Ask Us Anything #3: BRRRR, Thinking Through Your First Investment, Making Sense of Inspections, and Evictions During COVID-19

In this episode Emil and Michael answer listener submitted questions on various topics: inspections reports, portfolio diversification, evictions during the COVID moment, advice on approaching a BRRRR, what asset class to begin with and what to do with existing debt. --- Transcript   Emil: Hey, everyone. Welcome back for another Episode of The Remote Real Estate Investor. My name is Emil Shour and today I am joined by,   Michael: Michael Albaum.   Emil: Tom is sitting this one out, so Michael and I will be running point on this episode, and this is going to be our third AMA or ask us anything. So we're going to take a couple questions that people have submitted. We've been receiving tons and tons of questions. So we're just going to keep answering them. All right, let's get to it.   Theme Song   Michael: Is it a, AUA ask us anything or an AMA? Ask me…   Emil: You know what? Just AMA, ask us anything. Ask me anything. Michael splits, hairs.   Pierre: Ask Michael anything.   Emil: Yeah, there you go, ask Michael anything.   Michael: Alright, let's jump into it.   Emil: Okay. So our first question comes from Alex and he left this voicemail. So let's listen to this one.   Alex: Hey, what's up Michael and Emil, Thank you for taking my question. So my question is around inspections basically after you've gotten your inspection report back as a remote real estate investor, uh, want to understand how exactly you go about determining which items from the report you 100% needed to fix before the transaction goes through, versus which items from the report you could look at fixing over the next few years, once you've taken ownership of the property, versus which items in the inspection report you don't really need to pay attention to.   This is my question because of my experience reading an inspection report, even after running through it with my agent is like reading a foreign language. And I think being remote as a real estate investor only adds to that challenge since you weren't able to physically observe any of the items that are called out in the inspection report. So I want to get some color around how you guys assess that. Thank you so much.     Emil: Michael, do you want to take a stab first and we'll chime in afterwards?   Michael: Yeah, sure. So I read an inspection report. Like I imagine a doctor would read a health report and kind of triage what's needs immediate attention versus what can be put on the back burner. And cost is definitely a factor in all of these things. And I loop in my property manager into the conversation because if there are things that need to be addressed immediately, your experience, you know, leaning on your experience is gonna be very helpful to determine, Hey, this sounds bad, or this looks bad versus, Hey, I know this is bad and I know this can lead to further issues down the road. So I would say electrical problems, roofing problems and plumbing problems just at a high level should probably get attention first and foremost. Heating, you know, things I see called out pretty regularly, our old heating systems for old cooling systems. And that doesn't necessarily mean they're going to fail, but you might want to be thinking about setting some reserve funds aside to replacing those when needed. But if there's electrical things that you see an issue with, or the inspector sees an issue with, I mean, that's the kind of stuff that has potential to burn down houses. Plumbing has a potential to cause tons and tons and tons of water damage in properties and water damage is expensive to clean up. Everything else is, you know, needs to kind of be addressed as that on a, as needed basis with your local property manager. If there are things that are going to increase the rentability of the property or increase the market rent of that property might be worth doing and kind of double dipping, increasing the property value and rentability and addressing an issue that needs to be fixed anyhow. That was kind of a long winded answer of saying, you know, talk with your property manager, talk with other experienced investors, get their 2 cents on, Hey, is this really a red flag? Or are we just making mountains out of molehills?   Emil: You know, I love your analogies by the way, mountains out of mole hills, a doctor in triage.   Michael: Good, man, I'm glad you like it.     Emil: I need to come up with a repertoire of analogies and whatnot.   Pierre: You should start piggybacking off of him.   Emil: I should right.   Michael: What you don't know as I'm on Google right before every episode, Google like cool analogies and also funny jokes.   Emil: Alright, secret, secret revealed. Now I know how to do it. I agree with a lot of what you said. I was taken down some notes while you were chatting. I think anything related with water plumbing, anything with like the shower? Right. So I bought a property and there was a couple of tiles loose. I wanted those immediately addressed because water can get in there and do some serious damage. Anything with like wood rot on the outside or would loose like siding or any, any of those things.   I want those taken care of again, because again, water gets in that's when the real damage occurs. I think like you said, asking your property manager, Hey, what do we think we can defer versus what should we address right now? One example of something that I've deferred a property, I bought actually ended up selling the siding on the home, which is like these panels that go on the outside of the house. Some of them were a little bit warped and it was recommended that I get those fixed. And you know, it's a little bit of, it's not an eyesore, but it, you can tell like it's warped, but it wasn't. There was nothing in like immediate need. Like there wasn't any gaps or anything where water could get in. And so…   Michael: It just didn't look nice.   Emil: Exactly. It just kind of looked a little off. So I was like, you know what? That seems like a nice to have. We're going to defer that for now. I actually ended up selling it in the same condition next owner decided to fix it, but they didn't have like a huge issue with it and it didn't really affect the sales price. So   Michael: Did that issue show up on your exit inspection?   Emil: It did. Yeah.   Michael: Okay. The inspectors are consistent.   Emil: Yeah, exactly. Sometimes you get two inspectors out there. One will miss something that the other one will point out. So there is like an element of the inspector.   Michael: So hope that helps Alex. Our next question comes to us from Guesswork Investing from Twitter and Guesswork Investing would like to know what the real estate equity investments is. A percentage of total net worth are what total leverage we're taking and what size portfolio do you need before you can get rid of personal guarantees. Their understanding is that the bank can chase your other assets. If they cannot recover their principle through a foreclosure. Once you have a large portfolio, can you get a lender to lend purely against your real estate with no look through to your other assets? Okay. A lot of great questions. Emil you want to take a stab.   Emil: Yeah, I think I can answer the first two and I might lean on you for that third one about personal guarantees. Cause I don't know much about it personally. Yeah. So real estate equity investments, as a percentage of my total net worth, if you include my primary in that it's probably 80% of our net worth. I would say somewhere around there.   Michael: You're playing with fire is a private residence and investment   Emil: It is 0% in investment. But if we're talking about real estate…   Michael: Real estate holdings.   Emil: Yeah exactly, like I'd probably say 80% of my net worth is in real estate. If we're talking about investments and we take out the primary, the primary is a big one. I live in Los Angeles. You know, there's a lot of you put 20% down on the house. So it's, it's a big chunk. So if you take that away and just look at real estate investments, I'd probably say maybe 40 to 50% of our net worth is in real estate investments. How about you?   Michael: I’m on the higher end? I'm probably 90, 90, 93% totally invested in real estate. I've gone deep.   Emil: This is a good like point we should probably dive into. A lot of people will say you and I are both extremely undiversified and we're all in on real estate and that's risky. And I have my own thoughts. I'm curious to get yours.   Michael: Yeah, no, it absolutely. It's a perfect jumping off point. You know, I think that there's such a higher degree of control at the 10,000 foot level with real estate than as compared to the stock market. There is nothing that I can do to effect the price of Apple stock. Try as I may buy all the Apple products, support the company as best I can, there is nothing I can do to affect the outcome or price of the stock. Conversely, there are a whole crap ton of things I can do to affect the value and return I'm getting on my investment properties.   Multi-families specifically single family, absolutely up to a point, but multifamily most definitely. And now somebody can make the counterpoint and say, well, yeah, but you can't affect market cap rates and you can't affect economics, market economics, upturns, downturns. That's absolutely accurate, but you know what? My property will never go to zero. I'm confident to say that ever, ever, never, ever, ever in a billion years go to zero. I could sell it for scrap wood and parts if needed, or I could just go live there. If things got really bad, I can't go live in a stock. And I have had stocks go to zero on me. So I'm a very big advocate of real estate. And I think that it can provide a significant buffer between you and ultimate downturn. What are your thoughts Emil?   Emil: I like everything you said, the only thing I'll add on top of that is one thing you could say is we're diversified within real estate, right? It's not like we have one building all of our money in there and it's just like, you're beholden to this one property and everything that happens there. So there's some diversification across properties. You and I are both in multiple markets. So that's further diversification for anyone who has that like argument, I guess you could call it. The other thing is it's very hard to get really good at different asset classes when you're an investor, right? Like to get really good at real estate investing really good at stock market investing really good at, I don’t know, whatever other types of investing for me, it's like, I want to get really good at real estate investing. And so that's just where I put a lot of my focus and attention.   You know, we put a little bit of money, we put money in our 401k, some in the Roth and stuff, and those are just going to like index funds, right? So there's that we're diversifying a little bit there, but really the majority of our investment dollars are going to real estate for the things you mentioned. Like there's just so much more control. You know, other things we talked about on the podcast, right? There's other, you're using other people's money. Your, your tenant is paying down your principal, helping you build equity. And so like, to me, that's why I'm not really focused on like, okay, I only 30% real estate and then 30% of the stock market and things like that.   Michael: Yeah. It just, it allows you to control so much more in value. Just like you mentioned using other people's money. You can go control a hundred thousand dollar asset for 20 grand or 25 grand or, you know, whatever it is and get the benefits of the appreciation on that a hundred thousand dollar asset. Versus if you want a hundred thousand dollars of stock, you've got to go pony up a hundred grand, unless you using options or something like that, which is well above my pay grade that I don't understand just because I don't do that type of investing. But so this is, I also think it's simpler.   Emil: Yeah. I agree.   Michael: You know, in the grand scheme of things, this is a very simple investment and it's very understandable. Anybody can go learn this. I personally feel like the stock market or equities market is just a bit more complicated and to do the research and all that kind of thing is just, it scares me a little bit. It doesn't make it wrong, better, worse, or indifferent. Just not for me.   Emil: Yeah. I agree with you.   Pierre: And that's not mentioning using a 1031 exchange to avoid capital gains when you want to trade out.   Michael: Exactly. Exactly. Yeah. There are so many tax benefits to real estate investing that allow you to keep so much more of the earned equity earned appreciation that the stock market doesn't have. I mean, I don't want to get into opportunities zones or any of that kind of stuff, but that's another way around it. But again, it's an Avenue to get into real estate and out of the stock market. So I just found that very interesting   Emil: Fun fact. I actually, I posted on Twitter a couple of weeks ago. The way I bought my first property was I had a couple thousand dollars, right. Couldn't buy an actual property. And so I put it in the stock market, got lucky, started investing in like 2012 and cashed out at around 2017. I mean, everything was going up. You could have literally probably put a blindfold on and just throwing darts at the wall. So I got lucky. I won't pretend like I knew what I was doing, but cashed out and ended up buying my first property. So fun fact there.   All right. Next part of guesswork investing. This question is total leverage you're taking. So I have primarily take in 75 to 80% loan to value on my investments. Basically as much as the bank is willing to give me an investment property, they won't let you go lower than 20% for an investment property, I believe.   Michael: Yep. I'm right there with you maximum. As much as they'll give me know, grow, grow, grow   Emil: For better or worse.   Michael: That's right.   Emil: The third one, do you know more about like personal guarantee with lending?   Michael: Yeah. I can speak to that a little bit. So it's going to be lender specific. So I work with residential lenders. I've worked with commercial lenders, all of them want personal guarantees even on the commercial space. So they're lending to an LLC, but they still want a personal guarantee. What you're looking for, it's called a nonrecourse loan and that's going to be your institutional, your Fannie Mae or Freddie Mac products, which are bigger loan sizes for bigger buildings. Those are non-recourse loans.   There are also non-recourse loans that lenders will make to invest retirement accounts. So your IRA is your 401k is that you're investing in real estate. If that's something that you're doing anything that's, non-recourse means they're not going to come after your personal stuff. So it just got to ask the lender, Hey, are these recourse loans with these non-recourse loans? What your portfolio size needs to be is really irrelevant. It's going to be the deal that they're lending on specifically. And so I would go ask those questions of specific lenders.   Emil: Awesome. All right, next question. Let's skip down to Michael Fabbrini. Good friend of Michael and I. And he was on episode 24, which if you guys haven't listened to go check that one out, he talks about how he bought, I believe it was three properties in two months or two properties in three months. I forget which, which order, but great episode. So Michael was asking, how should newbies be thinking about COVID and the rent forgiveness and eviction protection that government are offering. as a beginner to investment properties, the last thing I want are homes that are occupied, but not providing any income. Is there anything we can do to limit risk? Michael? You want to take this first step?   Michael: Yeah, absolutely. So we're recording this August 4th. The gut additional stimulus is expired, I believe, as of July 30th or July 31st. So this is kind of unique timing for this question, you know, for existing tenants, you know, I frankly just don't think there is a whole lot. We can do. If someone decides to stop paying, there was an, a moratorium on evictions. So we can't evict people. And also now in certain States, there's certain legislation that's coming down about why you can or cannot evict somebody. I've heard that you can't evict somebody for nonpayment during the COVID times, now that courts are reopening, what you can do to limit your risk on the front end of placing new tenants is just making sure that they have a secure job, making sure that they have proof of employment, making sure that they have reserves in the bank to cover rent. If unfortunately they do lose their job.   But so to my understanding, if you've got a current tenant in place, there isn't a whole lot, you can do to really protect yourself, try working with your tenants, putting them on payment plans. You know, letting them know that Hey, rent still is do right. Even if there's a moratorium on evictions, you are still expecting to be paid rent because you still have bills to pay yourself. And I think that there's this common misnomer or common misconception that all landlords are super rich and super money hungry and super greedy. And that you're the man, if you're a landlord, which frankly is, I don't think could be farther from the truth. We're people just like everybody else. We're looking to make investments and we're providing a safe and secure place for someone to live. And we also have expenses. We've got mortgages, we've got property taxes, we've got bills, independent of whether or not the rent comes in.   And so when you can kind of level with somebody and just really humanize yourself and help them understand that, you know, it's a little business and for, in order for you to be able to provide them with a safe and secure place to live, there are bills that you have to pay. And if you're incapable of paying those bills that might affect their ability to remain in the home, it becomes a much easier conversation and frankly, a different conversation than landlord tenant relationship. It's more person to person at that point in time.   Emil: I love that you mentioned that everyone kind of thinks landlords are super rich and stuff. And most mom and pop investors have a couple of properties and that's their income source, right? It's not like they're ballin’ and they just have dozens and dozens of properties. Most people own a couple properties and that's their livelihood. So to just the only things I would add lean on your property manager, this is why we tout having such an awesome property manager. They manage a lot of homes in their portfolio or for all these different investors, right? So they probably have someone else's property that they're managing, that's going through the same thing. So they probably have a process for this and how they're managing it, how they're working with tenants. So I would say lean on your property manager, if that comes up. And the other thing, this is why we talk about having reserves, right? It's not just for things that break it's also for things like this that happened that you can't always guess when they're going to come. Right.   Michael: So black swans.   Emil: Yeah, exactly, exactly, black swans. So it's like, you need to have reserves for rainy day for all these things to protect yourself. And that's why it's so, so important to have reserves. So yeah, that's the only thing I would add.   Michael: The best offense is a good defense. So that's how you protect yourself is by playing defense.   Emil: Thanks coach.   Michael: Put me in coach, just give me a chance . I would say the second part of Michael's question is that he's looking to get his feet wet with a bird project. And for anyone who doesn't know versus an acronym, it's B R R R R, which stands for buy, rehab, rent, refinance, repeat. And he's looking to do that locally, but saying that due to his local market and out a state would yield the best return. What are some of the best ways to find local wholesalers, contractors, and maybe a mentor who can assist? So I'm going to dunk on this here for a minute and just say, if you're looking for any of those things, come to the Roofstock Academy, we provide all of that and more I'm done plugging Roofstock Academy.   I think it also has… in all honesty, Roofstock Academy is a great place to come learn how to do BRRRRs, how to get access to a lot of those things you're looking for. Building your team is so important. And your team can also consist of just other investors, you networking in that area, whatever state or market you're looking to go get involved in here's to get your thoughts and know, I find that there's no better way of meeting people. Then just talking to as many people as possible because people in the space talk and people in the space know each other and good people know other good people. I think it's one of the bigger pockets. Jason Green says rock stars and rock stars. So just talk to as many people as you can in whatever local market you're trying to get involved in. And just ask for as many recommendations as you can. And it's going to be a super iterative process of getting recommendations, interviewing people, talking to folks, realizing who's going to work. Who's not going to be a good fit. And then kind of assembling your, was it the goon squad or the tune squad from space jam?   Emil: Tune squad. There you go   Michael: Assemble your own local tune squad.   Emil: Yeah, I think that's the way to do it. Let's say you have your property manager. Let's hear investing in Birmingham. You've found your property manager out there. You really like them, right? You think they're a solid team. And like you said, good people usually know good people, so you can ask them, Hey, do you know a wholesaler? Do you know someone? Who's got a lot of deals who maybe gets more distressed properties that I could talk to? I guarantee you, they have at least one or two people you can chat with, or if they don't, they can refer you to maybe an agent or somebody who knows where to find these certain things. Right? So it's just like going down the rabbit hole and asking each person you talk to, Hey, I'm looking for this. Who can I talk to? Hey, I'm looking for a good lender.   Who should I speak with? And just like calling those people those, and you mentioned it. They're not always going to be awesome. You have to do your own interviewing, right? Like try to ask for multiple people, do your own interviewing, see who you gel with. See who kind of seems like they know what they're talking about versus doesn't and just kind of keep going down there. And in terms of mentorship or things out there, there's tons of case studies published online where you can look up out of state Burr and people will talk about the process they used. And then yeah, like Michael mentioned, we have the Academy, that's a great group. Michael's doing this personally. I'm starting to try to do it as well. So hopefully we'll have some experience to share. And there's, you know, there's just groups out there that people are doing this stuff and they can help you. So just go out and join some groups, talk to people, talking to people as you'll learn the most, you could watch a hundred hours of YouTube videos..   Michael: Or read a hundred books.   Emil: Yeah. Versus talking to someone for three hours. I promise you'll get more out of the three hours in those a hundred hours on YouTube. I say that from personal experience.   Michael: Yeah. Well, my problem is most of the YouTube watching is dog and cat videos. So I guess we gotta specify real estate related YouTube videos. So Ryan from Facebook is asking for the best sources of financing for an asset prior to getting it stabilized, rehab and tenants. So it sounds like Ryan, you might be looking for a construction loan because that's going to be something that'll allow you to do work on the property. And they're likely going to evaluate it based on its ARV. And that's how they're going to calculate the loan amount. But other than that, I mean there's hard money. So you can get money for an asset before it's stabilized. But most traditional lenders like to see stabilization. They want to see the finished products with high occupancy for quite some time. Some are even going to ask for your, they want to see it on your most recent tax return.   So that could mean you have it stabilized for a year. Well, if you're trying to stabilize it, that's no good. But so I would just reach out to local folks. If you can, local lenders are typically going to be much more flexible than the big national chains. But if I understood your question, that's kind of the two ways I would go. I would look for local lenders that are going to give you either a construction loan or some kind of interest only loan on the ARV of that product once you have it stabilized. So I hope that helps.   Emil: Only two other things I want to add there. Two other options besides a hard money and construction. Yep. First one is, go check out episode number 30 called how private money lenders can help you close more deals in less time. So you can check out there's private money, lenders, people who, you know, not banks or whatever who want to lend money and get a certain return. You can also ask friends and family their private money as well. What else? Oh, the second one outside of private money.   I just learned this the other day with a call with a potential partner there's companies who do personal loans, right? For maybe you want to do a home improvement or whatever sofi being the one that we chatted with the other day and personal loans, like they're not verifying what it goes to. They're not like, okay, you have to use this money for this specific thing. So you could get a personal loan saying you're doing some home improvement. Actually go use that for some property investments. So you have to look at the interest rate on those. I think it's pretty high, but that's another route you could go down. There's personal loans. You can go get to do some of these projects as well.   Michael: I have two more. I lied. I don't know what I was thinking when I said I'm done. Keep it going. But also think about 401k loans from yourself. They can be a really great asset source of cash to utilize. And there's also HELOCs which if you have a primary residence that you have an investment property that has a HELOC, that can be a really great source of funds. Or even thinking about…   Emil: What is a HELOC for people who don’t know? Michael: A HELOC is a home equity line of credit, which is basically just a line of credit against the equity in a property. So that can be a really another great source for you. And then the last one I think about too, is credit cards, depending on how you can pay folks or pay for things. And depending on how big of a line of credit you have in your credit card, that can be a really great way to fund things or float things. A lot of credit cards too, I just signed up for credit card has 0% interest for the first 12 months. So if I have an outstanding balance on that, I can basically carry that for 12 months interest free, which is pretty killer. So I think between what Emil mentioned and what I just mentioned, those are some great, great sources of funds.   And I really liked that the friends and family ones, I think it's something that a lot of people don't about, but most people I'd say a lot of people know someone that has a little bit of extra cash that they're looking to do something with, but isn't sure what, and after listening to this episode, they're probably not going to go invest in the stock market. And so for more information on HELOCs give episode 29, listen to, we talk about the top four ways to turn your trapped equity into real estate investments.   Emil: And yeah, one caveat about friends and family mixing money and family and friends, always hard, right? I would recommend this is just a personal preference. I would recommend you go do a couple of deals before you go and ask friends and family. I personally wouldn't want to be on the hook for botching something, you know, the first couple of year learning, I would not want to endanger those relationships with money complications on my first deal. So personal caveat and warning on friends and family.   Michael: Yeah, absolutely. I mean, I, it's funny. I borrowed from friends and family from my very first deal, but I bought it very traditionally and it was turnkey property and we sat down and ran the numbers together. So it was like one of those situations where it was pretty tough to lose and everybody was comfortable with it. And so if that's the only way you can get into it, I would say just be very careful, be very careful to be very aware of what you're doing, because it's one thing to lose your own money. It's something else entirely to lose someone else's money and especially someone who, you know,   Emil: And this, yours was your father. Right?   Michael: Correct.   Emil: In the first one. Okay. So I think immediate family is probably a little bit different. They'll probably forgive you a little bit more than maybe your cousin or like a friend.   Michael: Right, right.   Emil: But yeah, there you go see, it worked out for you. So not a hard and fast rule on what I recommended. All right. Next question. We have Leslie from Facebook. Leslie is asking, Leslie is Michael's uncle, we just found that out.   Michael: That's right. Shout out to uncle Les!   Emil: For my first investment property. Should it be a condo, single family, home, duplex or triplex? So this is a good question. I don't think there's a wrong answer. I think it's something we always talk about. It's a theme throughout every episode. It's do the numbers work. I think that's really it. If you can find the condo where you're making a good cash on cash return, that you're excited about go with the condo. If it's a duplex triplex, great single family home, whatever it is, there is something about just starting with one unit single family home condo that I think is an easier learning curve than going out and buying a 10 unit property your first time. But there's people who go and do that. And they're totally fine. Right. Maybe it's a little bit of pain in the beginning, but they learn a little faster that way as well. So..   Michael: Or they aren't. Or they they aren't fine.   Emil: Yeah. They, aren't fine.   Michael: They go down in a blaze of fire.   Emil: That's true. They're like, okay. I took on way more than I can manage and I’m never going to invest again. Okay, I’m selling at a 50% loss.   Michael: I think that's a super, I think it's a super great point is that it's got to fit for you as the personal investor. There is no one size fits all approach. And it also depends on what the investment market looks like. If this is something local, I know my uncle happens to live in LA, but for anybody else listening, if you can't invest in your local market and you have to go elsewhere, absolutely let the numbers do the talking. I'm a huge fan of the house hack if someone's going to be investing in their local market. And so if they want to have somewhere to live and invest in property, I think duplex or triplex makes total sense. Even a large single family home or a super large condo can make sense. And for an all of our listeners who might not be aware of how SAC is basically buying a property to live in.   So you qualify for owner occupant financing, but also renting out the extra space or rooms. So buying something larger than you need for yourself personally, or for your immediate family or whoever's living with you. So if you buy a duplex, you get to qualify for owner occupant financing live in one unit, rent out the other unit, depending on how the deal flushes out, you might be able to live for free or even potentially be making some money every month. So that's pretty killer. So if someone's looking to invest and they can invest locally, or it might make sense for them to invest locally, or even if it doesn't make sense to invest locally, entertain a house hack. If that's something that's that you're open to, that your family situation will allow for it. Cause I think that is one of the best, what is it Emil a growth hack or a life hack?   Emil: Yeah life hack.   Michael: To get access to real estate investing in a really safe manner?   Emil: I love it. That's a great addition, the house hack.   Pierre Hey guys, I have a question. If I have enough cash to pay off my student loans yet I have a very low interest rate on my loans, should I use the money to pay a down payment and use the cash flow from the property to uphold my monthly loan payment? Or should I pay my loan off first and then buy a property?   Michael: Love that question Pierre. Emil, I can see you chomping at the bit, go for it!   Emil Ooh, that’s a depends on the scenario question. I would probably…   Michael: Let's preface this with, this is not professional advice. Go consult your tax and legal professionals.   Emil: I would probably keep the student loan debt and go buy a property if I had the money to pay it off. Longterm, I think holding that property, having cashflow on it, having a tenant pay down your principal, letting the market do its thing, letting time and everything do its thing like waiting five years, right? Like let's say you pay down your loan and you have to wait another five years to save up to invest. I think you would have been way better off just investing, carrying that loan. Maybe the cashflow from your investment property now pays your monthly student loan payment, right? Like I would probably go invest that money if it's either or.   Michael: Either or yeah, I wholeheartedly agree. I think that there's so many people in the financial space that talk about paying off your high interest rate debt first and then going to invest. And at the end of the day, let's just look at the math. Like let's look at the returns. If your interest rate on your student loan is at four and a half percent and you can invest money real estate and get 7% cash on cash on your money. That's a two and a half percent Delta that you just created for yourself. Versus just like you said Emil. If you go by, excuse me, if you go pay off your student loan debt, it might take you another five years to save up for that down payment. Well, at the end of that five years, you'll now have a down payment ready and no student loan debt.   If we flip the switch and say, okay, we're going to buy the property and keep the student loan debt. At the end of the five years, you'll have likely paid down a significant portion of your student loan debt. And you'll have had a property owned that has appreciated over the last five years and pay down the interest on it. Is it the principal on it and taken advantage of the tax benefits? So I just think as long as you can make more money in an investment, it makes sense to hold onto debt and use the money you're making from the new investment to pay off the old debt. And that's just called arbitrage. That's what banks do. Banks will lend out money at 5% and only pay 1% on the money that people are giving to them to hold on to. So that 4% spread is where they make their money and then all the loan processing fees and garbage, that kind of stuff.   But it's at its essence. Arbitrage is that's just, all it is, is arbitrage. You're making the spread. And I think that it's a super, super killer way to go. But again, just like you said, everyone's got to look at their own personal situation and decide, you know, what's gonna make sense for them. And the low interest rate stuff, it becomes pretty easy, but as interest rates start to creep up, that decision becomes a bit tougher.   Emil: Yup.   Pierre: So as long as your cash on cash return is greater than the interest rate of your loan, your outstanding loan, it can make sense.   Michael: I think so.  If you could take 20 grand and put it into a house and make 7%, you take that same 20 grand to go pay off 4% interest. I'd say you're better off making 7%.   Emil: That cash on cash also is not accounting for again, principal pay down from your tenant, paying your mortgage and the tax benefits, right? So reducing the amount you owe to the government. So there's all these amazing benefits that we talk about. So   Michael: Yeah, the total return of investing in real estate is much bigger than meets the eye.   Emil: Yep.   Pierre: Cool. Thanks.   Michael: Totally, great question. Yep.   Emil: All right. I think with that, we're going to wrap up this episode. Thank you guys so much for tuning in. If you haven't already make sure you go subscribe wherever you listen to podcasts, you get notified. When we release new episodes, we're doing about two week right now. Hope you guys are enjoying all of them. If you guys have questions, submit them to us. We're happy to keep doing these AMAs. You can message us on Twitter. So I'm @Emil Shour and Michael's @ Albaum Michael, you can email us. I'm Emil Shore [email protected]. Michael is [email protected] and just submit questions and, we'll keep answering them and tackling them on future episodes. All right, happy investing.   Michael: Happy investing.