative, we have plans at Real Wealth that show people if you buy enough properties, now you take all the cash flow and start paying off one property off, one at a time, such that you could instead of waiting 30 years, it's 15 years.

Really look long-term for “buy and hold” real estate. Of course, there are people flipping and making a bundle. And that's great for them and I'm jealous a hundred percent, I am. But that's not necessarily fundamental real estate. Really have a backup plan for the long term.

That's my advice. We've got all kinds of webinars and educational material on our website and referrals to our teams. We have 15 teams around the country that help investors find those properties and they're managed for them.

Seth: Gotcha. They appreciate you just sharing a good perspective. Just helping people to see things, maybe take a few steps back and have some better perspective on this. If people want to find out more about you or follow your podcast or anything like that, where should they go to do that?

Kathy Fettke: Yeah. Real Wealth Network is my website and that's where you can join for free. And there are hundreds of free webinars there on the tax savings of owning real estate, the best leverage, the best lenders to go to, how to understand appraisals and inspection reports, and where to buy and understand demographics. All that stuff. We do lots. And every Thursday we do a live webinar and then those are posted on our website that people have access to.

But then the big thing is that we have teams across the country that we've worked with for a decade, that we really trust, that help people find the rental properties and manage them for them. So, it's kind of “done for you” investment. And that's at Real Wealth Network. And then my podcast is realwealthshow.com. And you can just find that wherever you find podcasts. And my book is “Retire Rich with Rentals,” which you can find on Amazon.

Seth: Awesome. Yeah. I've spent a bunch of time on Kathy's website. It's a great website, a great resource. I will put links to all that stuff in the show notes as well. This is episode 118. You can find that at retipster.com/118. Thanks again, Kathy. I appreciate your time and I wish you all the best in the coming year.

Kathy Fettke: Aw, thank you so much. You too.

Seth: All right, folks. There you go. That was our conversation with Kathy. I don't know if you'll notice this, in this final version that you're listening to dear listener, but we had some internet issues, things were cutting in and out. Hopefully, our editor was able to stitch that together as best they could. But sorry about that. Do you have any big takeaways from that Jaren? Anything that jumped out to you?

Jaren: I think that it's really important for people to walk away from a conversation like this, understanding that no matter what's happening in the economy or with interest rates or whether we're in an upcycle or a downcycle, the reality is the time value of money is actually a pretty big deal. Money that you are investing today has a compound effect that if you wait around to invest, you will miss out on. And it's a big deal.

I just really want to encourage all of our dear listeners, figure out how to make money in any market. Whether this market, if interest rates go up. I know that back in the 80s, bank loans were like 16% or something ridiculous. And people were still making money. And so, don't approach life as though the sky's falling or you're going to turn a corner and there's going to be a big gotcha. Sometimes that does happen.

But if you ride it out historically, the pattern is whenever there's been a big gotcha, if you hold on and go through the cycle, on the other side, you come out ahead. Real estate is a vehicle where if you hold onto it long enough, you will end up on top. For example, my grandma bought a house in California for like $30,000. And I think it was 2015 or 2016 when we ended up selling that house, my mom did, for like $750,000. That is a big whole time. I think she bought it sometime in the 70s or something, but still, that is a huge upside potential. And that's crazy California appreciation, but needless to say, it works.

I've heard real estate agents talk about some of their most wealthy investors. And here in the Chicago land area are people who bought in areas that used to be straight-up war zone ghettos, and they held onto it. And then all of a sudden, it grew into super fancy ritzy areas. I know I'm talking to civic to buy and hold and you do have to be careful with flipping and transactional-based real estate. But that's my biggest thing I want to leave this conversation on is don't be afraid. Be smart, be wise. Overcome the obstacles that are in today's market that you have to face, but you can make money in a new market.

Seth: Yeah, I've got a handful of people in my life who are naysayers and skeptics and the sky is falling kind of mentality about everything. Sometimes I even take that, unfortunately. I'm kind of ashamed of that. But it is just a good thing to remember that given enough time, everything will come around and eventually work out again, assuming the world doesn't end or something like that.

But yeah, historically, look at anything that at one point in time looked terrible. Just give it time, it'll come back. I guess you also have to think about what the opportunity cost you actually gave up. Is there something else that would make the money faster that you're not able to take advantage of because of that? But it's just funny, man. It's funny to live through different cycles of the economy and real estate market and just see how people change their attitudes and perceptions about everything. It's kind of frustrating in a way. Humans are very fickle in the way that they grasp to one thing or another. It doesn't take much to change their mind and they act like they knew everything all along where they had no clue.

Jaren: They're very emotionally driven.

Seth: Yeah, I know we are. Cool, man. Well, do you want to ask our little oddball question?

Jaren: Yeah, man.

Seth: Yeah. If you could jump into a pool of something, what would it be?

Jaren: Well, my immediate response was hot chocolate, but that would probably really hurt.

Seth: Yeah.

Jaren: So, I'll probably shy away from that.

Seth: If you had just come from a sauna or a hot tub, you'd probably be fine.

Jaren: Well, even with that, I know fresh hot chocolate can be hot.

Seth: Yeah. It's pretty hot, it's pretty hot.

Jaren: Yeah. So, I probably would be super practical. Money would be really nice to jump into a pool of because that'd be a lot of money.

Seth: Do you get to keep the money or is it just the experience?

Jaren: Yeah. I don't know. I'm assuming I'm keeping it. What about you, man?

Seth: Yeah. I mean, if we're keeping the money, I think anybody in the right mind would probably pick that. I don't know why this was the first thing that hit my mind, but I was thinking of whipped cream for some reason. I think it's like this weird childhood fantasy I had back when I was like five years old. I had seen some commercial on TV where somebody jumped into a pool of whipped cream. And for some reason that just stuck with me. The kid in me says whipped cream, the grown-up in me says cash.

Jaren: Yeah. That's very similar to my hot chocolate, except for not wanting to get burned. I actually have come to terms with the fact that I really like hot chocolate. I don't think I'm supposed to like hot chocolate anymore because I'm like 30 and I'm an adult, but I can't shake it, man. It’s kind of like one of those guilty pleasures or whatever. I prefer a cup of hot chocolate over coffee or tea. Hot chocolate is where it's at. My wife two days ago randomly brought home hot chocolate and she surprised me with it. And I felt so loved, bro. Like from my head to my toes. I was just like, oh my goodness.

Seth: Were you going to say love language?

Jaren: No, quality time.

Seth: Really?

Jaren: Yeah. But I tell you what, that hot chocolate made me feel blessed. I was happy.

Seth: Sometimes that kind of thing just hits at the right moment when you really want it and you don't even know it, but when you get it, you're just like “yes.”

Jaren: Yeah.

Seth: Well, cool. Remember that, note to yourself. If you want Jaren to feel loved, get him a hot chocolate.

I appreciate everybody out there listening today. Again, if you want to check out the notes, retipster.com/118. If you are listening on your phone, go ahead and text the word “FREE” to the number 33777. You can stay up to date on all the stuff going on with the REtipster world. I hope everybody out there is doing well, in business and life. And we'll talk to you again in the next episode. 

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Seth Williams is the Founder of REtipster.com - an online community that offers real-world guidance for real estate investors.

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