Great Retirement Con

By 2017-11-24Radio Show

RPRE 234 | Retirement Con

Right Path Real Estate Radio with Jason Bible talking about how retirement is the biggest con game in town! Get the answer to your question that’s keeping you from taking action at succeeding today!

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Great Retirement Con

Fresh off the weekend retreat. We had a banker in town. He came by and did an hour and a half presentation at the weekend retreat. He has been banker for a long time, and he was sharing with us what the single family real estate environment looked like after Katrina, Hurricane Sandy, and all of the hurricanes in Florida. His insight was absolutely fascinating. Let’s start with Houston. What’s going to happen in Houston? He shared some incredible data with us. I’ll tell you just a quick summary of his experience as a national lender over the last couple of decades in storm-damaged areas One of the big takeaways is every time we have one of these store storms, lenders learn something. Banks learn something. What is that something? That something is human behavior after a catastrophe.

He said that as they develop different programs, as they develop different systems, they get smarter and smarter in predicting what’s going to happen to the future of those homeowners. It’s just a natural evolution of getting more experience. Here’s what they know. They know that a significant number of people who were impacted by the storm, someone’s whose house was flooded or damaged from the hurricane, or someone’s life was impacted because their employer was impacted, their house may be fine, but their employer may no longer exist.

I’ll give you a good example of this. Drive down I-10, get off on Highway 6 heading north. You’re heading towards Bear Creek. You’re going to pass a park on your right. Then you’re going to start to hit the commercial areas of Bear Creek and the neighborhood around Bear Creek. Look to your left, look to your right. What do you notice? Hurricane fences, construction fences that are eight feet tall for a handful of miles on either side of Highway 6. Those were commercial buildings, strip centers that were flooded by the storm. Those small business owners are not open for business right now. That’s having an impact on three people: the business owner, the landlord, and the employee that worked there. Those three people may not have had flood damage to their house but they’re having financial damage done to their net worth because they can’t open for business.

They know that before the storm, 17.7% of Houstonians were having challenges making their mortgage payment. That’s almost 18%. Just because you skip one mortgage payment doesn’t mean you’re going to go into foreclosure. It just means you may have been late, somebody didn’t have the money in the account when they did the auto-draft, but some percentage of Houstonians were having challenges making their mortgage payment. Hurricane Harvey blows in and then what happens? We know that 10% of the total market in Houston has flood insurance.

That means a potential 90% of those houses that were damaged by the storm did not have insurance. We also know that a significant number of those people are not going to rehab those houses. They just don’t have the cash to do it. The estimate I keep seeing thrown around is 266,000 houses were physically impacted by Hurricane Harvey. How many more households that were economically impacted? I don’t know, but would it be reasonable to say another 240,000-ish houses?  

We are looking at about half a million households in the greater Houston Metro area that were adversely impacted by the storm. Homeowners are not bringing the city back. They can’t. They don’t have the resources. Insurance companies are not going to fly in and fix this mess. Donald Trump and the federal government is not going to step in and fix this mess. You know who’s going to fix this city? It’s real estate investors. That’s who always fixes this mess. We are the cleanup crew. We’re going to get in here, buy these houses, fix them up, and we got to make these neighborhoods great again 

Don’t kid yourselves. Drive through some of these neighborhoods. It’s still a war zone. They may not have the entire contents of the house sitting on the curb anymore but they’re vacant. Some of these houses are vacant and they haven’t been remediated yet. We know conservatively and I’m confident to say about half a million homes are impacted by the storm. When we shared this data at our weekend retreat, we had one gentleman in our class call his family back in Chicago and said, “We’re moving to Houston.” “When?” ”As soon as possible.” We had another guy move from Florida a couple of weeks ago, and we have some friends from LA that are moving to Houston.

I’ve got some other buddies of mine in LA that I’ve gotten to know the last couple of months that will be here at least once a month. I’m supposed to entertain a group sometime in the next month or so that wants to bring a whole lot of money to Houston to start buying houses. Half a million, that’s 500,000 houses. To give you an idea of how many houses that is, in Houston, we sell on and off MLS a little over 100,000 properties a year. There is five years’ worth of inventory that was adversely impacted by Hurricane Harvey.

If you can’t be successful in real estate in the next month or two, you might just want to hang it up, because there’s so much opportunity down here. 500,000 houses, that’s tons of money coming into this town. There are500,000 houses that were impacted by the storm, and we know that real estate investors are the ones that play cleanup crew. That’s who rebuilds these communities. Homeowners do it to a certain extent, but it’s those of us who have an expertise in real estate, business, and real estate finance that turn these communities around, and that’s what we’re going to do.

RPRE 234 | Retirement Con

Retirement Con: There are 500,000 houses that were impacted by the storm, and we know that real estate investors are the ones that play cleanup crew.

We’ve got a question. “With all this big money coming into town, are the little guys going to get pushed out?”

That’s not going to happen. All this money, when it flows in, flows in from these guys on either coast that have no clue how to operationalize this at a big level. Let me give you example. Can you buy 100 houses a month? Absolutely, but operationalizing that from the purchase to the title work, to the rehab, to the lease, or to the sale is very challenging. Here’s the other thing. They’re not going to be able to go into these communities and flip them. For example, you can’t go into Memorial and flip 25% of them in one year.

You can’t put 2,500 houses on the market all in one year. It’ll crush the market. There are some inefficiencies in single family real estate that allow the little guys some great margins, because it’s such an inefficient market. It’s an inefficient market today. If you’ve ever been to one of my events or a weekend retreat, I talk about how the big Wall Street money is coming to single family. They will ultimately come into this space and begin to crowd out the little guy, the little mom and pop guy, like us. Compared to Wall Street money, I consider us as small player. We’re 150 to 200 houses a year. That’s nothing.

I got a buddy of mine that runs a hedge fund. He buys houses in Dallas and in Houston on the auction house steps, and he’ll buy 60 to 80 houses a month in two markets. Buying a few hundred houses a year is not hard. A few houses a month is not hard. It’s all the other stuff. It’s the rehab. It’s getting them back on the market. It’s the leasing. All that stuff is challenging for a lot of these big guys. Let’s be real honest. How many houses do you think homeowners are going to sell to some investment banker out in New York? It not going to be a whole lot. If the choice from a homeowner is to work with Jason and Tom in Right Path, a couple of local boys down here in Texas, or some big hedge fund dude out of New York, I can already tell you the answer to that one.

Our neighbors are going to want us to help them rebuild these communities, not out of state folks. That’s a simple fact. I’m not worried about the big guys coming in and buying a whole lot of property. I’ll tell you how they’re going to do it. It’s not the most profitable way but it’s the only way they figured out how to do it. They’ll come in and buy at the courthouse steps via the tax auction or through the foreclosure process and buy them as a foreclosed property, or they’re going to buy the non-performing notes. They don’t have any other way to operationalize this at a large scale. They haven’t bought a company like us yet. Right now these hedge funds are still trying to figure this out on their own, and they’re just getting pummeled in our market.

There’s a huge opportunity here in Houston. Our banker has gone through Katrina. They’ve gone through all the storms in Florida, and they’ve gone through all the stuff in New Jersey with Superstorm Sandy. He said it’s about to get ugly in Houston. There’s a lot of houses that are about to hit the market. A lot of discounted properties, storm properties, and properties that weren’t damaged by the storm, but the household’s economic life has been destroyed. He said, “Here’s what I can tell you. You got to get on it now. It’ll last for two years so you’ve got 24 months. Once it starts, it’ll be over before it starts. It’ll be over so fast it’ll blow your mind.”

These banks are getting smarter. They’re not going to let people not pay their mortgages for years and years. Here’s the other thing that’s going on in Houston. The neighborhoods that were impacted in Houston were middle class and upper middle class neighborhoods. The neighborhoods that were flooding in Houston were not the Ninth Ward in New Orleans during Katrina. This is some of the best real estate in the country to own as rental properties, as short term flip, like one or two years or as a long-term buy and hold property. Some of the best real estate in the country were impacted by the storm, and not a little bit, but500,000 houses. If you even have a passing thought of getting into real estate, you’ve got to get in now. This is 2007 all over again. It is going to be a blood bath in the single family market. There’s going to be so many distressed assets available.

If you spend the next two years hustling, buying houses, getting them fixed up, hooding tenants in them, flipping them, wholesaling them to other real estate investors, or lending your private money out of your self-directed IRA to real estate investors doing this, you’re going to have an enormous return. Now is the time to get in. Do not wait. Now is the time to start looking for deals. Now is the time to start buying those houses. If you do it right, it has the potential of changing your entire family tree over the next 24 months. 

People in our group from other states are flying into Houston to live here for the next two or three years. They’re moving here because of the opportunity. It’s an enormous opportunity. There are plenty of opportunities in other states and other cities, but Houston is going to be very unique. 500,000 houses, about five years’ worth of inventory. How many houses do you need free and clear so you can retire? Is it ten? That’s $10,000 a month. Is it $20,000 worth? What’s the number?

If you play your cards right, you don’t have to buy 1,000 houses. You only need a handful of these things. The only place I know that teaches real estate or run real estate as a real business is Right Path Real Estate. There’s a reason we call this practical real estate investing. It’s the practical nuts and bolts of how to build a real estate business, how to find these properties, how to fund these properties, how to fix these properties up, and how to rent them and/or sell them.

This business is not that complex. You find a house, you get some money together, you close on the deal, you rehab the house, and then you either lease that house out or flip the house to an end-user owner occupant, and then you do that over and over again. This is a very duplicable process. If you have been to other real estate education seminars where they sold you the idea that this is easy, that’s not necessarily true, but there is a way to build a business where it’s a process. You just do the same thing over and over again.  

We have a limited time to change our future. Here’s why we chose real estate. Eight out of ten millionaires become millionaires from real estate. I figured that if I got into real estate, I’d have a pretty good chance becoming a millionaire. Retirement is going to be an absolute mess. Go to Google and type in The Great Retirement Con. It was written on another blog, however, it should show up on Zero Hedge. Not every American worker is offered a 401(k) or similar retirement plan through work, but for those that are, 21%chose not to participate. We don’t have defined benefit plans in the United States anymore.

I’m not going to go work somewhere for 50 years, they give me a pension, I get a check, and I go off to my golden years. That disappeared in the ‘80s with the advent of the employee retirement plan, where the employee contributes to their retirement plan. They have a great chart in here where they talked about the disappearance of the defined benefit pension. Where it reached parity was about 1990, where half of the employers were giving out a defined benefit plan, and the other half of employers were using a defined contribution plan, which is typically the 401(k).

RPRE 234 | Retirement Con

Retirement Con: You’ve got to start building something now in order to retire.

In 1990, where you previously had all these defined benefit programs, they reversed to very few. Less than 20% are now defined benefit programs. All of the employees are responsible for a building their own retirement. Here’s the problem. Of the firms that offer 401(k), 21% of Americans chose not to participate. I’d love to say that it’s because they’re real estate investors and they’re savvy, but that’s not true. We participate in my wife’s 401(k). 

Why do we do that? The S&Ps since the Trumpster. It’s been on fire. All the markets have been on fire. Plus, she gets a match from her employer, i.e. free money. Truth be told, we don’t need the money anyway, so might as well just put it in her 401(k) plan. As a result, about 25% of those 45 years and older have $0 in retirement. If you are 45 years or older, 25% of your colleagues have $0 in retirement. In fact, 49% of American adults of all ages are not saving anything for retirement.  

That is an astounding statistic. It’s one of the reasons we started our financial education tools company,

Right Path Financial Education. It’s getting worse. Part of it has to do with student loan debt. Everyone talks about the bubble in real estate. That’s nothing. Real estate’s a blip on the radar compared to what’s going on in education. You want to talk about bubble? It’s American baccalaureate education. It’s the underwater basket weaving liberal arts studies nonsense that’s bankrupting America. You leave school with $80,000 in college debt so you can get a$30,000 a year job. It makes no sense.

We are destroying our youth right now in two ways. One way doing is doing that, and the other side is what’s going on in social security and Medicare.

In this article, The Great Retirement Con, they’ve got a ton of statistics in here. The stats illustrated by the EPI’s charts are frightening on a mean or average level. For instance, for all workers 32 to 61 years of age, the average amount saved for retirement is less than $100,000. You can’t retire on $100,000. Basic living expenses is let’s say $5,000 a month. You’re going to need a nest egg of somewhere between $1.5 million and $2 million. These people are short. The average employee between 32 and 61 is short by fifteen times. That’s the low number. You are not going to be able to work forever. You’ve got to start building something now in order to retire.

Here’s the other dirty little secret. The 50% household aged 56 to 61 has only $17,000 to retire on. That’s a rounding error. Most planners advise saving enough before retirement to maintain annual living expenses at about 70% – 80% of what they were doing in one’s income-earning years. Medicare out-of-pocket expenses alone are expected to be $240,000 to $430,000, over the retirement for a 65-year-old couple retiring today. That’s just to cover your out-of-pocket expenses. Nearly 83% of retired households have less saved than Medicare costs alone

One-third of retirement households is entirely dependent on social security. That’s only $1,200 a month. 34% of older Americans depend on credit cards to pay for basic living expenses. It’s a bloodbath out there financially. Here’s the absolute dirty secret about the retirement industry, the 401(k) and all that stuff. You cannot save your way to retirement. That was the reason I got into real estate. My wife and I are notorious savers. We take out a meager salary out of the business, and my wife continues to save thousands of dollars a month. If that was all we had for retirement savings, mathematically, you cannot make it. Let’s say the market returns an average return of 7% to 9%. 

At some point, you have to retire. Let’s say the time for you to retire, whether it’s your choice or not, is around 2008 or 2009. As your portfolio literally got cut in half, you have got to find something other than the traditional 401(k). It does not work. None of this stuff works anymore. The pensions are gone. You’ve got to get into a vehicle like real estate. There’s a reason 80% of millionaires come out real estate.

Retirement does not work. Your 401(k) don’t work. Your employer is not going to help you retire. You can’t save your way to retirement. Real estate is the best vehicle for retirement. Eight out of ten millionaires do so with real estate, so you might want to learn how to do real estate if you’re interested in retiring and living a decent lifestyle, especially those of you who are young. Let’s say you’re 50 years old, you buy a handful of rental properties here that are going to be available because of the storm. There’s 500,000 houses out there, so you can get you twenty houses over next two years, put them on fifteen-year notes.

By the time you retire at 65, you will have twenty free and clear rental properties. Cash flow is somewhere between $18,000 to $20,000 a month. That’s not a bad retirement. That doesn’t include all the increases in rent between now and fifteen years from now. If you wanted to, you can buy a handful of rental properties and flip a handful of properties a year and have it paid off even faster. There’s a way to do this business, right, and there’s a way to do this business not so right, and we teach practical real estate investing. 

If you’re interested in learning how to do that, go to RightPathRealEstate.com or fire an e-mail over to Support@RightPathRealEstate.com. We’ve got the real estate side of the business, we have some financial services and tools that we use, and financial education tools.

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