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These 5 Things are Keeping you POOR

Nobody has to tell you that getting rich is extremely difficult, and it’s definitely not an overnight process. So what can you be doing RIGHT NOW to get you ahead? Join Ken McElroy and Danille in a discussion about five things that YOU can be doing RIGHT NOW to keep your pockets lined just a little more. 

Danille:
Welcome to the Ken McElroy show. I’m your host, Danille, here with Ken.

Ken McElroy:
Hey guys, what’s going on?

Danille:
So Thanksgiving is going to be a few days away. We’re prerecording this because we’re going to be in orchard canyon.

Ken McElroy:
Sedona. Yeah. There’s no service thankfully up there in the canyon. It’s beautiful.

Danille:
We’re going with some of our friends.

Ken McElroy:
It’s going to be good, but, uh, so this is prerecorded, but well thought through, and we’re answering a bunch of premium questions,

Danille:
Honestly, and I hope you guys are in. Ladies are having a nice Thanksgiving this week, short workweek. All right. So today we’re going to be talking about things that keep people poor.

Ken McElroy:
Oh, good timing. On this one. Inflation!

Danille:
Inflation is one of those things

Ken McElroy:
We were talking about this like a year ago. I said, Hey guys, there’s no way like with the printing and everything that, you know, there’s no way we’re not going to see massive inflation. Then the fed came out and said, it’s transitory. Of course. And now there’s all kinds of attack around that.

Danille:
Well, they finally admitted that the stimulus checks created that Friday.

Ken McElroy:
Yeah. Among other things. But I think the bottom line is, is things are more expensive. Uh,

Danille:
Yeah. I was just at the grocery store the other day, 150 bucks. And I didn’t even, by any meat.

Ken McElroy:
Food and gas are kind of the ones that everybody’s about right now, but there’s a lot of other things

Danille:
When they’re going to do it about energy. So…

Ken McElroy:
Energy be careful there guys. So, um, yeah, so this is a really timely topic and, and we, we spent some time on this this weekend, just trying to figure out like, what are, what are some of the things that are, you know, mindset, biases, you know, things that you learned, uh, as a young kid, or maybe, maybe, maybe learn from your parents or, or, or got in habits of?

Danille:
Truth is anybody can become more wealthy. Right? You don’t have to stay poor, you know? Um, we’ve both been poor, both you and I.

Ken McElroy:
Of course, I grew up that way and you know, not as bad as some but worse than others. And, and I think, uh, you know, most of, most of the entrepreneur friends I have all started, but that way they started with, uh, in situations that, um, you know, were weren’t that great. And, and, um, you know, they figured out a way out and I’m telling you it’s, it’s, it’s, um, uh, it is a puzzle. I’m not gonna lie, but, uh, there is a way, trust me, there is a way

Danille:
Definitely it takes hard work, but also take some education too. So the first thing that is keeping people poor is pretty obvious it’s credit cards.

Ken McElroy:
Yeah. Now this is something that we talk a lot about and I get the fact that you might have to use them for things to, uh, I get that. So I’m not saying that there’s not, um, uh, you know, that they can’t be used, but, but you gotta be careful, most credit card companies, uh, live off of the interest, not when people pay them off every month, 27% now. So think about this guys, if you have $10,000 that you all want a credit card, which is probably about right, and you 20% interest, which is about right. That means that you have a $2,000 that you owe them every year,

Danille:
Right? Yeah.

Ken McElroy:
So, you know, unless you are paying down on the 10, you’re going to have that in perpetuity.

Danille:
Well, and credit cards are the number one thing, you know, people ask us a lot and I know Dave Ramsey actually talks about this with the debt snowball. You know, they want to invest in a property or they want to save money. You can’t really do any of that until you pay off your credit cards.

Ken McElroy:
Yeah. Now I say that about Robert kiddish, Saki bought his first, uh, place in Maui with a credit card. Cause he had like a $20,000 limit of water

Danille:
Rates for his highest.

Ken McElroy:
Yeah. So again, it’s a tool. I use credit cards. I use credit cards to go to dinner and I use credit cards, you know,

Danille:
But you’re more disciplined than most people. I

Ken McElroy:
Pay off everything every month. And I always have, and I had a little credit card debt in college. They prey on college students. It’s horrible. I remember, um, I was a junior and senior. We had this mass mailbox, you know, all those mailboxes down in the lobby. You know, I was in a dorm and there’s like credit cards, you know, credit card offers one after another would come like couple of week from all these different and they just keep pounding away on you. They want to get you in debt. So there is a way to consolidate stuff. So what you got planned, so what you need to do, if you are in credit card, debt is go find like, like, like on Amazon, of course, they’re trying to get your money to, uh, through their prime card. They have these, these zero interest, uh, uh, deals where you can, um, you know, buy things and pay zero interest. Um, now I’m not advocating any more credit cards. What I’m advocating is if you can consolidate your debt to something it’s all about managing your interest rate and, and just know that, and you actually, then you go through a pretty good credit card.

Danille:
It was known for mine was right after college. When I was a teacher making no money, you know, I got into yeah, about like seven or $9,000 in credit card debt. Um, and I moved home and I paid it off and I basically worked my off for a year paying off this $9,000 in debt. Um, but it, but, but I did that. I consolidated it onto a no-interest card for a year, but there’s a pro tip about that, that I didn’t know until I worked at the bank, which is, um, most of those cards, you need to read the terms because if your debt’s not paid off in a year, usually all that interest is put back on. So you just need to, um, if you can’t pay it off in a year, you need to move it again. Or if you can’t pay it off a year, that should be the goal. But

Ken McElroy:
This was also a bit of a game changer for you personally, because you think about it. You, um, I obviously didn’t know you in college, but a student, right?

Danille:
Yeah. I just couldn’t keep up with my bills. You know, I wasn’t making enough money and I was not monitoring how I spent my money. I got into debt.

Ken McElroy:
What happened was you got into this debt spiral and you actually quit teaching.

Danille:
I did. Why wasn’t we going with money? Yeah. And I did. And I moved home. Yep. Well, I wouldn’t have had to do that, but, but the thing is, is that it was a good decision for me to move home at the time. I think I was probably 25, um, because I don’t think I could have got out of the debt as quickly. I know I couldn’t have, because I didn’t have to pay rent and all that.

Ken McElroy:
You, you moved home and, and paid off that debt and got really decent.

Danille:
But there’s something about when I paid off the debt to, you know, when you’re in debt, taking another credit card out is like, whatever, it’s just another couple of hundred dollar payment. Once you’re out of debt, you don’t want to go back in it. You know, you’re very mindful, much more mindful of your money. Um, once you don’t have any.

Ken McElroy:
Yeah. Yeah. So, um, so guys, trust me, you got to get really disciplined on this because the, this, this can really get away from you and it can kill your dreams. It literally, she went through college, graduated, became a teacher and literally left the industry as a result of all this debt and this anchor. And there were,

Danille:
There were other things, but yeah, but I mean, I could have never started my own business, which I did a few years later. If I would have been in this debt, it would have just been too much. I mean, it’s already hard enough to start your own business and have your normal bills throw on a credit card bill or two on top of that. It’s just, it’s just too difficult. So, you know, whatever you guys need to do to pay off your credit card, bill, get a second job, move home. Like whatever it is that works for you, your goal should be in the next 12 months to pay off.

Ken McElroy:
Yeah. Trust me guys. It’s killing you. You don’t see it every single day. But in that $10,000 example, I mean, it’s, uh, it’s, it’s 150 to $200 a month, you know? Uh, it’s a lot of money

Danille:
And it sucks. Like I, you know, and when I moved home and I was working for a year to pay off my credit cards, I sucked lonely with my parents. It sucked not having any extra money. I was making all this money. Like I had, you know, all this extra money from all the, you know, the hard work I was doing, but I just had to throw it to a credit card, you know? And that takes a lot of discipline too. Cause I wanted to do other things with it. But you just, you can’t

Ken McElroy:
Pay down the principal. That’s the rule here, pay your principle, pay it off every month, live within your means, at least. And we’re going to get into the next piece in a minute, but uh, you’re going to see that the first two things are really about debt. Yup.

Danille:
And so the next one’s a little more controversial, but student loans will keep you from

Ken McElroy:
Student debt. Yeah. So I got sued and dad, I paid mine off and it helped me. Yeah. So I’m not saying that you shouldn’t finance an education.

Danille:
No, but I think what I’m saying is that you need to, if you have student loans, you have student loans, you have to pay them off. They’re usually at a cheaper interest rate. Um, so you know, they don’t have, they’re not as critical to just pay off all at once. Like your credit cards are, but something else that think if you’re young or if you have kids, you know, think about if them taking on, are you taking on that student loan debt makes sense. Are they going to be an engineer? Are they going to be a liberal arts major? I mean, you know, there’s a big difference.

Ken McElroy:
That’s the issue, you know, like, like in your situation, um, you know, uh, you come out and your teacher or maybe a nurse and you know, there’s a kind of a low paid position. Um, you know, that’s, that’s going to be much, much harder. You could, you might, you might carry that debt for years.

Danille:
Yeah. Well, nurses actually make pretty good money, but yeah, with the teacher, you know, 30 grand a year, um,

Ken McElroy:
We have some friends that are doctors. They have three, $400,000 in debt and, uh, they can’t buy a house.

Danille:
Yeah. Well, that’s the thing, you know, when, when you or your kids or whoever has the student loan debt, not only do they have the debt, but they can’t buy a house because their debt to income is too high. You know, if you’re a teacher making 30 grand a year, 40 grand a year and you have a hundred thousand dollars in student loans to, Pink’s not going to give you money for a mortgage, your debt to income is just too,

Ken McElroy:
You’re always going to be renting. And, and so, so, you know, if you guys don’t know the term ROI or return on investment, that’s something that you really got to seriously take a look at and people are starting to question, it’s the education, the price of education a lot more now.

Danille:
Well, I was listening to, I think it was Ben Shapiro or one of those shows and they really broke down college and they said 70%. Cause some people, you know, go to college and also don’t graduate too. But also, so between everyone that goes to college, 70% have a negative ROI, 70%

Ken McElroy:
Of all college students. Yeah. So, you know, and it’s hard when you’re 22 to think about this, you know, uh, you know, it’s, it’s 30, 20, $30,000. Let’s save to, to get through school for a year. You know, how are you going to pay that off? You know?

Danille:
Well, they they’ll happily give you the money for the housing and the school and the, this, and you don’t need to work. But then when you leave school and you have over six figures in a,

Ken McElroy:
Which is happening a lot guys, and you know, there’s been all kinds of stuff. And I know, I don’t know where the government is or the president right now on a student loan, forgiveness and all that stuff at CA they talked a lot about it and then it kind of went away. Uh, so I obviously can’t really rely on that right now, but I tell you what it would, that would be a massively subject on student forgiveness because there’s, it would, it really, it would really be a black eye for all the people that did pay him off.

Danille:
Definitely make them not very happy

Ken McElroy:
About that. But again, but the, the, the, the key here is debt. Again, we’re talking about debt again, just like credit card debt, student loan debt. This is what we would call bad debt. And now, now I shouldn’t call student loan bad debt because it might not be, uh, if, if, if you’re going to get into a position like obviously engineering or maybe a CPA or, or doctor or something like that, and you, and you know that you’re going to be able to chip away at that, then you’re probably going to be a little bit better. Right. And, and for my, my student loan debt was only 3%.

Danille:
Yeah. And they can meet, you know what, a lot of times they’re doing now though, is they’re doing part of that at 3%. But then you have to take personal loans to that are much higher. So they’ll give you because the government doesn’t want all of that debt. The bank gets some of it. And so those, those are the ones that are harder,

Ken McElroy:
But, but I remember high at a monthly payment on my student debt. I paid it down and, uh, I, I had it for four or five years after I got,

Danille:
When your is probably a lot cheaper. I mean, even if it, you do get that 3% debt locked in or something like that, you’re still at a disadvantage because you won’t be able to buy anything until it’s paid down.

Ken McElroy:
Yeah, yeah. You, as you guys all know, we, you need to, you need to have stuff that’s appreciating. And, but again, there’s nothing wrong. Like if you’re going to go to a trade school, let’s say, and you want to be, let’s say a work in HPAC or plumbing. And you, you know, some of those guys are coming out right now, by the way we need trades right now. I don’t know if you guys know that, like the schools, the education system has pulled people into college, um, over the last decade. And now they’re wrong with that. But the, you know, the traits traits, people are getting older and there there’s no, there’s no young, young bucks coming in. My dad was in this business. That’s how I know

Danille:
You can go to trade schools for 15, $20,000 within a year and then start working.

Ken McElroy:
This is my point. So, and that might be a good investment. So, so maybe you’re, maybe you’re taking out a debt for 10 or 12 grand for the, you know, for a one-year program. But then immediately you’re going to, you’re going to be in a very high paid or higher paid or a position that, that has a lot of potential. Um, you know, it might not be as prestigious and you don’t have, you know, the, the college degree and all that kind of stuff, but this is an ROI play. So if you can get a job for say, 60 to $70,000 as a plumbing apprentice, let’s, let’s say at the a and w in one year, and you only have to spend 10. That makes sense. But the, but looking at it the other way around where you, it’s a four year commitment or five, and you’re, you’re doing 20 to 30,000 a year, and your job is 60, 70, $80,000. It’s a lot different. Definitely. It’s an ROI issue. You have to always bring it back to ROI.

Danille:
Definitely. So something else that’s keeping you poor is not saving.

Ken McElroy:
Yeah. And you know, we talk about savers are losers. You know, that’s one of the rules and Rosette porta, but this is a reserve issue, right? So this is about, I recommend having six months reserves. So let’s say that your monthly burn rate all in is 3000 that’s rent and car payment and groceries and going out. And all of a sudden, hopefully you have some kind of a budget. If you don’t, you need to, you need to figure out what your kind of your, your, your average monthly expenses are, and then solve to that. And, and that should be untouchable. So that should be the first thing that you do. Let’s say, so 3000 times six is 18,000. So you just have that as your base at all times, because pandemics come and things come and employers go down, employers, expand employers, contract, and, and, you know, you know, things come up, medical things and car issues and, and moves and, and, um, you know, there’s just a number of things.

Ken McElroy:
And so you really gotta, um, you gotta think about that. So what I, what I did growing up is I had that as my, you know, what I called tier one, that was my tier one money. And I really had to have a good reason to tap into that. And then I had my tier two money, which would be my vacations and things like that. So I had, I had, obviously I wanted to make sure that I had all that kind of covered in a reserve. And then the tier two money would be something that I would invest in. And so I always wanted to, you got to have, I do that in my businesses guys. I do that. That’s fiscally the right way to run a company to some, sometimes you’re not going to have income coming in, in a company, or sometimes you’re gonna have to hire a lot of people in a month. And it’s just gonna, you know, sometimes you’re feeding it and sometimes you’re taking out. And so the same thing, personally, you got to think of your own personal situation, just like you would run a business, just like, uh, it has income and it has expenses. And so, um, there is a saving component, even though we’re high inflation. Um, so I know some of you are going to attack on this issue, but you have to have reserves and reserves, uh, gives you peace of mind.

Danille:
Definitely. So I like this next one. Um, things that are keeping you poor is spending money on things that depreciate, instead of appreciate.

Ken McElroy:
Yeah. Now this is pretty common sense, I would think. But most of the stuff like you buy a TV like thousand bucks, or I don’t really even know what they are now, 500, you know, you’re not, it’s not that worth that much. The minute you get home, different issue, you know, technology is going down like crazy. As you guys know a laptop, a computer, you know, all that kind of stuff. So you just know that anything you buy a cell phone, it’s all going down, it’s all depreciating period. Uh,

Danille:
But a lot of people that are in a tight financial spot, they spend money on those things kind of mindlessly.

Ken McElroy:
Well, that’s what I mean, they use their credit card, right. So they’ll go buy a thousand dollar iPhone, the new one because they have to have it. And, um, you know, and you don’t, yeah, that’s the bottom line you just want to, so you start getting into that, uh, you know, Jones, I need to keep up with the Jones or went up and, but I’ll give you an interesting perspective on this. So you guys, I could obviously buy cars, brand new, uh, no problem, and go get whatever I want, essentially. But as you know, I always buy them a year or two old, always, and I’ve done that my whole life. I only actually in my entire life only bought one new car. And, um, I usually try to find, um, you know, somewhere right around, less than 5,000 miles if I can. So I bought all my Ferrari’s that way, my range rovers, uh, I’ve got a G wagon right now.

Ken McElroy:
I bought it was a year old. Um, and, um, uh, I even bought my Bronco that way. My 69 Bronco, which had 7,000 miles on it, the guy had fully redundant and, um, uh, same thing. And so what’s the point of all that. So in 2007, oh, no, 2010, when I bought my first Ferrari, um, I bought it for 125 grand. I remember. And it was a lot of money in 2010. It was like 11 years ago or something, whatever. And it was a F four 30, it was a 2007 F four 30 red. And it had like 6,000 miles on it let’s say, but it was three years old. I just sold it last year for $125,000. So, no, I’m not suggesting that your cars are going to go up. But the point was, I already took that somebody already took that hit for me.

Ken McElroy:
And inflation is also making cars go up in value. So it’s a weird time to talk about cars, but the truth is if you buy your cars correctly, just as one example, I know things are going to depreciate, but I personally have always known that I bought my SVR that way, my range Rover, it had a 2,500 miles on it. The guy traded in it was expensive. Um, and, uh, I just got rid of that. And so there is a way to, uh, you know, when people drive cars off the lot, they’re worth a lot less. And so this is my point, you know, you can do this, but it takes discipline. It’s easy to go in and buy a brand new whatever.

Danille:
Yeah. I mean, you know, you just need to, to pull it off on the things that you don’t need while you are saving. And that way you can save for things that appreciate not really like a car, but like more like,

Ken McElroy:
Even when I met you, you were driving an 86 Honda,

Danille:
2006

Ken McElroy:
Honda, 2006 Honda.

Danille:
So around 10 years old. Yeah.

Ken McElroy:

  1. Yeah. You gotta, you gotta, how many miles on it?

Danille:
Uh, well, when I sold it, I had $130,000.

Ken McElroy:
Yeah. So she’s buying, she bought, uh, three rental properties while she’s driving this.

Danille:
Yeah, yeah, yeah, no, I definitely had, yeah. I had two rental properties at the time before I bought a new RAV4.

Ken McElroy:
So this is kind of the point. Yeah. She’s like, I don’t want a car payment. It’s going to affect the debt I can get. And I didn’t want the payment didn’t want the payment. And so it’s hard to do, but, uh, you, you can buy things that are already depreciating, um, you know, and, and, um, just be mindful of it because when you buy a boat or whatever, you know,

Danille:
Well, a purse, like whatever your thing is that you’re going to buy, you know, you need to be on a budget while you’re saving for that initial

Ken McElroy:
Yeah. And stop with things. So, you know, like I, I’ve heard some bougie women say this is an investment

Danille:
And the person

Ken McElroy:
That cracks me up,

Danille:
But anyways, so, um, another thing, you know, I think people get, they, they wrap up in and you kind of touched on this is, um, being too traditional and caring what people think.

Ken McElroy:
Yeah. Yeah. This is a hard thing to break out of guys. I mean, you, you know, think about it that, unfortunately, when you’re younger, you realize when you’re a little older, whole lot, some people do not ever want, but you, you, you keep those people are always comparing themselves against other people. Yeah, yeah. At work, uh, what house they’re in, what car they’re driving, you know, subconsciously or consciously, you’re always evaluating that. Right. And so w w what happens to you? You get caught up in that, right. That’s happened to me when I was younger, too. I wanted new suits and new cars and new houses, and, you know, all these toys and, you know, boats and stuff. And I bought all that stuff. I’ve done all that stuff. And, um, you, you gotta like stay fairly disciplined. You’ve done a pretty good job of not falling into that. I think.

Danille:
Yeah, no, I really, I haven’t. I, well, you know, when I, it’s funny, I probably spent more money when I was a teacher than I do now on clothes and things like that, which is funny. Cause I was making like 30 grand a year. Um, but I do think that, um, as I was not spending money and, and making more money and putting it away and buying real estate, I kind of would laugh to myself when other people, you know, like I drove her a really old car. Right. So people kind of assume that I wasn’t doing so well, but I knew that I was doing well. I just laughed at myself as I’m going to drive this. It might be like the crappiest car out of all my friends, but I’m going to drive it because I’m saving up for my condo that I want to live in. Or, you know, I not going to buy these nice purses because I’m saving up for this. And at the end of the day, I’m happy I did it because I look at where I’m at versus where the people that bought all those things were at. And I’m just in a better financial.

Ken McElroy:
Yeah. So I remember when I, when we was going way back, but we, we built a really nice property in Scottsdale. And when you open a new property and you’re getting renters, you know, they have to fill out applications. So, you know, like it doesn’t really matter. Male, female age doesn’t really matter, but they have to tell you what they’re making. They have to tell you what their savings are, because obviously they’re applying to, to move in. And our rents at the time were the highest in town. So we were getting these, we’d get these, these, uh, just pick on the guys and stuff, a guy, um, you know, 26, 25 year old, 26 year old guys that you know, that they were paying, uh, so much in rent and they were driving up in these brand new car, BMW, Mercedes, whatever. And yeah, at least, and you would look at like, they hardly had any leftover and they were going out and obviously being all flashy with all the flashy clothes and all that stuff. But, um, the property was full of those kinds of folks. And I loved them because they were just high paid, hardworking, grinding, and out people that were going out. And they, they were spending all their cash on the way they

Danille:
Yeah. And rent and all that. Well, it’s funny. Cause I actually lived in, um, I li I read it from the small landlord. My, my apartment was filled with cockroaches, which I had to have sprayed for every three months. Like those big ones, you know, not the little ones, the big ones. Um, and it was just a nasty apartment, but, but you know, my, my, my apartment was clean, but the apartment building was kind of nasty. I there’s a guy that walked around in his underwear all the time. Like it was just not like the nicest apartment and I could have afforded a much nicer place, but I was only paying six 50 a month. And that’s how I was saving all the additional money. And I lived there for like three years, I think, while I saved for my condo. But my point is, is that I could have lived somewhere a lot nicer than that. And it was safe. It was, you know, but couldn’t listen were nicer, but true. That’s traditionally, that’s what people do. They make more money and they move into nicer places. They buy nicer cars. But when you are untraditional, you don’t do that because you just start stocking away your money, knowing that you could live somewhere.

Ken McElroy:
What kind of, let’s say you say you’re six 50. What do you think it would have been like somewhere else?

Danille:
Um, well, since I worked at the apartment industry, part of that time, it probably would’ve been closer to 1100. Cool.

Ken McElroy:
Okay. So, so call it four hundred fifty five hundred a month, times 36 months, right? That’s a lot of money. That’s 18 to 20 grand in rent that, uh, you would have paid somebody and rent. Right. Okay. That’s, that’s what I was trying to solve too.

Danille:
And, uh, and so it it’s a, you know, but, but it was funny because people would look at me and my old car and my crappy one bedroom apartment. And you would’ve thought that I wasn’t really doing that well, but I actually was doing pretty good, you know, but I was just saving money, like crazy. Yeah.

Ken McElroy:
Yeah. Well,

Danille:
And I think that that’s, I guess my point is, I think that’s the mindset. You have to wrap your head around just because you start to do a little better. Doesn’t mean you can’t be unconventional. You know, I had our friends down in Texas, they moved a roommate into their they’re married and they re moved a roommate into their two bedroom.

Ken McElroy:
Cause they started a business because

Danille:
They started a business and help them pay their mortgage.

Ken McElroy:
Yep. They both one worked at URC Texas, uh, UT uh, the other one, um, he worked somewhere else and they started, they committed to and started a business. So they got a renter in there and then their business started to take off. Yeah.

Danille:
And they were able to afford their mortgage and you know, their parents said, that’s so crazy. Why would she want to move someone in with

Ken McElroy:
You? Like, why

Danille:
Would you do this? And you know, but they were untraditional. But because of that, you know, they have, they have bought a place in Austin a few years ago, there places appreciated, you know, now they can swing the rent without the roommate, but it’s, it’s one of those things where you kind of have to do what you have to do and you can’t really care about what other people think when you’re doing.

Ken McElroy:
It’s a short-term strategy to a long long-term gain. And, and um, and that’s, you know, you take a look at Warren buffet talks a lot about this and I don’t know how true it is, but they say he drives around in like a Ford pickup. And he lives in the same home that he has had for years and years and years. And obviously he’s a billionaire. So these are strategies guys that a lot of the wealthy have.

Danille:
Yeah, definitely. And, um, the, the last one was mine, but only working one job, you know, um, when you’re in the point where you’re trying to save money and, um, get out of the financial position that you’re in, you may have to work more than one job to do that.

Ken McElroy:
Yeah. I know. It’s not fun. It’s not a, yeah, listen guys. I, I, we talk about side hustles or whatever you want to call it. But, but w the big issue that people have, if you really want to boil down to when you need assistance, it’s because you have typically one source of income. Yep. That’s it. So call it a salary, call it one contract, call it, um, a sales position that went away. You really, this is the point you, you have to have side hustles

Danille:
And they can be anything. You can dog sit. You can do go work at a restaurant on the weekends. I mean, there’s so many little random things that you can do. You could run out your garage, you can run out your there with the apps and everything and technology. There’s so much you can do. But if you’re just working one job and you’re trying to pay down your credit card, or you’re just working one job, and you’re trying to save for a condo and you don’t have any or house, and you don’t have any side hustles, chances are, you’re not, it’s going to be such a slow road out of there. That it’s going to be a lot harder than if you come up with other streams of income.

Ken McElroy:
I believe that it’s the riskiest thing you can do is have one source of income. Yep. It literally, because now you’re predicated on something external and now if it’s passive income and it’s money that you invested a little bit different, that at least you can, something you can control.

Danille:
Do you have to work up to that? You know, I mean, it is nice because now we have this passive income and we have these investments, but a lot of people watching don’t have money for that. So then they look at us like, well, you guys must be nice that you guys have that. But the truth is, is that we didn’t start there. And we had to work really hard and more than one job in order to get that additional money. So you’re going to have a lot of you are going to have to do those things and be that motivated, but it’s a short, as you said, it’s short term hardship for the long-term.

Ken McElroy:
Yeah. And it’s a strategy more than anything. If you come up with your strategy and one of the, one of the things that, um, can tug on you, uh, are your friends and family, what are you doing? That’s crazy. And you know, why are you, uh, you know, why do you have these other things happening? I listened to this my whole life, and I know you did. Oh, totally. Yeah. It’s normal. People are in a very traditional situation with, with their, with their career. And they think that it’s going to be fine next year. Well, if that’s not the epitome of what just happened, right. With the rattling of everyone, you know, things are, uh, there’s a reason why there were 4.4 million people that resigned in September, uh, you know, part of that great resignation there, you know, people are moving around, they’re trying to figure out what they want to do. Um, and, um, uh, it’s going to be very, very interesting to see what happens, but you have to have that source of revenue coming in and then you, it, it, it would never be an issue. Right. Right. Definitely. Yeah.

Danille:
All right. Well, we’re going to get to premium it. Make sure you guys sign up for premium. Can macro.com forward slash premium premium live gives you the code premium live gives you seven days for free. Um, Cassandra wants to know how do I do a cash out refi for a single family residence?

Ken McElroy:
Okay. Yeah, sure. So, well, first of all, you have to buy something and then have it either the market has increased the equity or, uh, or, you know, market equity or forced equity. So, uh, and I’m, this is a hypothetical scenario, but let’s say you buy a $200,000 place and you, uh, get an 80% loan or 160,000 and you put 40 now. So, and it’s covered hopefully with a renter. Okay. So now you’ve got $40,000 of equity and a cashflowing deal. Let’s say the property goes to 300,000. Now, of course, I’m making this up, but there are strategies. So you can take a 200,000 and grow to a 300,000, but we’re going to talk about that later. So now it’s 300,000, maybe that’s four or five years later come. Maybe the market started for you. Who knows? So now you’re a 300, you go back to the bank and on a cash out refi, they’re going to give you a less loan to value. So let’s say it’s 70%. So 70% of 300,000 is 210,000. Okay. So that’s a cash out refi. So now you take the 210,000, you pay off the one 60, which is your original mortgage, and then you scoop the 40 that you put down, and now you have an extra 10. Uh, so now hopefully your rent is covering that. Of course higher. You now have a, um, a more expensive loan and you’ll probably have a higher payment depending on what went on with the rates, but that’s a, tax-free cash out refinance. That’s how it works.

Danille:
Yep. Great way to get money out of there. Dustin from premium wants to know if the time to buy is in the near future. When housing is cheap again, how do you get the equity out of the house before the crash wipes out the equity? So I think what he’s saying is if he owns a house right now, that’s appreciated. How does he get the equity out before the market corrects

Ken McElroy:
Loaded question there? Well, first of all, um, I don’t know that anybody’s gonna, um, know exactly when that crash is going to happen, right? So it’s all going to happen in different markets at different times. So it’s all, there’s already markets that are reversing. So we know this there’s also markets that are not. So, um, a lot of it depends on that, but the only way that I know of there’s only two little soup, one is sell. Of course, then you have an issue of, you know, reinvesting, uh, and two. And that is of course means that you magically need to know when the market’s going to crash. And then two is cash out refinance. And that is one of the safer, uh, uh, things is to be able to scoop that money. Tax-free. So those are the two ways that I know of that, that you can, uh, harvest that equity. You won’t get all of it, obviously with the cash out refi, but you also won’t pay tax. Yep.

Danille:
So you, Lou, I hope I’m saying that right from has a good question, Sean, your video with Robert Kiyosaki, he mentioned a housing crash in 2022, but he also said now’s the best time to buy what’s your opinion.

Ken McElroy:
Yeah. So for those of you guys know, we’ve been trying to figure this out for a while. And when I first did that crowd, a housing crash video, I really believed that it was going to happen that way. If the government, the government got involved and they they’ve been kind of kicking this can down the road at right or wrong, that’s what’s happening. But now you’re seeing the result of that. You’re seeing massive inflation as a result of that. Okay. So that was one component. I do think that, that the government is going to have to look at what the government’s facing right now. And this is not, I will eventually answer this question. We have, um, massive people unemployed with more leaving and we have a massive, massive, massive labor issue. Okay. We have transportation issues. Um, we have this vaccine issue and I don’t know what side of the fence on it.

Ken McElroy:
It doesn’t really matter. I read this morning that the, there, there, there could be another 70 to 80,000 truckers because of the vaccine mandates that are going to leave that industry. That’s going to create more issues. So, so you have all this stuff happening. And, um, what does it have to do with housing? A lot has a lot to do with a lot because you know, you’re going to have all these shortages, you’re going to have this kind of inflation, all those kinds of things. And so, um, I, I, you know, I, I, I think that we don’t know, I do believe that we’re going to have massive inflation and I think that’s what Robin was talking about with, on the debt side, we want to be able to have, you want to be able to be in good debt where, um, people are paying it off. And I also think we’re going to have, uh, it’s going to be a renter’s market for the next three to five years, for sure. So those are two things that are going to happen. I don’t know where interest rates are going to go, but, um, I do know we’re going to have a massive renter’s market

Danille:
Coming or renter’s market. What do you mean? Well,

Ken McElroy:
People are getting displaced and there’s a shortage of housing right now, period, everywhere. There’s a massive, there’s not enough housing being built to supply the number of people that need it. Period. It’s been that way for the last 10 years. All you gotta do is look, Google it, uh, go to national multi-housing council, uh, dot org, N M H c.org. Um, there’s a study there, there’s a, there’s a study. There’s tons of studies on this issue. It’s, it’s math. There’s not enough housing to supply the amount of people that need it, period. So that means that we’re going to start to see massive, massive rent increases, and we’re already starting to see those, um, the house, uh, you know, so, so, um, so I, I think that, um, you know, to answer your question, uh, w w it’s not a national housing crash, there are housing markets that are, that are, that are not doing well for sure.

Ken McElroy:
Um, and, and they’re all over. All you gotta do is take a look and you can see, and of course we just saw Google, you know, with, with their, um, sell off. So our Zillow, sorry. Um, yeah, so, so all of this stuff is happening right here. It’s just happening slowly, and everybody’s trying to piece it together and figure it out. I can tell you, one thing is for sure, we’re going to have a renter market and we’re going to, we have we’re in a bit of a housing crisis. And the one thing that governments are afraid of are as homelessness and, and, and how do you solve that? You solve that by giving more money to people. So I think you’re going to see massive tax, I’m sorry, massive inflation and a massive renter issue for the next three to five years. And that’s going to continue for a while. And so you want to be on that side of it, and those are facts. Uh, I don’t know when there’ll be a housing crash, but if you look at, there are some markets that are already reversing because of affordability. Um, and, and, and, and people are, and people are leaving. Definitely.

Danille:
So you’ll also want to know, what’s your advice for people who graduated a few years out of college, but are priced out of the market?

Ken McElroy:
Yeah. Um, well, my, my advice to you is to try to figure out a market that you’re not priced out of. So, which might mean physical location, um, or it could mean, uh, we talked a little bit about this on another episode is a partnership, um, and, or, uh, raising the capital from somebody that, you know, the, the, the interesting thing about that question. I totally understand it. And it’s a good one. That’s how I thought when I was your age, you think that you have to have your own money to buy, but you don’t, you just have to have a plan. So, right. Yeah. So, uh, I know it sounds foreign to you, but trust me when, you know, w when you start to, when you start to get into bigger and bigger properties, OPM or other people’s money is, is how, how it’s done.

Ken McElroy:
I mean, that is the whole way the entire stock market works. It’s all OPM, it’s basically your money. So, so the whole world is predicated on OPM primarily, and it’s usually all the people putting money into banks, financial products, pensions, 401ks, all that stuff. That’s all managed money, so that money needs to go somewhere and it might as well go to you. And, uh, so, uh, I made this mistake, so, uh, that’s a really, really insightful good question. Um, because basically what you’re trying to do is save up for your first deal or your first home. And, um, there are other ways to do it. And, uh, uh, some great ways is just to figure out a way to get it paid off, you know, get, get a four bedroom home and rent out the other three.

Danille:
I was going to say, you know, yellow. I mean, if you’re, you know, I’m assuming you’re like 23, cause you’re going to be done with college, go live. If you can go live with your parents for a couple of years, save enough money for a down payment, buy a home, run out the bedrooms, I mean, get creative around.

Ken McElroy:
Yeah. And you don’t have to do it very long if you don’t want, and then you can always move out into your primary home, which is I’ve had friends do that, you know, the house hack early. Right. Um, and, um, uh, you know, get other people to pay off your stuff, guys. That’s, that’s, that’s how the world works. That’s what I, that’s what I’m doing right now. I have 10,000 tenants and they’re paying off all my properties each and every month. And that is the, that is what we try to teach here. So it’s a good question.

Danille:
Next premium question. Make sure you guys send it for premium. If you haven’t come backward.com/premium code premium live for seven days free, it’s from Darla Kennan. Danielle, I’ve been thinking about offering my renters a referral fee. If I accept their tenants, their friends as renters, how do, how do I word the proposal and do I need an attorney? And what should I provide as compensation?

Ken McElroy:
Yeah. So, um, the easiest way to do this is, uh, this is pretty common by the way. Yeah, absolutely. Uh, it’s a great way. W you know, part of the, part of the part of resident retention, we have a whole resident, uh, we haven’t talked about a lot about this, but in my company, uh, which is a property management company, I own, we focus on resident retention. And the whole goal is to, you want people to renew their leases that are paying you obviously, and, and, um, and you want people to refer you out. And so what we do, and I think an easier way tells you, you don’t have to cut a check is just come up with a number that, that you feel comfortable with. And, um, and, and give it to them as a, as a credit off the rent. That’s the easiest way.

Ken McElroy:
That way you’re not cutting a check, it’s immediate to them and make sure that they’re, uh, they’re obviously they gotta run a criminal credit background check and they qualify and all that kind of stuff. But I love that. Yeah. And it’s, this is done in every industry all the time it’s done for health memberships. It’s done for, you know, uh, you see it all the time. I had, I can’t remember what I got the other day, but I said, if you, if you refer two or three clients, we’re going to give you one for free. So this is all the time. And so it’s a great question. You don’t have to cut them a check, but just feel comfortable, you know, maybe a few hundred off or half off, or does it need

Danille:
To be verbal, or does she need to have something in writing? I

Ken McElroy:
Would do. I would just send them an email. If you do this, I’ll do this, you know, 50% off your rent for one month, one month only. And you know, you’ll know what that number is mean. If that’s too high that make it less, yeah.

Danille:
Whatever, whatever you want. So Kai from premium said that they bought a 10 unit condo, and they’ve been rehabbing the rundown units in between tenants. Should he rehab all the units to make them consistent? Even if some of them are in good shape?

Ken McElroy:
No, it doesn’t matter. So, you know, when we buy a property, you know, over, over the course of a life of a property, you might have different counters, different places, different flooring, different paint, different everything, you know? So it’s very common to step into a property that has a lot of stuff different over, over a period of time. And you might have Paige appliance, harvest gold, all that shag carpet foot floor. I mean, you just don’t even know. I’m sure you guys have a ton of stories around this. The, the issue should always be, uh, maximizing your rent. So if, if you can, let’s say, I’m just gonna pick this number. Let’s say the is 1500. Well, if you don’t have to do any work to something and you get 1500, then don’t do any work to it. Right. But if it has older appliances, then, then do that.

Ken McElroy:
And the countertops are nice. So it’s, you do not need to make them all look the same. And that is a great question, but all you’re trying to do is maximize your rent. And so we have, in our own company, we have units that we call classics and we actually keep them that way. So we actually have different price points. So we’ll, let’s say we have a two bedroom, that’s 1200, we might have a two bedroom. That’s 1500 and we keep them that way. So we have a, so we have classics and premiums and, and so that, uh, if somebody comes in, they’re not all premiums, right. And we all, we all know that we can eventually raise, uh, you know, invest more money and get that say a little bit, extra $300 a month, but then that’s going to cost something that might be eight or $10,000 to get 300 a month. So you just have to look at the math on it. Uh, but the bottom line is, uh, w what the market will tell you what they’ll rent something for and whether or not it needs to be upgraded. And that’s the beautiful thing about real estate is if you could over improve a place. And if it’s, uh, if it’s not at least at Barkat, then, um, you’ll have a, you’ll have a, a little bit tougher time and you get, you have to, uh, lower your rent.

Danille:
Definitely. All right. So that is going to wrap up for today. Um, we have a few more premium questions. Um, you know, Lee wanted to know, um, he’s worried about his 401k.

Ken McElroy:
Let’s put this on the forum, on the forum. Yeah. So what was the question?

Danille:
Uh, he’s concerned if the market collapses, so will his 401k and he’s about to retire, so he’s wanting to know what he should do with that.

Ken McElroy:
It’s a good idea for there. Uh, I’ll answer this question over on the forum for you, for sure. That’s a good one. That’s 401k money is an interesting one.

Danille:
Totally. But anyways, well, we hope you guys had a great thanks or have a great Thanksgiving, and we’ll see you guys in a couple weeks.

Ken McElroy:
All right, guys. See you later. Happy Thanksgiving.

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Ken McElroy has lived and breathed real estate for his entire adult life, learning from the ground up. He shares his insights and experiences on his podcast, “Real Estate Strategies with Ken McElroy,” and on his wildly popular YouTube channel. Ken is passionate about educating others so that they too can experience financial freedom through real estate investing.
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