Episode 110: Aggressive Defense with David Greene

Description:

Is the economy is headed towards a repeat of the 2008 crash? In this episode, David Greene joins Tom to discuss how an “aggressive defense” financial strategy is the best option during these uncertain times.

Pre-order Tom’s new book, “The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make” at: https://winwinwealthstrategy.com/

SHOW NOTES:

00:00 – Intro

06:58 – How Is Inflation Impacting Real Estate Investing?

08:49 – Where Will Cash Flow In 2022-23?

11:25 – How Are Markets Illogical?

17:36 – How Do You Build A Financial Plan Under Highly Uncertain Conditions?

20:53 – What Lessons Can Investors Apply Today From The 2008 Recession?

26:43 – Why Should Investors Be Wary Of Equity?

33:07 – How Can Investors Safeguard Their Wealth As Recession Looms?

Looking for more on David Greene?

Website: www.davidgreene24.com

Book: “Long Distance Real Estate Investing” “Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple” “Sold: Every Real Estate Agents Guide to Building a Profitable Business”

Instagram: https://www.instagram.com/davidgreene…

Facebook: https://www.facebook.com/davidgreene24

YouTube: https://www.youtube.com/c/DavidGreene…

LinkedIn: https://www.linkedin.com/in/davidgree…

Transcript

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to the WealthAbility Show, where we're always discovering how to make way more money and pay way less tax. Hi. This is Tom Wheelwright. Your host, founder, and CEO of WealthAbility. So we are in maybe 2007. We are in that point of inflection where do we see … We've had huge increases in asset prices, huge increases in rents, and are we going to have big decreases in asset prices and or rents? So we've been through this once. At least some of us are old enough to remember 2007, 2008 painfully. And so we have a very special guest with us today, David Greene, who is the host of the BiggerPockets Podcast. David, it is great to have you on the WealthAbility Show.

David Greene:

Thank you, Tom. I'm looking forward to it.

Tom Wheelwright:

So if you can, David, just give us a little bit about your background, what you're doing, how you ended up at BiggerPockets, and what you do in the real estate world.

David Greene:

I graduated college in about 2005. I was kind of like most … maybe not like most kids my age. Most kids my age probably weren't thinking about buying a house, but I was. I knew I wanted to buy a house at some point. And I was kind of watching just those crazy prices and the crazy market we were having. I was working in restaurants. So I saved up all the money that I made from working there. I worked throughout college quite a bit and saved. I wasn't a partier. I wasn't looking for the college experience. It was much more practical. Just what am I going to study? What am I going to do for work? I didn't buy a house because I could just see that it didn't make any sense. I was watching teachers buying million dollar properties and I did not have foresight to recognize we were going to have a crash. That version of David assumed prices would go up and then they would kind of gradually climb down. I didn't understand it was like an escalator that drops off at the end. So when it did drop off is when I started buying properties.

            I had saved up $100,000 for the five years that I was in school. And I had my car paid for, I had no debt. And my first debt I ever took on was buying real estate. And so I will admit since I got in, I've only seen it coming up. And I moved into being a police officer. I worked a lot of overtime. I kept buying rentals. I kind of became known as the rental guy in the police force. I ended up getting injured and couldn't be a cop anymore. So I got my real estate license. I started selling houses.

            I was a big fan of listening to BiggerPockets. I got interviewed on their podcast, that was episode 169. We're coming up on 600 now. This was a couple years ago. They made a lot of progress. So I became friends with Brandon Turner and Josh Dorkin. When Josh decided to step away from the podcast, I'd written a couple books for BiggerPockets. So I was able to get into the spot to take over the podcast. And now Brandon has left. So I am hosting that show. Now I have a real estate sales team with Keller Williams. I started a mortgage company called The One Brokerage. It's probably the fastest growing mortgage company in the country right now. It's been insanely good so far. And I buy all kinds of real estate. I buy short-term rentals, I buy single family homes, I buy multi-family property. I kind of just became a real estate nerd. Someone in your position can understand, Tom. Once we hit this place where people look to us for guidance, there's a lot of pressure on us to give good advice, give sound counsel, right?

Tom Wheelwright:

Right.

David Greene:

So this is a very challenging market because I don't know if we're in 2007 or 2010 or some combination of the two.

Tom Wheelwright:

Yeah. There's the question. So let's kind of set the stage here. So we certainly have had a massive rise in asset prices just like we had in 2007. It actually feels like 2006 to me where we had this massive rise in asset prices in 2006. I remember it really well because I'm older. So that's not that long ago for me. And then what we had was a softening in 2007 and then it crashed in 2008. We had some time we looked at it and it softened a little bit. What we didn't have is we didn't have the interest and inflation thing going on when it came to commodity prices. So we didn't have rents massively going up. Rents have gone up 25 to 30% in the last year. So we've seen that massive increase. We hadn't seen that before in 2006, 2007 and we didn't have commodity inflation.

            So we weren't going to grocery store and seeing on inflation at seven, eight in Arizona, 11% or more. So that wasn't the same. But we also had the variable rate loans and we had these big turns. So the minute that we hit a certain level, all of a sudden interest rates doubled. They didn't go up by a quarter of a point, they went up by … twice as much. They went up from four to 6%, or 6% to 10%. And they were these massive increases which had this massive thing. The Fed just announced that they're thinking about another half percent. The next time they do they increase a half percent.

            So you're in the mortgage business, you're in the rental business, you're in the real estate business. So here's the question. We're going to see pressure on cap rates, we know that. Okay. Because cap rates are going to go up and everybody knows that's how you value real estate. Net operating income divided by cap rate. So we know cap rates, by definition, have to go up. All right. So the question is, does that mean that real estate is going to … Are you going to be an escalator or an elevator? So is it going to come down, step down or is it going to crash down? I know the Fed would like it to step down, but typically bulls go up the stairs and bears fly out the window. So what do you think? Predict the future for us, David Greene.

David Greene:

Let's see how good I can do with that. The first thing I would say is when we say cap rates are going to go up, it's the assumption because interest rates are going up, that's going to make the asset less desirable.

Tom Wheelwright:

Well, there's the question. Typically cap rates are what an investor requires as a return, right? So if interest rates go up, that means that the investor can get that return somewhere else that is a higher rate of return. They will typically expect more from their real estate.

David Greene:

If they're smart, they would because only us that are crazy … We're masochists that love making our money through real estate. It's definitely a tougher way to make your money. That's why people tend to invest in stocks or crypto because you push a button on a computer and you've made your decision. You're not having to be on the phone constantly organizing contractors and logistics that go into real estate sales. To me, real estate is kind of a blue collar elbow grease way of doing it. It is still, in my opinion, the best way for the average American to build wealth. And there are, as you know, a ton of tax benefits and fundamentally sound ways that make it a good investment, but it's harder. There's no way around it. I think it sounds like you're on the same page, I believe that.

            If people have a way to make money easier, they will. They will get out of this asset class and they'll get into something different. So the first thing I look at, if I'm trying to predict the future, is where could money be made easier than this at least at a comparable rate of return that we could get? And I'm not seeing-

Tom Wheelwright:

So that's the question. Where could people make money easier than this? The problem is that the stock market is … Just like it did in 2008, the stock market's likely to come down just as quickly as the real estate market. So it's not going to be in the stock market. The question is always cash flow. Where does the cash flow? Where is the cash going to flow?

David Greene:

That's hard. So you've traditionally had angel investors, institutional capital investing in tech companies. And that's not something your average person can get into. You have to have an understanding of how those markets work. It takes a long time and a particular set of resources, like exposure to the right people in your network if you want to get into investing into tech companies. You did great if you invested in Coinbase before it took off, but how many other Coinbases did someone just gamble on and it didn't work. So that doesn't work. The NFT space is blowing up right now. So there's people that are making money in that. It's probably less of a cash flow thing that's a little bit more of an appreciation play.

Tom Wheelwright:

Speculation.

David Greene:

But wildly speculative. You can make a bad bet in real estate. And if you can hang onto it long enough, you'll be okay. That is not the case with these things like NFTs. You've got cryptocurrencies which a ton of people are making good money really quickly. I think a lot of the reason cryptocurrencies have been going up in values is the same reason real estate has been. People are scared and they need a place to put their money. They're watching the inflation monster come in. If you watch Game of Thrones, inflation is like the white walkers that are coming. You got to get ready. You got to put yourself on the high ground because there's nothing you can do to stop this. It's coming for you. And if you do nothing, you're guaranteed to die.

            So people are rushing into the crypto space, putting money there because they feel like that might be a good store of value. I guess what I'm getting at here is there's a lot of things that are doing well, but none of them look like great options to me, Tom. I don't see any of these as long-term sustainable, somewhat predictable holders of value.

Tom Wheelwright:

And then different from 2007 again, we have inflation. Arizona has highest inflation in the country right now. That's where I live. And it's at 11% according to the government, which we know is … it means it's really a lot more than that. So let's say it's 11%. That means that basically every month, your dollar loses 1% of value. That's really what it means. So in 2007, we might have just gone to cash saying, “Okay. We're going to sell all our assets.” Some people did this. The really smart ones, they sold it all. I wasn't one of those, but the really smart ones sold it all and they went to cash. Okay. Or like you, you just didn't get into it.

David Greene:

Yes. I kept my cash. I didn't invest.

Tom Wheelwright:

You kept your cash. You didn't get out, but you didn't get in. And so that was an option, but if you are looking at 10%, 12%, 15% inflation, that's not really an option because you're still losing money. So what do you do with that money?

David Greene:

The first thing I think is to acknowledge that at this point, the real estate markets are not as logical as what we want to believe they are. So I remember when the shelter in place first happened, maybe two, three years ago, a lot of my mentors were saying the same thing you just said. Get out, get your money in cash, keep your powder dry. It's going to drop and you're going to jump in and buy all the real estate. And I was one of the few voices that was on our podcast. I actually got some hate messages. People did not like me saying this, but I remember saying, “I don't think that's going to happen. I think we're going to have a very temporary slowdown as everybody panics, but I think that the government is going to do the same thing they did in the too big of fail days. They're going to print a ridiculous amount of money.” And the example that I use is that if you have a … I don't have kids. But when you have a kid, so you have a six, seven-year old, you can reasonably predict at what time that child is going to get tired and go to bed. It's probably between the same 9:00 to 10:00 at night every single night.

            Human bodies work that way. When we're sleeping, it's like an economy's recession. You're not being productive, you're not earning any money, you are resting. You are repairing all the stuff that you spent earlier. You're letting bad businesses die, bad entrepreneurs go out of business. It's a healthy part of the cycle. And then when you wake up again, you start building, you start becoming productive, you spend all your energy. You need these cycles. This is the rhythm of how the world works. Well, if every time you're tired and you say, “Oh, my God. I'm going to fall asleep. I'm not going to be productive. The economy is not going to look good.” And there's some politician in place that knows that if the economy falls asleep on their watch, they're the one that's going to be blamed for it. Well, what if you just give that … Let's not use a child anymore. Let's give that person a-

Tom Wheelwright:

I'm a teenager now.

David Greene:

There you go. Let's give that teenager-

Tom Wheelwright:

Well, give him a Red Bull.

David Greene:

A Red Bull. There you go. That's a great example. Maybe a harder drug if the Red Bull stops working. Okay. But something that gets their blood pumping to get some energized, boom, they work all throughout the night. I've seen some of these guys in my law enforcement career that are high on methamphetamines. They can stay up all night long taking lawn mower apart and putting it back together. They need something to do. And then the morning comes and they just keep on going. What I'm getting at here is that it can give you this false sense of productivity, but it is very unhealthy for the body to be doing that. You're not allowing the bad ideas to be wiped away and the good ones to come back. You're not allowing your brain to get rid of dead brain cells and put new ones in there. And it also makes it very difficult to predict when you're going to go to sleep because you don't know when you're going to shoot yourself up with drugs. What I am positing here is that economic stimulus is a form of a drug. It is not a healthy way.

Tom Wheelwright:

Of course. There's sugar. It's like eating a candy bar.

David Greene:

There you go. Now, I will also say there could be times in life that it does make sense to drink a Red Bull and not go to sleep. You're in an emergency situation, you have an opportunity that hardly ever comes up. I'm not saying never, ever, ever take Red Bull or take sugar, but you want to take it as little as possible. You want to save it for emergencies and we are not. We are basically, “The kid doesn't want to go to bed. I don't want him mad at me. Give him a Red Bull.” Okay. So what I'm getting at here is the people who are looking at the real estate cycle with pure logic are assuming that no drugs have been introduced into this system. So I can predict that that kid's going to sleep at this time and you can't. So when people say things like, “Well, interest rates are going up, so that should cause prices to come down.” All things being equal, that would make sense. That is logical. However, we don't know that prices are going to come down because we don't know how bad the inflation really is. What if prices … or let me say it differently. What if the value of real estate is going down?

            We are in a recession in some places, but the price is going up because our money is becoming worth less and less. That's what makes this tricky. Is there is no baseline with which to understand value because we typically do that with dollar bills, but the value of the dollar is changing so much. It makes it very difficult to predict.

Tom Wheelwright:

Right. So on top of that, I was actually in meeting with my buddy, Ken McElroy, I'm sure you know him.

David Greene:

Yep.

Tom Wheelwright:

We're still short five million units of housing. Five million is a lot of housing. When you think about how big the US is, that's a pretty big percentage of people that need housing which is what's pushed the rents up so much. So we don't have a glut. We had a glut. In 2007-

David Greene:

Yes, we did.

Tom Wheelwright:

… we had a glut. In Arizona, Maricopa County, 20 … My brother was actually on the board of a bank and they pulled out of Arizona and they said, “The reason we pulled out of Arizona is because 25% of the homes were owned by investors.” That's an enormous percentage, enormous percentage of homes being owned by investors as opposed to homeowners. And they were empty. It's not like they were owned by investors and they were rented. These were speculative investors that were trying to flip these properties and they were empty properties. So you had a glut.

            We don't have a glut right now. That's a difference. We do have a Fed that is not blind to the problem. They were blind in 2007, completely blind to the problem of the whole … the bond market and what was going on, all of that. They were completely blind. They're not right now. It's actually quite different in 2007. So the question is, the real question is, okay, so what do you do with your money knowing that the … What we really know is that it's uncertain. That's what we really know. We know that it's uncertain and we know that there aren't really assets. Yeah. You put your money in gold, but even gold in a depression will come down in value. So you could, but it doesn't produce cash flow. Then inflation doesn't produce cash flow. So what do you do with your money? You've got money coming off from your business, you've got money coming in from your investments. You don't want it to sit there. So what do you do?

David Greene:

No. So what you're describing is the high stakes game that we are all playing. My opinion, at least for anyone who's listening to me so my conscience can be clean, is that you need to understand you are playing a high stakes game, okay? The white walkers are coming. However, because other people are seeing this and there's a … I don't want to say a panic, but there's definitely a high sense of urgency that people know they need to put their money somewhere, it's very easy for bubbles to rise up in things that don't make sense because people are making decisions hastily. Okay. So it's kind of the point where right now your financial education, what you're paying attention to is more important than ever because you got pressure on yourself that you can make a bad decision and you got pressure that no decision is the worst decision. It's not the way we're meant to go, but our economy is high on methamphetamines and so you're just … the whole thing is kind of tweaking.

            So here's my advice. This is the way that I am handling it. First off, I had planned to be retired by now. To build passive income, stop working. I saw the writing on the wall that any wealth I had built was going to be destroyed by inflation and I actually couldn't retire. I was a little salty about it for a little bit. That the government's printing of all this money was going to force me to keep working. So I ended up staying in the game, building more businesses. I still work just as hard as ever because I have to just to kind of stay even. I have to invest money. I still see real estate as being the best place to do it. And that, if I was to sum it up, is because like you said, there's a shortage of inventory, there's the ability to work from home. So a lot of people are not buying in the traditional areas they used to. You don't have to live in New York City if you want to make that type of money. So you can now own real estate in areas where you couldn't before and it's not nearly as risky or speculative as it used to be.

            Technology has improved to make it easier to own real estate than ever. We have software, we have education. I wrote the book, Long-Distance Real Estate Investing. Now everybody is doing that. They're all buying all over the country and it's not as challenging or as scary as what that used to be. And then I don't see a better place to put it. That would be the last place. There's moves you can make that might be stronger from a defensive standpoint like gold. Gold may be less likely to lose its value, but it's very … You can't add value to gold, you can't be directly involved in making it, you can't refinance gold. There's other ways that you can save money in real estate and save in taxes that gold doesn't offer. So I don't think it's as overall as good of an opportunity where it might be better in one little area.

Tom Wheelwright:

Let me give you my theory then. I love this. This is great, dude. So here's my theory. I'm going. All right. So one thing we do know is interest rates are going up. So it would make sense that when you do buy real estate that you ought to have fixed interest rates for a fairly long period of time. I love to see a 10-year fixed rate. If I can get to see a 10-year fixed rate, that's more than twice as good as a five year fixed rate, which is 500 times as good as an annual rate that's changing annually because I think those annual rates … I think the interest only loans with the annual rate increases are really scary right now. So that's one thing we can do to actually minimize our risk. And the same thing of course is to remember that if you're … We've talked a lot about asset prices, but asset prices don't matter if you have cash flow. They're actually irrelevant because if your plan is to sell the property, if your return on investment is from selling the property, that's a capital gains play. You're saying, “Well, I'm going to make money because of the appreciation in value.” This is where people got in trouble in 2006.

David Greene:

And it's also where people get in trouble with stocks because it works the same way.

Tom Wheelwright:

Exactly.

David Greene:

One way that you can make money.

Tom Wheelwright:

Exactly. In fact, on this show recently we had somebody on here who said … who is a brilliant asset manager. He goes, “Invest in dividend stocks.” Well, that's because it's cash flow, right?

David Greene:

That works like real estate.

Tom Wheelwright:

Cash flow is the same thing. If you invest in cash flow, that's a whole different animal than investing for appreciation. And if the idea is that, look, I'm going to hold this property for 10 or 15 years, who cares what happens with the price? Because prices are going to go up and prices are going to go down. What you are saying, what I heard you saying, David, is, look, you don't know when that person is going to crash from their sugar high, their Red Bull high, their caffeine fix, whatever that fix is. We don't know when that crash going to happen. What we do know is it is going to happen because you cannot have a sugar-based economy forever. Okay. It has to be some there or there. So at some point, you know that there's going to be at least a correction, if not a crash, all right? What you don't know is when. Okay. So to me, my theory is, “Okay. Well, then let's not worry about when. Let's actually do everything we can to mitigate the downsides of when and really focus on the cash flow.”

David Greene:

And that is exactly how I'm playing the game.

Tom Wheelwright:

Awesome.

David Greene:

When I was a police officer, we would learn the rules of firearm safety. So you've got, always treat a weapon like it's loaded, never put your finger on the trigger until you've consciously decided to shoot, know what is behind your target as well as what you're shooting at, and never point your weapon at something that you're not willing to destroy. And one of the instructors said something that has always stuck with me. He said, “In order for an actual accident to happen, you have to violate more than one of those principles.”

Tom Wheelwright:

Interesting.

David Greene:

So if I put my finger on the trigger, but I don't point my gun at anything I'm not willing to destroy, the worst case scenario I'll shoot the ground. Or if I do point my gun at something that I shouldn't, but my finger wasn't on the trigger, there's no danger of that person actually getting hurt. And I've learned that real estate works the same way. You have to have two things happen. You have to violate two of the cardinal rules of real estate in order to actually lose a property. One is the property has to be something you can't sell. So you go underwater on it, the market turns around on you, you bought in the wrong area, there's no one that wants to buy it. Whatever the case is, you can't offload it at the same time that you cannot make your mortgage payment. Okay. If you don't have both of those things go wrong at the same time, nobody's going to lose a property.

            So I make sure that when I buy cash flows and that puts me largely in a position where I'm very unlikely to not be able to make my payment. And then just in case something happens that I can't control, like a tenant stops paying, you hit the perfect storm, I keep a lot of money in reserves to support me, more than what I would think that I would need. And at the same time I pay attention what the market does, which is why a conservative person like me can invest very aggressively in real estate because I'm being just as aggressive with my backup plan. And what I was getting at, this could be 2007 or this could be 2010. My strategy works for either direction. If we are heading into a crash that happens tomorrow, I've got so much money in reserves, I'm continuing to work, I haven't quit my job to go live on the beach and get on a yacht with a bunch of girls in bikinis and just throw money all over the place like a fool that I would lose my properties. I'm not needing everything to work out perfectly. At the same time, I am aggressively buying real estate because I think inflation is going to keep going up and up and up and I have to put my money to use just to be able to stay even.

            So what I tell people is this is not the time to make a little bit of money selling crypto or a little bit of money in real estate because everyone's making money right now and say, “I'm quitting my job. I'm going to stop being productive.” I don't need to be sleeping, but I'm going to sit on the couch and do nothing and brag that I want a life. Right now is a time to be building new skills, to be pushing yourself even more because when the crash happens, there will be winners and there will be losers. The winners will inevitably be the people that have the skills that adapt to the new structure, whatever that's-

Tom Wheelwright:

No question. And this has been my concern, that we haven't had quite the same rollercoaster that we normally would have. We would normally see a bigger dip in a market sooner. The cycle would be shorter than it's been. First, it was extended by the tax cuts in 2017 and then it was extended again by all of the helicopter money that the government has thrown at it. So we keep extending this, keep pushing it out. Plus low interest rates, all of that's extended. Here's something that you said that I actually thought was … If I can remember what it was that you said that it's so important. Is that first of all, it has to be two things, right? So if you have the cash flow, then you can weather the price storm. If you have the price, you can weather the cash flow storm. You can't weather both. So here's what I heard you say, which I think is critical to people. And that is that you look at your reserves as part of your equity investment. So this isn't money that's sitting idle. This is money that is sitting there that's actually part of my equity investment in the real estate because I need it there to protect my equity in the real estate. Did I hear that right?

David Greene:

Yes. And if I can elaborate, a huge mistake I hear people make is equity in a property equals safety. And I've even heard smart people say the same thing. Like, “Hey, I'm okay because that million dollar property, I only owe 500,000 on it. So I'm safe in case it drops in value.” And I just don't understand that logic. You're not safe. That only matters if you want to sell it. If it's cash flow, you won't sell it. I would rather have that million dollar property and have instead of $500,000 in equity, maybe you have $200,000 in equity. Keep $300,000 in the bank where a recession can't touch it, where if the value of the asset drops, I don't lose any of that. It's safe, and it's more useful to me because I can always pay down the loan if I wanted, but I can make the debt service payments for freaking years with $300,000. I can use that as money to qualify to buy more real estate. If the market does drop, I now have cash to go buy more.

            I have way more options keeping that money outside of the property in the bank. Now, I know it may cash flow less than what it was, but if it is still cash flowing and I am still able to make the payment, that is a million times wiser to keep the money where I can use it to keep myself safe. When I hear people say things like more equity in the property equals safety, I think it's madness because you and I know, Tom, when the market drops, it completely falls. You can't stop how much money you're going to lose if you're just looking at equity.

Tom Wheelwright:

Hey, if you like financial education the way I do, you're going to love Buck Joffrey's podcast. Buck is a friend of mine, he's a client of mine, he's a former board certified surgeon and he's turned into a real estate professional. So he has this podcast that is geared towards high paid professionals. That's who he is geared towards. So if you're a high paid professional and you're going look, “I'd like to do something different with my money than what I'm doing. I'd like to get financially educated. I'd like to take control of my money, and my life, and my taxes.” I would love to recommend Buck Joffrey's podcast which is called Wealth Formula Podcast with Buck Joffrey. I hope you joined Buck on this adventure of a lifetime. Let's say that you've got … I've heard people do this. Going, “Well, I have $500,000 of permanent debt, but that 300,000, I don't have that in cash. I have that in a line of credit.” I'm going, “Okay. So let me explain what happens when you have a crash because banks react fastest and they react very protectively. So let me tell you what happened in 2007, 2008.” And I actually, this was the one good decision I really made back then.

            I was actually in a meeting with a client and the client's banker was there. And the banker said, “If you have a line of credit, you need to pull that money out now because we're going to shut them down.” This is something that they did. So I actually went home, I had a $300,000 line, I pulled the cash out. Literally a month later, the bank shut down my line. And what they did was they gave me a 15-year amortization on that 300,000. So now I have $300,000 cash that I would … had I not done that, they would've actually pulled that line and I wouldn't have had access to it. Well, I'm a big fan of lines of credit. I'm a huge fan. It's always good to have a line of credit wherever you can, but don't think that line of credit is always accessible.

David Greene:

It's not your safety net.

Tom Wheelwright:

It is not your safety net. It is another option and it's good to have all the options you can. You talk about having as many options as you can when it comes to getting money, but having that actual cash on hand, that actual cash, that's what you actually have and it's actually just part of your investment. People think, “Well, I'm going to invest all my money in real estate.” I'm going, “Well, wait a minute. You've got CPAs to pay, you've got lawyers to pay, you've got your yard guy to pay, you've got all these other people to pay. Don't forget that that's part of your investment too.” I think that's where a lot of people fall down.

            So right now I think, I think there is a very good argument for getting into more of a defensive position on the real estate. Several years ago, we felt the same way. Five, six years ago, people go, “Well, it feels like something is coming, so we're going to get into a defensive position.” And I think people did find there. Yeah. They don't make the most money, but they don't lose money. And then what they go is, “Oh, wait a minute. Now things have changed. Because like you said, we don't know when that [inaudible 00:31:53] is coming off. The Fed could go, “Oh, well. We're not going to handle this. Inflation is going to be fine. We got supply chain fixed now.” I'll tell you this, if inflation came down to 6% tomorrow, the Fed is never going to raise interest rates, it doesn't raise interest rates because all the Fed cares about is inflation. And they only care about inflation because frankly that's what the politicians care about because they don't get reelected if there's inflation.

David Greene:

Just like your grandparent wants to give their grand sugar. They don't have to deal with it.

Tom Wheelwright:

And I'm a grandparent. So I understand that this is an important part of the diet of your grandchildren. You have to have sugar because then you can send them home to their parents and their parents can be-

David Greene:

And they get to deal with … Yes.

Tom Wheelwright:

The parents can go-

David Greene:

[inaudible 00:32:41] the road.

Tom Wheelwright:

Yeah. I understand that. I've been a parent, I'm a grandparent. Grandparent is better. I love being a parent, but I'll tell you what? Grandparent, that's seriously dessert of life. But anyway. So David, this has been fantastic. I think we learned so many things. If you could, kind of in a nutshell, what are two or three things that you would recommend that people be thinking about right now as they see all this turmoil going on in the market?

David Greene:

I would say, you have to invest your money. And real estate is still the best place to do it, but don't assume that all real estate is the same. I am expecting to see a shift in demographics. There's always a shift in demographics, but I'm expecting it to be amplified a lot. I think you're going to see a lot of people moving into areas with nice climates and low state income taxes and business friendly environments. They're probably going to be more conservative minded people. I'm not trying to say those people are better. I'm saying the people that are more liberal minded aren't going to be leaving where they are. If they're in a liberal area, they're going to stay there. The people that are leaving are typically going to be conservative minded people. And where they're going to go is a place that is business friendly and tax friendly.

            So I think if you're going to be investing, you should be looking in Florida, in Tennessee, in Texas, in Arizona, in Idaho. I think Wyoming and Montana, we could see some increase there. Nevada, a little bit. You're going to be seeing areas where traditionally they didn't have high wages. So values didn't go up as much and rents didn't go up as much. You're going to watch more businesses and people moving into those areas. Look at buying real estate there. I would say don't fall for the trap of saying, “We're at the top of a market. So I'm going to buy the cheapest property I can.” That is the worst, worst thing that you can do. At the last crash where I lived in California, areas like Stockton, Antioch, Pittsburgh, Modesto got decimated. They were the cheapest area. So if you were in 2005 like, “Oh, prices are high.”

Tom Wheelwright:

Here it was Maricopa, Surprise. All the cheapest places. They're the ones [inaudible 00:34:45] because they're the outliers.

David Greene:

That's it.

Tom Wheelwright:

They're not the heart of the real estate district. And in the heart of the real estate district, people always live there. They may not be willing to do that 45 minute commute anymore.

David Greene:

So what I say is when the economy is doing well and everything is getting more expensive, imagine the tide going out from the epicenter further and further, and further. And people are willing to go out further to buy properties that are cheaper because it's all they can afford. But in a recession, the water is suck right back into the epicenter. So the most expensive real estate in the best locations doesn't really get hit that bad. It might be a little bit of a dip, but it's not terrible. So the only time I buy in outliers is 2010. I did buy quite a bit of property. Now, it's fine because it's just gone up a ton, but if you're going to buy in those areas, it's only after the crash happens. It's not before. So even though it may hurt, your returns aren't going to look as good. It might be a little more work. You got to stay in the best areas at a time like this where we think that a crash might be happening.

Tom Wheelwright:

It's a defensive position.

David Greene:

There you go. That's exactly right.

Tom Wheelwright:

Awesome.

David Greene:

So you got to be aggressively defensive. It would probably be the best way to put it.

Tom Wheelwright:

I know. I like it. Then if I can add, I'd still always look at your debt and the term of your debt because I think your debt has such a big impact on your rate of return and on your cashflow. I always tell people that if you're afraid of debt, it's because you don't trust the asset. It may also because you don't understand the debt. And so you really have to understand how debt works and what happens when the Fed raises rates. Your bank is not going to lower your rate when the Fed raises the rate because that's the rate the bank pays. Literally if the bank is paying a higher rate, you're going to pay your higher rate. Just remember that. So David Greene, tell me where we can get more information about you and what you're doing. We know you're at BiggerPockets Podcast. Where else can we go?

David Greene:

My social media is Davidgreene24. People can direct message me there. You can message me through the BiggerPockets system. Right now I just got up a link tree on my Instagram. So if you follow me @davidgreene24, there's a link in the bio. If somebody wants to invest with me, I do lend out money on capital that I borrow. Right now I'm paying anywhere between eight and 10% to people and it's not tied to the performance of the property. It's just straight debt. If you are not getting a good return on your money in the bank, but you don't want to invest in real estate yourself, I can pay you if they want to get connected with my mortgage team or one of my real estate agents. Pretty much all the different stuff I do, you can get connected with those through there.

Tom Wheelwright:

Awesome. That's great. David Greene BiggerPockets and Davidgreene24. Great to have you on. And just remember that when we actually get educated on real estate, we recognize that it's about cashflow. Remember you can own real estate for a very long time and have really good cash flow. Pay absolutely zero tax, make way more money. And so that's the whole key. That's the key to what we talk about. Way more money and way less tax in real estate. Again, David Greene saying that real estate is still a good place to put your money. Just be smart about how you do it and get educated when you do it. And when you do that, that's when you make more money and pay less tax. We'll see you next time.

Announcer:

You've been listening to the WealthAbility Show with Tom Wheelwright. Way more money, way less taxes. To learn more, go to wealthability.com.