Welcome to another episode of Passive Real Estate Investing. I’m your host, Marco Santarelli. And welcome if you are a new listener, and there are many of you who listen to the show on a regular basis but have not subscribed, remember to do so, just click the subscribe linker button, wherever that may be, from wherever you’re listening. If it’s on your smartphone, it’s usually a little button nearby or to the right of the cover art. So we have an interesting episode today. You know, for the first time in American history, several events are happening and unfolding simultaneously. And when combined, they create a new level of risk and contagion that we’ve never seen before. You take the factors such as human longevity, an aging population, and really something we’ve known about for decades, but an unprecedented level of debt and deficit. These things come together to create a serious financial situation or even a crisis.
And the worst part is that it’s all our fault. I mean, if you really think about it as a society, we’ve brought ourselves to this point, and you’re gonna discover more about this here in today’s interview with my guest. But the question is, are you prepared for when a crisis hits? You see, most Americans don’t have enough money saved up to cover a medical emergency, never mind retirement. And many assume the reason for this is that they don’t make enough money. And while learning how to be more productive with your time and earn more money is part of that equation, the problem is really more complicated. See, the basics of saving and investing are not taught in schools, as we know. We’ve talked about this many times on the show. So most people go into the workforce, you know, behind the Eight Ball, lacking education and really not knowing how to make money, invest it, protect it.
So, you know, those are the things that we do talk about on the show. But what makes this problem exponentially worse is this thing that you can call a disease called consumerism. And consumerism has spread throughout our culture like wildfire for many decades. Every day we’re bombarded with advertisements convincing us to buy things that we don’t need. You know, the grand lifestyle we are being pitched is not attainable by the average citizen. It just isn’t. And it’s not attainable without properly saving and investing. So my guest today basically has a wake up call for those who want to become wealthy and stay wealthy. It doesn’t matter what your background or your age is. It doesn’t matter if you desire to work hard or not, but you should work hard. But if you do desire to work hard and you have the discipline to make money, save it, and properly invest it, you’ll do well.
You will not only become wealthy, you will stay wealthy, and you will have the financial freedom and time freedom that you all look for. So, I hope you enjoyed today’s episode. It’s a good one. It’s a little bit of a longer one, but let me know what your thoughts are and we will see you on the other side.
FREE copy of The Ultimate Guide to Passive Real Estate Investing.
If you missed our last episode, be sure to listen to Ask Marco: Investing Using Cash versus a HELOC (Line of Credit)
Well, it is my pleasure to welcome Paul Daneshrad to the show. He is the founder and CEO of Starpoint Properties, a private real estate firm that he started back in 1990. He has built it into one of the most respected real estate development firms in the industry. And Paul speaks at national conferences all around the country. He has contributed to publications like Forbes, multifamily Executive, Multi-Housing News, national Real Estate Investor in Commercial Property News. He is also the author of a new book called Money and Morons, How to Build Wealth and Protect Yourself from the Great Influx. And I have to tell you, I love that title, Money and Morons. Paul, welcome to the show.
Thanks Marco. Pleasure to be here.
Well, I’m glad to have you on. I started going through your book and I intend to not only finish reading it, but get the audiobook so I can listen to it again at just a faster pace. But you’ve got some very interesting concepts and you hit certain things dead on, like spot on. So it’s very interesting to hear what you have to say about issues that are out there and people talk about, but not at any great length. So, before we get started, I, you know, I had a quick little bio for you. Maybe tell us a little bit more about yourself so people have some context as who you are and what you do.
Sure. You know, grew up in Los Angeles in a real sort of lower to middle income household. And I mentioned it in the book, but you know, a few issues from when I was younger growing up in my family were very formational. What I mean by that was some sort of traumatic events that made me realize that, you know, securing your future is really, really important. And that requires not only planning, but a real steadfast dedication to saving and building wealth so that you’re not vulnerable. ’cause My family was very vulnerable when we were growing up. I mentioned in the book, you know, our, our roof would leak and I’d have to move around my room in order to avoid the spots where it was leaking while it was raining. And that was a formation. Well then for me, like, you know what? I don’t wanna live in a house or an apartment where the roof leaks. So that sort of led me to starting my own business and also realizing how important it is to have financial stability. Because if you’re vulnerable, it’s very unlikely anyone’s gonna come and help, including the government. And that’s getting more pronounced, which is what, you know, the book is really talking about. The future is probably more vulnerable than we’ve ever seen it if we really look at the data and the information that’s available.
Yeah, you made an interesting comment because it makes me wonder how many people, especially in their younger years, like early teens, mid teens, whatnot, realize the importance of creating wealth. They may not call it that at the time. They may call it being rich or riches, which is what I did back in my early teens. But I did realize early on as well that it’s very important to create some sort of financial freedom. Call it being rich. Call it wealth, call it cash flow, call it whatever you may. But for me, that happened around the age of 13. But I really dived into learning about it, teaching myself at the age of 15, 16. And I’m glad I did. ’cause I watched friends all around me grow up, you know, going to school, going to the bars, you know, going on dates and doing all this stuff. And they really weren’t focused on their financial future, or at least not educating themselves. Maybe they should have had the book Money and Morons back then. <Laugh>.
<Laugh>. Yeah. Yeah. I, you know, I, I titled the book that way specifically just so that it would have an impact. And I’m pretty direct in the book, as you can see also with the title. And there’s a lot of moronic behavior, especially now. And why do I say, especially now? You know, the great flx really talks about events that are happening and converging or con, you know, that that conflicts for the first time in history. And what those are, are debt levels that we’ve never seen, human longevity that we’ve never seen, and human aging that we’ve never seen. When you combine all those things, it just creates a risk paradigm that we’ve never encountered before and people aren’t planning for it. Especially as you said, Marco, the younger generation, right? The lowest savings rate in history. And they’re going to live the longest that we’ve ever seen humankind live, right?
Average life expectancy used to be 55, you know, a hundred years ago. So you would retire at the same time, you know, your life expectancy. So there wasn’t much need for retirement or retirement savings, right? Then life expectancy went to 65, same thing, you retired right around that. Now life expectancy is about 75. So you need, you have about 10 years of retirement that you need to save for what I call nipping, you know, non-income producing years. You got about 10. This next gen, the generation that’s, you know, younger or being born today, they’re probably gonna live to about 105, right? And if you retire at 65, you’ve got now 30 years of nipping, right? Non-Income producing years or non-productive years. We’ve never seen 30 years of retirement. People have, you know, average age, you know, is 75 today is gonna go to 1 0 5. You gotta prepare for that.
You can’t just sort of put your hand in the sand and say, alright, you know what, I’ll worry about it later. And then you combine that the conflux with massive levels of government debt. A lot of the government programs in 15 years are gonna be insolvent, bankrupt. The government has no plans in place. How are they going to deal with that? Every time the issue comes up, they kick the can down the road because it’s such a large issue, there’s no solution for it. You know, we’re seeing it this week, right? There was a talk about the government shutting down again, right? Oh, they found another temporary fix and increase of spending. That’s not a fix. That’s just kicking the can down the road. And what the average American doesn’t understand, especially the young Americans, you know, who are gonna live longer and need to save more, the government’s not gonna come and save them.
They’re not going to have the money. Mm-Hmm. <Affirmative>, if you don’t believe that or don’t see it, just pay attention to the debate about the debt. Do you see them providing any solutions? Right? Is there any real fix or all are they doing is keep increasing the debt ceiling, kicking the can down the road and saying, you know what, we’ll figure it out later. If you see that’s what they’re doing, then there’s no fix. You gotta plan for it because the fix will come in crisis, and there’s plenty of data and evidence to support that. Too much debt if you don’t solve it, crisis eventually does. And that’s where we’re heading.
So, you know, I, I was curious why you used the word conflicts, the great conflicts in your subtitle, but essentially what you’re saying is it’s the inevitable financial crisis. I mean, that’s really what it comes down to. And in your book, you broke that down into three major categories, which you’ve touched upon. It’s the increased longevity, the aging population, astronomical national debt. And really there’s, there’s another component which I want to ask you here a little bit later, but in regards to the aging population and longevity, you know, we’re all living longer and you can see that and it’s great. But is this an issue just because we won’t have enough in savings as in the general population to survive that long? Or is it a healthcare issue, or is it both?
It’s all of it, right? So we used to have three working people to every one retiree. So we have three working people paying taxes going into the system for every retiree in 20 years, it’s going to flip. We’re gonna have one working person for every three retirees, right? So our tax system is sort of gonna go upside down, upside, right? At a time where we have astronomical levels of debt and we need more taxes, we’re going to have less. Social security is gonna be big. Okay? So now I’m quoting the CBO, the Congressional Budget Office, right? Independent non-partisan. It is meant to provide information to Congress so Congress can make good decisions and legislation based on data, right? Non, that’s part of what the CBO does, right? So CBO says that social security will be bankrupt within 10 to 15 years, and they have no solution for it, right?
So the, the Social Security trust will be out of money and it was created right, to sort of provide retirement savings, right? Well, if, if those are, if the social security’s not there and people are relying on that for retirement, that’s a big issue. Same thing with Medicare mecal, right? Medicare is bankrupt and also sort of 10 to 15 years, and our healthcare costs are rising, right? So right at a time when we need Medicare the most, right? Because we have an aging population, right? And also, you know, human longevity is going to add to that aging population where we may need Medicare most, it’s gonna be bankrupt. What are the two things that add most to our national debt? Social security and Medicare. Those are the largest components of the national debt. So they’re gonna be bankrupt, they’re the biggest components of our debt, and we have no way of funding them unless we continue to add to the debt, which is what we’re doing. So all of that, the conflicts, right? Yeah. All these events coming together that we don’t have solutions for, and you know, we’re unlikely to solve.
You know, you could argue that we’ve been so-called kicking the can down the road for literally decades. And will they continue to do that? Yeah, I believe so. I don’t know if you’ve heard this before, but I, I would guess you’ve probably heard it a hundred times, but the US with the Federal Reserve can print quote unquote money indefinitely. You know, we can continually create the money or the currency that we need to fund these ever-growing social programs and entitlement programs. So do you not see this as just being an ongoing, forever kicking the can down the road until there’s some sort of global reset or massive forgiveness of debt, you know, nationally or internationally? You know, it’s just, you can’t get out of it. We’ve dug a hole so deep it’s impossible to get out of financially, mathematically speaking. But that doesn’t mean we, you know, social programs are gonna come to an end. If we can continue to print money forever, we’ll continue to fund it until it ultimately breaks, like really breaks.
Yeah. Right. Crisis, right. When we control our own currency, right? Which means that we can keep printing money and that is a huge benefit. And we’re also the, the world’s reserve currency, another huge benefit that we have. That’s why we’ve been able to print so much money, why we’ve got 130% debt to GDP. And that is a really important metric, you know? Mm-Hmm. <Affirmative>. If you look at a lot of the economists who study national debt or sovereign debt, once you pass a hundred percent debt to GDP, that’s a bad metric. We’re at one 30, heading to 200 really quickly.
So yeah, you can keep printing until there’s a loss of confidence and then you either have a monetary collapse or you have a loss of confidence in your bonds and no one wants them anymore because they’re worried about a default or a lack of repayment. Right? Or you have inflation because you’ve printed so much money and you debased the currency. Right? Either way, I mean, there’s, crisis can show up in certain few different ways, but crisis still at the end of the day is gonna be damaging. So yeah, we can keep printing until crisis comes, and then that’s the day when we can’t print anymore. How, you know, crisis is gonna force us into some very, very challenging times.
<Laugh>, you know, I don’t talk about politics on the show and I always try and avoid it, but you make an interesting comment in the book. In fact, it’s an entire chapter and you refer to the morons being voters, and the voters are the ones who are helping to fuel the fire. Can you explain that? Like, like, I mean, I see it, you know, because I always say that ignorance is not bliss, ignorance is expensive, and the fact that ignorance is expensive, you know, means that the decisions you make cause problems whether right away or deferred down the road. And that, and then that’s what we see, you know, uneducated voting block, which is the majority of the country is not making decisions in the best interest of our future. However, at the same time, there probably are very few, if any options out there that are the right options to get us out of the problems that we’re creating. Like, you know, the deficits and debts, which are a ticking nuclear bomb, et cetera, et cetera. So what would you like to say about the people you’re referring to as morons, which are the voting block?
Look, I mean, it’s sort of, you know, it’s a crazy paradox. 88%, roughly, depending on which poll you look at, 88% of the public says the debt is an issue and they’re worried about it, right? But no one’s voting for politicians who want to fix that. Why? The problem is so big, and you, you said it, Marco, it was a, that’s a great comment, right? Ignorance is not gliss, right? It is expensive and it’s gonna be painful. And this is a great situation. The reason the 88% people are worried about the debt because they know eventually too much debt is gonna hurt them. The reason they don’t want to fix it. And they’re not voting for politicians who will fix it. Because the only way we can fix it, ’cause it’s so large now at 130% debt to gdp, is we gotta raise taxes and we gotta lower expenses and we got lower entitlements. And nobody wants that. Right? Everyone wants lower taxes and they want more entitlements. Well, that’s moronic behavior, right?
You know, there’s a problem. You see there’s a problem, but you don’t wanna fix it because there’s gonna be a little bit of pain today, right? Yeah. Really. So let’s just not fix it and have a lot more pain tomorrow. I worry about Marco, do you have children? Yes. Yeah. So do I, right? I’ve got four children, my four children. They’re gonna pay for all of this moronic behavior that, you know, our generation and the generation previous to us is creating. And the next generation is just, you know, perpetuating too. Yeah. There’s gonna be a payday. It’s coming.
So, okay, so let’s, let’s get this straight. So we have what you believe to be an inevitable financial crisis looming coming on the horizon. We don’t know if that’s a year, 10 years, 50 years from now. And it’s being largely perpetuated by the increased longevity, aging population, astronomical national debt levels and entitlement programs and whatnot. So who is, who will be most affected by this?
The lower and middle class, right? The people who don’t have savings, okay. Who are, who are really, you know, relying on those government entitlement programs for retirement and they’re not going to be there. You know, I’ll say it with certainty, and I’m not saying this just from my personal opinion, it’s just data, right? The two leading economists who researched this Reinhart and Rogoff, right? Harvard educated economist, very deep thinkers, very deep researchers into this. They wrote a book called, this Time is different, very academically oriented, right? Heavy Data. They went back and looked at basically almost 300 years. But let’s just talk about the last hundred years of sovereign debt defaults or nations that took on too much debt. And if you joke at their research it’s really, really clear. Eventually debt, it’s this time is different. Meaning it’s not different. What they’re, it was there, there were, it was a little bit of a punt, right?
Everyone believes that this time is different. We can keep on taking more, more, more levels of debt and it won’t harm us. And what they showed was that eventually every nation that took on more debt eventually had a crisis, right? That’s the path we’re on. And so, middle and lower incomes, middle and lower incomes, if you don’t have savings, you don’t have passive income, you, you’re not gonna be self-reliant. You know, we’re not saving, we have a disease in this country. It’s consumerism. Right? You know, I mentioned in the book, you know, we’re inundated with anywhere between a thousand to 5,000 ads a week to teach us to consume and not to save. And that consumerism is a disease, right? The average American doesn’t have $1,500, 50% of America doesn’t have $1,500 saved for emergency. 50%. Yeah. But that’s scary. They’re gonna go out, they’re gonna go out and buy a $500 purse next month.
It’s crazy. The study that you’re talking about, the book I think I, I didn’t read the book, but I remember the study. And if I am not mistaken, I believe every country that has experienced a financial crisis of sorts, their currency was basically hyper inflated or inflated away into essentially nothing. And I don’t know if any country has ever been able to escape that path, that downward spiral of like inflating the currency away to nothing. And basically, you could look at the US dollar, if you look at from 1913 on to this point, the dollar is about worth 1 cent relative to what it was worth back when it, you know, first came, actually I should say the Federal Reserve came out in 1913. So from that point forward, the US dollar is worth about a penny in real dollar terms compared to what it was back in 1913 Act.
That’s absolutely accurate, Marco. Absolutely accurate. When we decoupled from the gold standard, which means that, you know, every time we wanted to print a dollar, we needed to have gold to back that. Why did we decouple from the gold standard back in the next timeframe? Because we wanted to print, right?
That’s right.
We wanted to print as much money as we could and we didn’t wanna have to back it with gold because we couldn’t buy enough gold to do it. Right? So yes, we debased our monetary system and we’re gonna see the impact of that. It allowed us to print, but it allowed us to get into these levels of debt out. Any type of limitations.
What did you find was the most surprising or intriguing to you about your research and in writing this book?
Before I go to that, that’s a great question. I want to go back to your comment. ’cause Your comment was very, very astute, and I think your listeners need to listen to you on this, and you said it. There’s been no country in history. There’s been no country in the history of human God that’s been able to get out of this debt spiral. Right. Or what you call the inflationary destruction of just printing money never happened. We are not going to be different. This time is not different. When Jerome Powell, the head of the Federal Reserve, who came out two weeks ago, which is very uncommon. He’s supposed to be nonpolitical, and he has a mandate as the head of the Fed when he came out two weeks ago. And he said, right, that our debt levels are unsustainable, and if we don’t do something about it, we’re going to have a real problem.
And he said, we need to have an adult conversation. The adult conversation is verbatim. This is the head of the Federal Reserve, you know, telling the American people and warning us. And we’re, again, we’re still not listening, right? So yeah, your comment was astute. I wanted to really highlight that. And what I’ve, what I’ve learned, we’re not gonna solve this problem, right? Congress is not gonna solve this problem. Politicians are not gonna solve this problems. Voters are not gonna solve this problem. You have to prepare yourself and your family and your children. And if you don’t, when the crisis comes and you don’t have the proper resources and the savings and passive income, it’s gonna be very, very
Challenging. That’s actually a, a perfect segue into kind of like the, you know, the conversation I want to have with you about essentially the second half of your book being more productive, saving, and more importantly investing. But I don’t wanna leave that question I just asked you hanging, you know, about what was most surprising or intriguing to you in your findings when you were doing your research and writing the book?
I think I mentioned it, that we’re not gonna solve this problem.
Oh, interesting
Right. That’s the moron part, right? It’s sort of what they call normalcy, normalcy bias. Right? It’s a psychological term where like people need to feel normal. They can’t be in an abnormal state for too long. Yeah. They can’t function properly. And this is the normalcy bias, right? The problem is down the road, right? And I don’t wanna suffer today for a problem that’s, you know, in the future and I want someone else to solve it for me, right? Nor this is all versions of normalcy bias. So when I saw that, and then 88% of the population says this debt’s a problem. I’m worried about it, but then won’t fix it right? Through the most powerful mechanism they have, which is their vote. Mm-Hmm. <Affirmative>. There’s politicians out there will fix it, right? They’ll increase taxes and they’ll lower expenses. Right? But no one wants that, right?
They want an easy fix. There’s no more easy fixes, right? This is gonna be a painful fix now, but less painful today than tomorrow. So that was just shocking. And it was sort of like, oh my God, we’re not gonna solve this. We’re really not gonna solve it. We all see it. The problem coming, we’re all worried about it. 88% of us, and we know we can’t take on too much debt at the personal level or the national level, but we’re not gonna solve it. Right? And then I was like, oh. Crisis is gonna solve this for us. Right? Then what’s crisis gonna look like? Right. You know, it, it moved. Oh, I don’t think
What made my head spin. You know, you ever seen that emoji where like the, the, the emoji where your head explodes, top of your head just coming off? Yeah. That was, that’s what I felt like after doing all the research and sort of like, wow, that was the most surprising thing.
Yeah. I’m, I’m of the belief that if there is a fix, if there is a fix, it’s gonna be very ugly. It’s not gonna be favorable to most people. It’ll be a very painful process. And, and I’m talking painful in the sense that it could be generational. Meaning that there will be multiple generations who have to essentially quote unquote suffer through the adoption of the fix in order to get on out to the other side of it, you know, smelling like roses. ’cause It’s not gonna be fixed in one generation. It’s just probably impossible, ma you know, financially, mathematically impossible to roll back or get out of the hole that we’re in. That’s just my take.
No, you’re right. And your take, there’s an enormous amount of data and support for your opinion. So I try to really, you know, take out the hysteria and the emotion from this conversation, even though I keep talking about crisis and I, and the way you take the emotion hysteria out of it, just look at the hard data, right? Look at the facts, look at history. Yeah. Right. Look at the logic behind it. And your opinion is really supported by that logic, by that data, by that history.
So I guess, you know, flipping this around and let’s, you know, look at the silver lining, the bright side of this. You know, let’s talk about how do we solve this problem personally, because I can’t control the economy. I can’t control the national economy or the world economy, but I can’t control my own personal economy. That’s the only thing I have control over. It’s my personal economy. So let’s talk about being more productive. Let’s talk about, you know, the art of financial discipline that you refer to as saving. And then lastly, you know, let’s talk about investing, which is really how you secure your financial future. And then I want to ask you about real estate. ’cause You’re in real estate. I’m in real estate, you know, that’s been kind of the center of my world for the longest time. So why don’t we start with, you know, how do we solve this problem individually for ourselves personally, and and be more productive? You could take it ever however you want.
Sure, you know, people want like this brilliant new idea to solve this problem, and it’s not a brilliant new idea. It’s not my idea. Right. I’ve learned from my mentors, which Warren Buffett is one of ’em. And if people will just listen to him, he’s one of the wisest, you know, his wisdom is incredible, right? Wisdom is different than intelligence. Yeah. He’s just a wise man. And not everyone’s listening to him, but those of us who do right, stop spending so much save and invest, right? Stop, get, get over the disease of consumerism because Gucci and Prada, they want to take every last penny they can from you. They don’t care if you’re bankrupt, right? Because they’re making a fortune off of you. And what are theirs? What are tho all those executives doing? Well, all those owners doing, all those shareholders are doing, they’re saving and investing with your money that you’re buying that product, purse or shoes is madness. Stop, save that money and invest. And then you know what the eighth wonder of the world is according to Einstein
Compounding interest. Yeah.
<Laugh>, there you go. Yeah. Good. Mark, are you well read? Yeah, I Einstein said it great. The best, the eighth wonder of the world is the power of compounding. What does that mean when you save and invest and that investment starts compounding, it’s amazing what happens, right? In 20 or 30 years, you have a lot of savings, you’ve got passive income, you’ve got security, you’ve got stability. And when the great conflict is hit, you’re not gonna be one of the victims of it. You’ll actually probably be able to capitalize it from it. Because when that crisis comes, my guess is, you know, except for certain investment classes or investment products, asset values are gonna drop 80%. And the people who have savings and are gonna be able to invest are gonna be able to buy an 80% reduction in pricing. That’s how one way the Rockefellers got so rich was, you know, in great Depression, when asset values dropped 80%, the market, you know, the stock market dropped, you know, 60%. Mm-Hmm. <Affirmative>. Yeah. They were buying things. They had capital, they were ready for the crisis, and they become extraordinarily wealthy from it.
Yeah. That is a smart strategy. And I have to imagine that they had savings or, and deployable capital available in order to do that, to take advantage of that. You know, that drop or that dip. But you said it before, you know, the average American has less than $1,500 in savings. So even if there was a recession or, or a correction like that, you know, they wouldn’t be able to pull the trigger and acquire very much. So, you know, that goes back to the whole thing about what we just mentioned about being more productive. You know, the question, and maybe this, this is, you know, a subject that’s beyond the scope of this conversation, but, you know, how do you become more productive in order to save more, in order to invest more, you know, it’s kind of like a, it’s all, it’s like a chain or, or dominoes.
You know, I mentioned this in the book. This is sort of the part of the moronic thinking we have. Now, you heard of quiet quitting?
I’m not sure I have. Yeah.
Quiet tuning’s an actually really popular term. It was a top 10 Google searched term about a year ago. And quiet, quitting is the concept of when you’re at work, do the bare minimum that you can, right? You’ve almost quit, but you haven’t told anybody <laugh>, and you’re just gonna do the most bare minimum, right? Quiet, quitting is a very popular term now amongst a certain cohort because the concept is why work hard, right? It’s moronic, right? Who’s going to get promoted and get a race? The quiet quitter or the person at work who’s working hard and making a real contribution and going above and beyond? No, they’re gonna get the promotion and they’re gonna get the raise. The quiet quitter is either gonna get fired or gonna get stuck, right? Right. There’s already data here now working from home, right? Right. 80% of the people working from home are vulnerable right now.
Right? Because there’s data showing that most people who are working from home are not the people who are working really, really hard, right? They’re, they’re trying to do the bare minimum. They’re not gonna get the raises, they’re not gonna get the promotions. They’re gonna be the first people laid off another moronic concept, right? So the basic to what I’m saying to you, Marco, is work hard, right? I, I’ve had almost three jobs my entire life, right? I’m wealthy now, you know, I went from poverty and, you know, working three jobs, not being able to pay my rent, to now I’m super wealthy, but I still have three jobs. I still have three income sources. So stop spending, get out of the disease of consumerism, save, invest, work hard. Even if that means two or three jobs, listen to what Warren Buffet says before you buy a home, make sure you have a second income, right?
Take that money and invest it into productive assets. A home is not a productive asset. A home is a liability. A home doesn’t create income. A home requires you to have income, right? A home is a cash suck and homes are great. I’m not saying it’s the American dream, right? Mm-Hmm. <affirmative>, I’m, I think in some ways it’s the American whole, but let’s just, you know, follow the fantasy. It’s the American dream. Okay, that’s fine. You wanna reach the American dream, make sure you have enough savings first, make sure you have two incomes, and some of that’s passive. And then chase the American dream. I’d rather see you instead of, you know, buying a home that has no income, right? Buy a duplex, rent both of those out. Have that income come in, right? Versus necessarily buying a home that has no income. Yeah. You’re gonna buy a home, build an a DU in the backyard, right? So now you have a unit in your backyard that’s giving you income, that’s passive income, right? That’s a second source of income. That’s where you can start compounding and you can start investing. So those are some of the ideas I lay out, but these ideas have been around for a hundred years.
So as far as investing goes, what, and of course this is not financial advice in any way, what either one of us say, but what are your favorite investments? If there’s more than one, what would you say or suggest or recommend people focus on? And if it’s different than what your favorites are, what are your favorites?
So, you know, one of the reasons I went into real estate, and probably you went into real estate as well, is that it’s a, a very good protection for inflation, right? Yep. And all this money printing is very inflationary, and eventually, you know, that’s going to catch up. So real estate’s probably one of the best investments for an inflationary environment. So that’s one of the reasons I liked it. But it’s also really, really tax efficient. You know, real estate investors pay very low taxes because of depreciation. And then also we’re allowed to, you know, to go at 10 31 exchanges. So we can make profit, but exchange that. So it’s really, really tax efficient and it’s a productive asset, generates income, right? And then you could also influence that income, right? So you can build an expertise where you can increase that income, what we call value add real estate. So for all those elements, I really, really like real estate in, in the stock market. I like index funds, but you know, that’s, that’s the Warren Buffet philosophy, and he’s right. You know if you’re gonna invest in the stock market, put it in an index fund, low costs not a lot of overhead, and they’ll beat the market. You know, I just published a white paper. Marco, what percentage of fund managers or wealth managers or, you know hedge funds over a 10 year period beat their averages or beat the market?
Good question. I’d probably say that this is a wild guess, but I’d say it’s probably a wash. If you’re taking a 10-year horizon, they probably average out to be the similar to what the index fund is, 95% of the experts.
So fund managers, hedge hedge funds, wealth managers, oh, 95% of them underperform an index. Only 5% beat let’s say the s and p 500. They underperform once you include their fees. So yeah, you, you just an index fund, you’re gonna do much better. They’re liquid and they’re easy to get out of to. So I really like index funds, but that again, that’s Warren Buffet teaching us, and he’s one of the most astute investors on the planet. We need to listen to him. And then what else do I like? At this current moment, I’m very defensive. You know, everything’s sort of peaking stock market commodities, everything’s sort of at high levels. And one of the reasons for that is, you know, we, there was so much stimulus from the government thrown into the system because of covid. Yeah, right. And all of that, what I call heroin came into the market and just pumped everything up. So I can’t say I love anything today, but over the long term, which is what I was referring to in my previous comments about real estate or index funds, those are what I like over the long term. I wouldn’t necessarily think that anyone should be, you know, investing deeply today. Waiting for a correction is probably
Smart. Yeah. I have a hard time seeing myself jumping into index funds or the stock market as a whole. You know, is it gonna continue to appreciate, maybe, possibly depends on how much easing and, you know, money is put into the system by the Fed. You know, how much do we juice the economy? It’s an election year. I’m sure there’s gonna be some of it this year, you know, just to prop up the market. So, you know, that might be a bullish thing. But for me, I’m bullish primarily on residential real estate because of the fundamentals, you know, the dynamics there of having strong demand and in most areas of the country, short supply is gonna continue to support price levels, both rental and sales prices. Commercial is something that I’ve really never been a big, big fan of, but I see it suffering for the short term, especially with retail.
So, you know, I’m not a big fan on the commercial side, at least not right now, but I’ve always been a residential fan. You know, we all need a, a roof over our head and a place to live. And, you know, if you’re in a, in a good market, in a desirable area, strong neighborhood, it’s hard to screw up real estate. It’s a very forgiving asset class, in my opinion, when you invest properly. So, so I’m definitely bullish on residential real estate. A little skittish or defensive as you would say in most other sectors and areas. But yeah, I mean, you know, that’s what we talk about on the show a lot is, is, you know, the, the power of real estate, why it’s such a great investment. It’s an inflation hedge, it’s a cashflow generator, it creates passive income long term. It can appreciate, it protects your wealth, it builds equity, it has the tax benefits. I mean, it’s everything you and I know and love about real estate. So for me, it’s definitely the go-to, and it’s available to most everybody. You know, you don’t have to be an accredited investor to invest directly in real estate. So it’s accessible to most people.
Absolutely. It’s sort of the 10,000 hour rule, you know, which is means that, you know, you gotta spend about 10,000 hours to build a specialty or an expertise in any industry. Yeah.
But if you spend 10,000 hours learning real estate, really learning real estate, you will become rich. There’s just no question about it. But build the expertise, really understand what you’re doing, understand your markets, build your network, build your connections get access to more capital, just not your own. And once you have that expertise, as you said, Marco, it’s very brilliant on your part. It’s accessible, right? And nothing is stopping you from doing it except, you know, if you’d rather just sit on a couch and watch another show, which, you know, too many Americans wanna do. I hate to be that direct, but you know, if 50% of we’re the richest country on the planet, and then not only that per capita, we’re the richest country in history, right? Per capita. But 50% of Americans have zero savings and don’t have $1,500 for a medical and emergency. How is it possible?
How’s possible? Well, we talked about it <laugh>, it’s consumerism, lack of education, ignorance, <laugh>
And a mentality that’s starting to creep in of, you know, working hard is stupid, right? This is quiet, quitting, right? Why is working hard is stupid. That used to be the fabric of America, right? We would work hard and we were proud, right?
Yeah, that’s exactly it.
And and I was listening to a celebrity last week, I’m not gonna use any names, but you know, they made this quote that I feel bad for Americans who have to work so hard. I was like, what? What are you talking about? Okay, you’re a celebrity. You’re making about $50 million a year from all your advertising stuff, but average American can’t do that. So what you’re telling them is don’t work hard. Oh, okay, just sit on the couch and be broke and vulnerable, right? And when the great conflicts comes, you are gonna be fine celebrity, right? You got a hundred million dollars in savings, but the poor American who you just said that you feel bad and they shouldn’t have to work hard, what are they gonna, no, it’s just nonsense.
Yeah. Well, yeah, no, I agree. So I guess in wrapping up, and you’ve already touched upon this, but let me ask you this, ’cause this is kind of like one of those takeaway things. Actually, I’ll, I’ll break it down into two parts. If you could provide people listening to this, some practical strategies or tips. I mean, you’ve talked about real estate obviously. What are some practical strategies or tips that individuals can implement starting right away or this year that will align their financial decisions?
So like, here’s one thing, right? How do you take advantage from a government that’s just printing money, right? You gotta try to benefit from that. So we have the SBA and i, I have this in the book, and you can go into the book and get a little bit deeper with it, but we have the small business administration. Do you know the small business administration has a program that anybody with a credit rating basically above 700 can automatically get an SBA loan, right? All you need is the credit rating. That’s it, right? You don’t need income, you don’t even need to show tax returns, you don’t even need to show you have a job, right? So the first thing I’d say is protect your credit. If it’s low, you can get it higher, right? So protect your credit, go get an SBA loan, which is easy to get the average American get and get it. Take that $150,000 because it caps out about $150,000 and go invest that, right? Right. Build an expertise, spend 10,000 hours in something so you’ve got a real expertise. Take that $150,000 and turn it into 1.5 million. And you can’t, you can’t just apply all the fundamentals that so many of our past mentors have taught us. So that’s one way you can align, right? Your financial incentives. So just one small example, but there’s a lot of other things that can be done, right? Yeah. Back to what you was saying, right? Second and third jobs.
No, that’s great. I, you know, you just got my head thinking here. You know, if you can get a hundred, $150,000 from the SBA at a low rate and you have high credit already to be able to get that, then there’s good probability that you could use that SBA loan as down payment capital to acquire income producing real estate. Even if it’s zero cash flow in the short term, at least it gets you into the game or leveling up in your real estate investing portfolio. I hate to say it’s almost gonna be like a hundred percent financing, but if the numbers work, if it makes sense, you know, you can certainly get started or level up your real estate investing by using that. So, and I’m not, this is not financial advice. I’m not suggesting anybody go out and do that, but I mean, I am here thinking how can I take advantage of that SBA loan as down payments towards additional real estate, right?
Take that $150,000, go buy a 10 unit apartment building live in one of the units. So now you’re living almost rent free. There’s an opportunity cost, I recognize that, but you’re living rent free. Yeah. You’re gonna manage the other nine units and that’s all gonna bring you income and that will have positive cash flow. Even today, if you did that with that $150,000 and you lived in there with your family and you managed that building, you’re gonna get about a 5% return on that 150,000, which means that, you know, 5%, a $50,000 if you start making that every year. And you save it and letting that compound, right? Yeah. And then in five years you take all that money and that com or 10 years, you take all that money that compounded and you buy another apartment building, right?
It works. It’s an age old strategy. Yeah. So again, back to Einstein, the eighth wonder of the world is, you know, the power of compounding. That’s just one example of it again, right?
Yeah. Yeah. Paul, this has been great. I, I mean, there’s so many more things that I, I’m sure we could talk about and rabbit holes we can go down. But for the sake of time, we should probably just wrap it up here, tell our listeners how they can either follow you, get more information, get a hold of the book, et cetera.
Yeah, the book’s available on Amazon and just some shameless self-promotion, it just became a bestseller. So it’s resonating with certain people. So it’s available on Amazon, Barnes and Noble. You just google it, you know, easy to get it there. There’s an audio version as you mentioned, Marco, and they can follow me on Instagram or Twitter under my name Paul Daneshrad. And also we post onto my company’s website too, a lot of my material and work product and white papers. And that’s starpointproperties.com.
Perfect. And I’ll put links to that in the show notes and on our website so everybody can see that there as well. Well, Paul, once again, thank you for taking the time today. I appreciate it. And this has been wonderful. So hopefully a lot of people will go out and grab your book and read it ’cause it’s a great book.
Thank you, Marco. I appreciate you having me and your audience is lucky to have you. I really hope they listen to you because if they do, I know in 20 years they’re gonna come back and thank you <laugh>. Yeah, I, I just hope they do.
Thank you so much and likewise with you, Paul. Thank you. All right, hope you enjoyed today’s episode. It was definitely interesting and some of those subjects and topics I could have gone much longer on and much more in depth. But for the sake of time, I just had to kinda wrap it up at the one hour mark. Anyway, that is it for today’s show. If you’re interested in passive income that is not real estate related in the form of promissory notes, don’t forget that at Norada Capital, noradacapital.com, our private equity firm, we offer promissory notes that offer 12% and 15% interest per year, paid monthly. So it’s an annual rate of return. That’s 15%. It could be more, but it’s a fixed rate of return. It’s monthly interest payments. If you want more information, simply go to our website at noradacapital.com and you can fill out the form and get some more information.
That is it for today. Remember to subscribe. If you haven’t done so, send me any questions about real estate that you have. My team and I will answer it and I may even cover it on the show. Visit us on iTunes, leave us a rating and review. I greatly appreciate it. And that’s it. Thank you for listening. I will see you all on our next episode
—————————————
—————————————-
Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See our available Turnkey Cash-Flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)