Insider Secrets Podcast Episode #97
Guest: Kathy Fettke
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Kathy Fettke is passionate about helping people create real wealth — which she defines as having the freedom and the money to live life on your terms. She is the Co-CEO and Co-Founder of RealWealth, a California-based real estate investment group with an ever-growing group of members. She specializes in helping people create passive monthly cash flow by investing in income-producing assets like real estate.
Kathy is an active real estate investor herself, with properties ranging from single-family rental homes to commercial buildings, to large land development projects. She is a licensed real estate agent and former mortgage broker, which has helped her understand and teach the power of leverage.
With a passion for researching real estate market cycles and economics, Kathy is a frequent guest expert on CNN, BNN, CNBC, Fox News, NPR, CBS MarketWatch, and The Wall Street Journal. She also hosts The Real Wealth Show, a featured podcast on iTunes and Stitcher with listeners in 133 different countries.
Kathy received her BA in Broadcast Communications from San Francisco State University and worked in the newsrooms of CNN, FOX, and ABC-7. She’s past president of American Women in Radio & Television and was recently recognized as one of Goldman Sachs’ 100 Most Intriguing Entrepreneurs – two years in a row.
In 2002, her husband Rich was diagnosed with deadly melanoma and told he may only have a few months to live. Fortunately, the doctor was wrong and Rich is healthy as ever, but that scare forced her to take immediate action. She decided to use her radio show to interview millionaires and learn their secrets. The segments changed her life and her listeners as they discovered proven strategies for creating passive income streams for life.
Kathy and her husband went on to purchase numerous income properties and learned the vital lessons of investing that can only come from hands-on experience.
Loving the freedom that real estate investing can bring, Kathy is an avid traveler and enjoys hiking, rock climbing, skiing, figure skating, and surfing. She lives in Malibu, California with her husband, Rich, and their two daughters.
During the early two-thousands, nobody needed to syndicate because you could walk into a bank and get cheap money.
I am someone who jumps into things and I wish that there had been a course for me to take or someone to learn from, but I just had to figure it out.
You get to know each other for over 25 years and you get to hopefully learn from each other, opposites attract.
I can rent a beautiful apartment in Florida for a third of what I was paying for a condo with no windows in New York City.
We have a big network, so deals come to us all the time. I could use more help for sure with underwriting and operations.
I like newer buildings. I don’t have a stomach anymore for that kind of older building.
“We have a lot of single-family homes. We started some short-term rentals recently and that’s been incredibly successful”. – Kathy
“But so about 10 years ago we started buying distressed commercial properties left and right. So today, fast forward, it’s really hard to buy things cause I’m so used to just getting stuff so cheap.” – Kathy
“We all know about the single-family housing, but what a lot of people don’t realize is how much commercial property went back to banks”. – Kathy
“In 2010, the banks weren’t lending to anybody. And so all of a sudden these big-time developers had to find people like me that had audiences. And so I had to quickly learn the rules around raising money and SEC law and hiring good attorneys”. – Kathy
“When you’ve got someone who’s so different than you, he would just shut me down and say, no, we’re not going to do that. And that didn’t work”. – Kathy
“I think I’ve missed out on some great opportunities because I didn’t know I was uncertain. And I’m at a point where I can’t make a mistake because I’m well-known and I’m investing other people’s money and if I’m not totally sure about something, then I don’t do it”. – Kathy
“I live in near LA and it’s almost become legalized to have these shopping gangs. You can go into a store and as long as each person doesn’t steal more than $900, you’ve just let off the hook. Crime has become normalized” – Kathy
“Interest rates are going to go up and as a result of interest rates going up, the only hedge against that for inflation is the increase in rents that you can get from multi-family apartments or even single family” – Mike
“So for me, the challenge right now is not raising the money, there’s lots of capital out there. It’s finding the great projects”. – Kathy
“I don’t have any pressure to do anything. Because we’ve been investing long enough and our company is successful. So I’m never under any pressure to do anything”. – Kathy
[02:26] Today, I’m joined by Kathy Fettke.
[03:55] One word that describes Kathy personally and professionally.
[04:48] Kathy shares her backstory and how she got into real estate.
[10:28] How does your portfolio today split up? What portion is single-family versus multi-family or other parts of commercial property?
[13:13] Kathy started syndication in 2010 when she didn’t even know what it meant.
[15:45] How are you looking at deals today?
[20:17] Kathy talks about how she looks at a market and what markets she is looking at?
[28:32] Talking about raising and capital and what it is like today.
[29:16] . So let’s talk about some underwriting fundamentals. What are the key points you look at and how conservative are you being around those?
[31:00] Kathy talks about the deals she passed up and later thought she should have bought those.
[32:34] How do you make high-stress decisions?
[36:22] Favorite tourist attraction.
[36:35] Favorite restaurant.
[36:56] Best book you’ve ever read?
Podcast: Real Wealth Show Podcast, Real Estate News Podcast
Kristen: [00:00:00] Welcome to this edition of Insider Secrets, the weekly podcast that turns real estate investing goals into reality. Each show we interview guests who are seasoned real estate professionals, actively closing and managing real estate deals. Mike is the founder of My Core Intentions and would like to help you make your real estate investing dreams a reality.
Mike coaches you to buy investment real estate, creating short-term cash flow and long-term wealth. Your host and real estate coach Mike Morawski has more than 30 years of real estate investing and property management experience. Here’s your host, Mike.
Mike: Hey everybody. Welcome back. It’s Mike, and this is Insider Secrets. Today I’m joined by Kathy Fettke and I’m so excited about this episode. Kathy, tell the listeners a couple of things that we’re going to talk about on today’s show.
Kathy: We’re going to talk about difficult deals, that I learned a lot from, and yours as [00:01:00] well. We’re going to talk about the market and what to be aware of and how some people are still just making a killing in multifamily and how they’re doing that. And yeah, just lots of stories of experience.
Mike: Yeah, for sure. And I’m excited. You’re going to have to listen in to get the rest of today’s episode.
Hey everybody. Welcome back. It is Mike, your host of Insider Secrets. And I am excited about today’s episode. Before we get going though, as always, Insider Secrets is brought to you by My Core Intentions. And I ask you every week, what are your intentions? Did you get up this morning and decide what you were going to do today and how you were going to formulate your day?
What’s your investment business look like? And where are you trying to get? I always want to help you grow your short-term cash flow and your long-term wealth. And I hope to do that by bringing in powerful speakers to the stage that can give us some insights. I want to empower you to really execute some [00:02:00] sound real estate principles and property management principles while living a balanced lifestyle because we know if we get out of balance, we get distracted and things don’t work out like always.
So all I ever ask is that you would go to social media wherever you hang out. And like us, love us, subscribe on YouTube to our channel and continue to let us supply you with relevant content and information every day. But Hey, I am excited about today’s guest. Today, I’m joined by Kathy Fettke.
Great to have you, Kathy. I’m so glad that you’re here today. I know it’s been a while for us to put this together. But Kathy is the founder and CEO of Real Wealth, a California-based real estate investment group. Kathy is passionate about helping people create real wealth. How she defines is having a freedom and money to live out the life on the terms that you want. She specializes in helping people create passive monthly cash flow by investing in income-producing assets, just like real estate what we’re going to talk about today.
Real estate’s an [00:03:00] active real estate investment. She’s an active real estate investor herself with properties ranging from single-family rentals to commercial buildings to large development projects. With a passion for researching real estate markets cycles and economics, Kathy is a frequent guest and expert on CNN, BNN, CNBC, Fox News, and other platforms like that and also the Wall Street Journal. Kathy’s the host of the real wealth show, which is a featured podcast on iTunes and Stitcher with listeners in 133 different countries. Man, that’s a heck of a backlog, Kathy. Welcome to the show today.
Kathy: Thank you so much.
Mike: I know you’ve been doing this for a while. I always kick off my show. I like to ask all my guests one question and what best describes you personally and professionally in one word?
Mike: Tenacious boy, that’s my word. [00:04:00] I’ll tell you what. I’m about a hundred episodes into this podcast and not too many people say the same word twice, so.
Kathy: That’s funny.
Mike: Yeah. It’s interesting you say that. Good. So we’re going to dig into your tenacity a little bit. I have to laugh. I was selling real estate and I walked into a client’s house one day and he said to me, Morawski, you are the most tenacious person I know. And very gracefully I said, oh, thank you. I appreciate that. Hoping it was something good. And went home, got the dictionary, and said, oh, that is me.
Kathy: That’s great. I have to see if my daughter knows what it means.
Mike: Hey fill in the gaps for us. So tell us a little bit about your backstory. How long you’ve been in real estate, how you got involved? What transpired, what was that turning point in your life that made you get into multi-family?
Kathy: The turning point was really when my father had been buying multi-family in the Marin area, north of San Francisco. And I was just a little girl at the time, but he as a [00:05:00] dentist, that’s where he put his money in multifamily and other people’s syndications. When I was just married. One of the deals, for whatever reasons the sponsors sold the apartment and didn’t call the investors.
So my dad just got a letter in the mail and he’d been traveling. By the time he got it and found out the property had sold. He had about just a few weeks to 10 31, exchange it into a new property. And he was really panicked because he was planning to retire any day. And if he had to pay taxes on the sale of this, you know of his shares of this apartment, he would have had to pay two or 300,000 cause he’d been depreciating it for years. And that would really set him back and he wouldn’t have been able to retire that year.
I just said I’m like what’s a 10 31. I have just been married. I don’t know what this means, dad, but how can I help you? And he said, I just need to find a property. Okay. Like, how hard could that be? He’s, I can’t live in it. And I said, what if I live in it? I just got married, my husband and I can go find a property and live in it and rent it from you. Does that meet the deadline? And he said that’d be great. [00:06:00] So I didn’t know anything about real estate, but I’m a visionary kind of like you were saying your core intention. And rich, and I had already done something called future self where it’s a meditation.
He actually says like a visualization, eye closed eye where you picture yourself. And you meet yourself 20 years in the future. And I had done that and I could already see the house. I knew exactly what it looked like in that future self vision. I just drove down the street. So I saw in turned, pulled up and it was the house. It was so clear that it was the house. So I called the agent and I said, my dad needs to buy a property. This looks like something I’ve seen in my dreams. She goes, that’s so funny. I just hung a crystal out and hoping that I would attract the right person.
But bottom line, I called my dad. He came out, saw it that day, made an offer. And we just rented it from him to meet his 10 31, because he was so afraid at retirement age of being a landlord. He just didn’t want to do that. But knowing that we would live there was okay. So [00:07:00] then rich and I it was a very huge house. It was like 5,000 square feet and six bedrooms. But he had to meet the exchange. And he did. So we turned it into a fourplex not legally, just kind of sealed-off walls and locked doors and put little mini kitchenettes in different rooms. And there was like an office and an in-law unit.
And we just lived in the main house. It was a beautiful house. We lived in the main part and upgraded our lifestyle. But at the same time, we’re renting out to these other people we met on Craigslist. These strangers that’s back before, you had Airbnb. But it worked when my dad passed then as the 10 31 rules are that the property value steps up to the value of that moment. So all of the taxes that he had written off and depreciated on the apartment and then exchanged into this property, it all went away when he died. We inherited that property probably 10 years later. And that’s how we got in. And that’s how we learned to be landlords. Learned about 10 31 exchanges and tax benefits of real.
Mike: Isn’t it funny. I [00:08:00] always find it amusing that the people who really do this business just take the initiative and they go do it. And what you’re saying is, you just took that step forward where you didn’t have to pick up a book and read. And I think a lot of people today get caught up in that education piece, which is important. I like multi-family because we keep learning in it. But, I think the best way is to just take action, and the more action we take, the more successful that you can be as a result of it.
Kathy: Yeah. It was amazing because that house went up in value. It was in 1997 when we bought it. And that was the beginning of a 10-year boom cycle. So that property went up in value about a hundred thousand dollars per year, which I know doesn’t happen necessarily in the Chicago area, depending on the neighborhood, but isn’t too abnormal for California. So by the time we inherited it, there was a million dollars equity just from saving my dad paying all those taxes and providing [00:09:00] us a place to live and then us learning how to be landlords.
And we picked really cool people. The word didn’t exist back then, but what’s called house hacking now. Basically, these tenants paid our entire mortgage for us and really helped us then refi and buy more property and in the process learn more.
Mike: Yeah. That’s like when I got started too back then house hacking was not popular at all. It wasn’t the thing to do. And now today it’s the sexy thing that everybody’s out doing, that’s how they get involved. And it’s interesting how that cycle has come around.
Kathy: I think there’s more technology now. Like literally, I mean there were a few friends that lived with us. We had a friend who went through a divorce. He was a single dad and he lived there with his child who was the same child that age as our children. So we watched each other’s kids if he needed to go out we’d watch his son. And if we needed to go out, he’d watch our kids. And it was really a nice support system that we had. So I thought it was great. Now, there were a couple of crazy people we got on Craigslist, but we were able to get them out, and so [00:10:00] I think that’s the difference is back then, you couldn’t really vet people if they were strangers. And today you can, if you get the background checks, but you can go through Airbnb and there’s rating systems. A lot has changed in 10 years.
Mike: Technology is everything, isn’t it? And it’s interesting what happen, not just from the acquisition side, but from the operational side and management, you can do in technology today. So I know when I read through your bio a little bit, you talked about having some single-family all the way to commercial. How does your portfolio today split up? What portion is single-family versus multi-family or other parts of commercial property?
Kathy: We have a lot of single-family single-family homes. We started some short-term rentals recently and that’s been incredibly successful. I had no idea. We have a small multi-family and about 10 years ago, when the market fell apart, basically banks were taking back properties left and right. We all know about the single-family housing, but what a lot of people don’t realize is how much commercial property went back to banks. So I [00:11:00] have a podcast as well called The Real Wealth Show has a pretty large reach as you mentioned.
And so at that time I just had listeners contact me. And one was a developer who was accustomed to buying distressed commercial property during downturns. He had been doing it for 40 years. So here was the opportunity of a lifetime. And I don’t know, again, your listeners might not know, but at the time builders just went out of business one after the other, because who was going to buy their product when foreclosures were a 10th of the price and many were in deep debt. And some of those banks just failed. And even if they had the money to finish the project, the bank failed and then they no longer have the money to finish it.
So this developer was able to walk into the commercial department of BOA in I think it was 2010. And he said that the hallways were lined with boxes up to the ceiling, lined with commercial properties that have been foreclosed. They didn’t know what to do with them. And he did. So he came to me and said, can you syndicate raise money. I didn’t even know what that meant, but so I sent [00:12:00] out an email. I did it all wrong. Just so you know, you don’t do it this way. He had found a foreclosed 27 units in Portland for so cheap. I think $3 million when the loan had been 12 million, I think 20 million in it. And we were able to get it for 3 million. So he said, could you raise that money?
I was like, I don’t know. So I sent out an email and said, Hey, who was interested in going in on me with this deal? And I raised the 3 million in a minute, but then I had one person say, oh, just so you know that’s not legal, there’s like SEC laws and you need to have a PPM operating agreement. And you’re only supposed to talk to people, already, which at least I had met that criteria. So I quickly hired an attorney. We got the paperwork. But so about 10 years ago we started buying distressed commercial properties left and right. So today, fast forward, it’s really hard to buy things cause I’m so used to just getting stuff so cheap. We’re still looking, it’s just a different world today, right? Completely different side of the spectrum.
Mike: Yeah. I love your show, by the way, The Real Wealth Show. [00:13:00] I’ve gotten some great insights from it and I think it definitely brings some value to the marketplace, that’s for sure. So did I hear you say that 2010, you started to syndicate deals and you didn’t even know what syndication meant at that time?
Kathy: I had no idea. He did. He had done it in the eighties, I guess when money was expensive. But during the early two-thousands, nobody needed to syndicate because you could walk into a bank and get cheap money. So a lot of the syndicators just weren’t, they were just getting bank money and I didn’t know anything about it. But of course, in 2010, the banks weren’t lending to anybody. And so all of a sudden these big-time developers had to find people like me that had audiences. And so I had to quickly learn the rules around raising money and SEC law and hiring good attorneys. But yeah, I didn’t know what it was. And as you can tell, I am someone who jumps into things and I wish that there had been a course for me to take or someone to learn from, but I just had to figure it out.
Mike: How does Rich feel about you jumping into things like?
Kathy: The thing [00:14:00] about marriage, we just celebrated our 25 year anniversary. My daughter’s just starting to date someone in her first year. And and I said, and I see the same issues that Rich and I had in the beginning. You get to know each other over 25 years and you get to hopefully learn from each other, opposites attract. So often what attracts us to the other person is not who we are. So he is an analyst and he never jumps into things. So that was really hard for him. And he didn’t like it. But I didn’t like him trying to slow me down either and stop me from doing the things I wanted to do.
So it caused a lot of conflicts. What we learned over the years, 25 years later. We probably learned at about year 10 was that we’re good for each other. We can see each other’s blind spots and that’s the way to look at it. When you’ve got someone who’s so different than you, he would just shut me down and say, no, we’re not going to do that. And that didn’t work. I would just be like, who are you to tell me I can’t do this. And then he would, what we finally learned is I needed him.
So instead of him saying no, I asked him, just ask me questions about it [00:15:00] and tell me what you need, and what’s the data you need to make you feel more comfortable with this. So now when I present him with anything, I’ve got that, and then he can look at it and he can review it. And we work together as a great team to avoid what could be mistakes, but he wouldn’t have done anything if it weren’t for me. And then I would’ve made a whole bunch more mistakes. Hadn’t I listened to him?
Mike: Great words of wisdom, that’s for sure. 25 years of marriage so good for you guys. Congratulations by the way.
Kathy: Thank you.
Mike: Hey, so let’s talk about how you look at multifamily today. So I know 2010 how you looked at multifamily was totally different than how we look at it today. Cap rates were different. Pricing was different. Fundamentals were different. So how are you looking at deals today?
Kathy: I’m probably being too cautious. Honestly, I think I’ve missed out on some great opportunities because I didn’t know I was uncertain. And I’m at a point where I can’t make a mistake because I’m well-known and I’m [00:16:00] investing other people’s money and if I’m not totally sure about something, then I don’t do it. So I have learned, I’ve learned not to just jump into things, but had I not been so cautious? I think I passed up on some great deals. So I think when COVID hit, I was terrified. All of our single families were doing great, but I was really worried about multi-family, of course, I was wrong.
And boy, people have doubled their money in just the last couple of years, if not more. So missed opportunities there, but it could have gone the other way. It was hard to know at the time looking at and understanding demographics better. Which I follow. And I knew that the millennials we’re going to really be at household formation age between 2020 and 2024. So I already knew there would be a housing boom. But with COVID I just forgot to look at my data. So basically bottom line is there is a tremendous amount. There’s 68 million or so I don’t have a number in front of me, of these millennials and [00:17:00] the largest group of them is I’m 29 years old.
So many of them are buying homes that’s part of the crazy demand for homes. And if they can’t afford a home, which is very hard to do these days then they rent. But it’s the largest group that we’ve seen in this household formation age. So we have the demand. We have short supply because we weren’t really planning. I think I’m not the only one who is a little freaked out about COVID. There was not enough supply created for this boom and there’s going to be demand moving forward. I don’t believe that we’ll see the massive rent increases that we saw last year.
From what I understand from the experts I listened to was it’s 14% or something rent increases. It’s not normal. Don’t expect it to be normal. Some say it was doubled up from 2020 to 2021. So it’s really 7% per year or whatever you want to look at it. Probably not going to happen this year or next year, but given demand and lack of supply, I [00:18:00] do think there will be rental increases just at a more moderate rate.
Mike: Yeah. What’s interesting, I read a report over the last week or 10 days that talked about specifically that south-central Florida market and Sarasota and Bradington are expected to see rent increases this year of 38%. And I went, man, where does this data come from? And this is data that not just something Google, right? So it’s really a different formulation when you’re buying data versus just doing your Google research.
Kathy: Oh, it’s amazing. It’s amazing. And I can tell you what it is. I think you know what it is. The 36% increase or the 22% in Phoenix and Boise, all of these insane price increases are still extremely affordable to certain people who live in high-priced markets. And then people who’ve been living in high price markets are getting either they’re retiring or they just had it with the some of the liberal laws and some of the cities [00:19:00] like LA and San Francisco and New York and New Jersey in the high tax rates and the high crime. I live in near LA and it’s almost become legalized to have these shopping gangs.
You can go into a store and as long as each person doesn’t steal more than $900, you’ve just let off the hook. Crime has become normalized and a lot of people are just done with it and they want to move to places like Florida where it’s definitely a different spin. And, but they come from such a different price tag, that everything, even if looking at Florida, even if those houses doubled in value, it would still be cheap to a lot of people who come from a very different environment, that’s what’s driving it up. Californians have been doing it for years.
We drove up prices in Oregon. We drove up prices in Washington, Arizona, Las Vegas, all of those states don’t like Californians for that reason. Cause we come in and everything’s cheap and we drive prices up. It’s good for people who own homes in those areas, but terrible for the locals who were hoping to buy a home. So it’s the same thing with rents. For a lot of people, it’s like what? I [00:20:00] can rent a beautiful apartment in Florida for a third of what I was paying for a condo with no windows in New York City.
Mike: You are right. Yeah. Hey, so how do you look at a market today? Product aside, how do you look at a market and what markets do you really look at?
Kathy: I think you just named a really important area, the Southeast of the United States is the fastest-growing. It’s very affordable. It’s sunny. So good weather, low property taxes, and very business-friendly. So we’re seeing Florida, The Carolinas, Georgia, these areas are really growing quickly and Alabama, Birmingham, texas of course has been growing. Texas was the first place I started investing in 2005 because we saw that the jobs were going there and the population was growing so quickly, but real estate was so cheap. We were buying brand new houses for $120,000 that rented for 1500 a month, in the path of progress where new freeways, new schools, and hospitals were going, and we just knew it was going to be a good [00:21:00] deal. And we’re seeing that now, Texas has gotten more expensive, but we’re seeing that kind of growth in other areas. Now that the tech industry can spread out to wherever it wants to go.
Mike: Here’s what’s interesting about Texas. You said 2005. That’s when I started syndicating. I was buying property in Dallas at 12, 13, 14 caps. Today, those same products are at four caps, five caps, and it’s crazy. Again, how pricing changes based on market demand. And, I liked what you said about the supply and demand issue, that I heard somebody say it must’ve been today or yesterday. I was listening to someone of these economists who said that there’s more cranes and more plumb lines dropped in every city around the country today than there’s been in years.
And it still won’t bring enough products online to satisfy the demand over the next three to five years.
Kathy: Oh my gosh. Wow.
Mike: It’s staggering when you think about that.
Kathy: It’s crazy. I know it’s [00:22:00] your show, but I do want to ask you a question if that’s okay.
Mike: Yeah. Go ahead, go ahead.
Kathy: If you’ve been syndicating since 2005, and you’re seeing the cap rates go from 12 to five, where do you think they’re headed in that environment?
Mike: Yeah, boy, that’s a great question. And I’m not an economist, but one thing I really like to do is I love to listen to some of these guys and engage in conversation that is with smarter people. And I had, you might even know this individual Brian Shaffer from George Smith partners in LA on my show about a year ago, and we had this conversation about cap rates and he said, look, in Germany, cap rates have been sub 3% for 12 years. He goes, I think we’re going to it too. And I thought, my God 2 cap, how do you even underwrite a deal at that? Cause where do you get out?
Kathy: Yeah. Especially when you could buy a ten-year treasury percent return. So I guess the idea is that rents will continue [00:23:00] to rise, right? And then the cap rate will improve.
Mike: Yeah, so let’s talk about inflation, right? So we know that interest rates are going to go up and as a result of interest rates going up, the only hedge against that for inflation is the increase in rents that you can get from multi-family apartments or even single-family. Cause I think, I don’t pay enough attention to the single-family market to know how those rent increases are, but I know in the multifamily space and in industrial space that those rent increases have been pretty healthy across the board.
Kathy: I think single-family homes were even higher if you can believe that.
Mike: Yeah. See it’s just interesting to me.
Kathy: So who knows? Yeah, but I’ve heard the same thing, that people said, oh, they’ll never go to five. Oh, they’ll never go to four. And then, who knows?
Mike: Not to date this podcast, if you had to draw a line in the sand. How much of this robust market do you think we’re going to have going forward yet before we see somewhat of a correction. Because I would think that, you been in the business long enough, I’ve been in the business long enough. We know [00:24:00] that a correction is coming. Now, will it be as drastic as 2008, 2009? I don’t think so. There’s something that has to happen.
Kathy: Yeah, if there’s one thing I’ve learned from 2020, and there’s a lot of things I learned from 2020, but if there’s one thing I learned it’s that we have no idea. We just have no idea. We could have a meteor hit the planet. We could have an earthquake, there’s things that could happen that we just don’t expect and could really change the trajectory of things. Let me say this, I don’t think we can rely on history this time because we’re in unprecedented times.
I don’t think we can really rely on any of the past recessions that I’ve experienced. This isn’t a 2006 situation. This is not a credit bubble at all. The people who have applied for loans put on down payments, they were good borrowers, they have lots of equity and they are having no problem making their payments.
So it’s not the same situation. The high prices that we’re seeing people are affording and many are still paying cash it’s not the same thing and it’s not [00:25:00] the.com bomb. It’s not the oil, its own unique scenario that we’re in. One analyst that I follow that just seems to always be right and that makes sense to me, he said, here’s the problem, with 7% inflation that we’re seeing, which is not transitory. Of course, it’s not when we printed so much money this is real and here to stay. So with that kind of inflation, the fed would have to raise rates dramatically.
And some of the fed presidents want to, they want to see it fast and furious. According to this person I listened to, he said, they can’t, the highest they can probably raise rates is one point. And and that’s because of the $30 trillion in debt that we have, that the government couldn’t pay the interest on that.
So the way he described it is we’re in a time where inflation is here to stay, interest rates can only go so much to serve for us to be able to service the debt, and yet demand is there, we’re a growing population. So he sees quantitative easing the solution to this [00:26:00] problem this debt problem, the US has is printing more money. There’s not enough taxes. You could charge a hundred percent of everybody in this country’s income and not be able to come close to paying off the debt. There’s no way to pay it off through taxes. So the only way is through inflation and of quantitative easing monetary policy, just printing more money. And that creates more inflation.
Mike: But that’s a problem, right? Because somebody just said, or I don’t know where I heard this, but we’ve printed more money in a shorter period of time than ever in history. And that debt is higher than it’s ever been.
Kathy: Yeah. At some point, I would think it would implode, but for the time being the solution is going to be to hide the fact that there’s talk of tapering, but what’s really happening is as the money machines are rolling, the printers are rolling and they don’t print anything anymore. It’s just digits on a computer somewhere. If you just look up a chart of quantitative easing or the money supply, and you’ll see it goes like this and it goes whoop. So that is the [00:27:00] solution which for you and me and your listeners means we know that real estate is a great hedge against inflation.
Especially when you see this robust economy, inflation, this would be a time that you would raise rates a lot and they can’t. So we’ve got a robust economy with inflation and low rates like it’s the perfect time to be owning real estate that is most likely going to inflate, the rents are going to inflate, but you’re locked into a low-interest rate. It’s unusual. So it’s good for the investor. It’s really terrible for the middle-class and people struggling to even make ends meet. It’s going to only get worse and it’s very sad. For those who own assets like stocks and real estate, they’re probably going to keep doing better. So this divide between the wealthy and the struggling is going to increase. And that’s really unfortunate.
Mike: It almost brings a little bit of fear to the marketplace for some. I think it’s a matter of I think, hanging in there and seeing what happens. But I don’t think you can sit idle on the [00:28:00] sidelines either. There’s a lot of capital on the sidelines and you as an investor or a syndicator can sit idle on the sidelines. I think that we have to keep moving forward. People say, should I buy now and I say, look, there’s the old saying that there’s two times you can plant a tree, 20 years ago and today. So you gotta keep going.
Let’s talk about capital. I think you said a number of something like the beginning of the show, like 60,000 investors or something like that?
Kathy: Our company real wealth. Yeah.
Mike: Talk about raising capital. What is that like today? How’s that differed over the years?
Kathy: It’s really easy for me to raise capital. All I have to do is announce a new project. What’s not been easy, is finding the project. So for us, we have investors, we have two projects that are just coming full circle now and they doubled their money. So we raised 18 million for that. So we’ve got 36 million coming back, they want to invest it. So for me, the challenge right now is not raising the money, there’s lots of capital out there. It’s finding the great projects.
Mike: Yeah. [00:29:00] And how are you looking for those today?
Kathy: We have a big network, so deals come to us all the time. I could use more help for sure with underwriting and operations.
Mike: Yeah. I think a underwriting is an interesting conversation these days. So let’s talk about some underwriting fundamentals. What are the key points you look at and how conservative are you being around those?
Kathy: Like I said, I’ve been too conservative. I’ve not done any deals. We sold our multi-family and I haven’t done any new deals in the past couple of years. In multi-family I’ve done just personally, we’ve been in the Airbnbs that I told you about the short-term rentals have been phenomenal. And and we’re still doing development. We have five or six single-family, residential. What am I trying to say? Subdivisions that we’re building nationwide. So that’s really been our focus and just selling retail not holding.
But I I haven’t known how to comfortably underwrite in this market. So I’ve just watched other [00:30:00] people do amazingly well over the last couple of years, and these are deals that were brought to us, that we turned down. So I’ve been too conservative. I just did not predict that rents would go up the way they have. I think two years ago, I thought they had already maxed. I was just being cautious and I was looking forward to not forward, but I was thinking there might be a bit of a recession in which case we would be able to pick up some deals and that didn’t happen. So with my underwriting team when they are talking to sponsors or people that bring us deals, our underwriting team is being told that they need to understand this new market and change the fundamental guidelines.
So again, I sit here going, I don’t know if I want to do that. And that’s what you were saying. Low cap rate, like very low cap rates today, but with the projection that rental go up over time. And of course, anytime you improve a property that always adds value.
Mike: So you’ve mentioned earlier about deals that you pass up and is there one that sticks out in your mind that you say, I should have bought that? [00:31:00]
Kathy: So many, but one was in El Paso, Texas. And I had been in El Paso a few times and I wasn’t in a great part of it. So I just didn’t have a very good taste in my mouth for that market. And then our underwriters just simply didn’t like the market from everything that they did on their research. So we passed on it and by the time they closed, they’d already made a few million like that market just took off. It was really a bummer that we passed upon. He was having a hard time getting anyone to fund it and we could renegotiated whatever we wanted, so that was a big miss.
And then just recently, we’re planning a trip to go to Europe, to visit my daughter who was doing her semester abroad and I forgot to renew my passport. And turns out that you can do it in one day if you set an appointment with an emergency situation and your flights three days away, can you believe that? I forgot to check my passport.
But it turns out El Paso had an opening and I had to fly to El Paso from California for that one day, [00:32:00] getting my passport and fly home to be able to fly to Europe the next day, it was crazy, but I got my passport. But I went to El Paso and I looked around and thought, wow, this city is pretty nice actually, I was wrong I just didn’t get on a plane and go see it. And that’s what I should’ve done.
Mike: Yeah. I always think that we need to take that extra look, right? You make this whole thing seem so easy. You know what I mean? You’re just so casual about it. You make this whole thing seem so easy. I’m sure that there’s times in your life and your business, that you have to make high-stress decisions. How do you look at those? How do you analyze those and make those decisions?
Kathy: I’m one of the few, I think I don’t know if this is true or not, but I don’t have any pressure to do anything. Because we’ve been investing long enough and our company is successful. So I’m never under any pressure to do it. So I’ve been more comfortable I’m at that stage in life where I’m more comfortable not doing it if I’m not totally a hundred percent sure. So that’s probably why you feel the calmness. And like I said this, not having any partners and not syndicating and doing these short-term rentals [00:33:00] has been great.
It’s been really lucrative. And in there in a high-priced market, so it’s really shocking how much you can make. I’m near LA so you can also do very short-term rental. And by that, I mean a couple hours because not developers, but producers in LA will want to use your kitchen or your backyard. I rented out my driveway for a car commercial and made five grand in like two hours. So it’s it’s not the typical short-term rental, although we do that too, but it’s kinda catering to this business, and they’re happy to use it cause it’s a driveway. Not everybody’s got a driveway that can work for doing car commercial.
Mike: Wow. That’s pretty neat.
Kathy: So I am calm, but I have definitely made horrible mistakes in the past. One multi-family we owned in Anderson Indiana.
Mike: I owned one there.
Kathy: First of all, it’s not the greatest market, but the guests pipe burst in the middle of the night, and every tenant had to be moved out in the middle of the night and relocated. And there had to be money [00:34:00] to relocate them. And then the city came in, and they don’t want any liability. Not only did we have to redo the gas pipes, but they looked and said, oh your water pipes need to be redundant. Oh, I think I see some mold here and oh, and all of a sudden millions and millions of dollars of fixed-up work that we didn’t expect we had to somehow fund.
So I was able to go to the bank. This is one of those desperate moments. And I just went to the bank and said, you’re going to have it. I was just like, we don’t have the funds for this. The city won’t let us off the hook. We have to do it or and I can’t. So it was zero rental income. Everyone had to leave the building and I went to the bank and said, we just can’t do it here. Here’s the keys? And they’re like, no, we don’t want it. So they lowered the bank loan by millions, so we were just able to get it done and get out of it and sell it at no profit. It was really tough. So trust me, I’ve been through it.
Mike: I owned a deal in Anderson, Indiana. It’s funny you say that. So prior to 2008, [00:35:00] Anderson Indiana was like rated one of the best cities in the country to raise a family in. And we bought this 280 unit deal there. And within nine months it was at the bottom of the list and they had closed up all the businesses and people moved out.
Mike: It was a nightmare. And so I’m with the bank. Funny, you’re saying this cause I am with the bank at the property and I hand them a box. He goes, what’s this? I said these are all the keys.
Kathy: You did the same thing. No.
Mike: He said, I don’t want the keys. I go, you’re going to have to do something. And I think back then we had an interest rate of six and something, six in the orders or something on that deal. And he said, look, I’ll cut your interest rate in half, we’ll give you a principal reduction, but I’m not taking the keys.
Kathy: Oh my gosh. I wonder if it was the same bank.
Mike: It was definitely gosh, you’re talking about it and I’m reliving this going on my goodness.
Kathy: Oh, it’s so painful. It’s so painful. That’s why I like new construction. I like [00:36:00] newer buildings. I don’t have a stomach anymore for that kind of thing. When you’re starting out, learning lessons, but oh, I’m happy to be in new construction.
Mike: Good for you. Listen. Hey, this has been great. I can’t believe how fast the time went. I’m just like amazed here. Let me do this first. I always like to ask three questions and a fun bonus round, but tell me what’s your most favorite tourist attraction?
Kathy: Oh, my goodness. That is so great. I would say Yosemite and it’s just natural. It’s a L-CAP and half dome.
Kathy: It’s just beautiful.
Mike: How about favorite restaurant?
Kathy: Oh, wow. I’m here in Southern California. You know what? There’s so many good ones, but I’ll just say there’s this little Italian place in Malibu called Spruzzo’s and for $18 you can get an amazing Italian dinner authentic, whereas anywhere else you’re going to pay twice that. $18 is the deal.
Mike: The best book you’ve ever read?
Kathy: Oh. I have to say it because it’s my husband’s. The Wise [00:37:00] Investor is his newest book and it’s just as a parable about a journey a young person has. It’s like Rich Dad, Poor Dad in the sense that it’s a young guy who meets an older guy and gets mentorship. So yeah, I think he did a really good job. I could see it turning into a movie.
Mike: Awesome. That’s pretty cool. Listen, it’s been great. How do people get in touch with you Kathy, if they have other questions or want to talk about investing or pick your brain up?
Kathy: Sure. Super simple, realwealth.com is our website realwealth.com. We do weekly webinars to keep people updated on what’s going on in the market and the different areas that still have opportunity to invest. We help a lot of investors get into one to four units just to get them started. And there’s a lot to learn right there before you do multifamily. So we help a lot of beginners and and then so realwealth.com. It’s free to join and get access to all that education and information. And then of course the Real Wealth Show Podcast is free and Real Estate News Podcast is my other one. [00:38:00]
Mike: Nice, awesome. Kathy, it’s been a pleasure. I’m glad that you were here today and glad that we finally had this time. I know we’ve been trying to put this together for a while.
Kathy: Thanks for your patience with me.
Mike: Thanks for hanging in there with me too. Hey, it’s been awesome. And I look forward to continuing our conversation. Thanks, everybody for being here. We’ll be here again next week. And if you want any more conversation with Kathy, you can reach her at Real Wealth Podcast.
Thanks. Look forward to talking to you soon.
Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. As always, Insider Secrets is brought to you by My Core Intentions. Wherever you hang out on social media, you will find Mike and My Core Intentions, please and follow us to get the most up-to-date real estate investing trends.
Visit mycoreintentions.com, where you can get expert coaching on all things, real estate investing and property [00:39:00] management. If you’re looking to become an expert, Mike’s coaching will help you scale your real estate investment business. We’re looking forward to having you back again next week for more Insider Secrets.