economic crisis

Opportunity In Crisis: What Real Estate Investors Need To Think About During This Crisis With Russell Gray

TWS 47 | Financial Crisis

 

There’s no getting around the fact that we are going to experience a crisis in the financial system, and no amount of government efforts to introduce liquidity is going to solve it. How can you survive, nay, thrive amid a crisis of this unprecedented scale? Joining Patrick Donohoe on the podcast today, financial strategist Russell Gray thinks this is the best time to focus on our personal investment philosophy. Russell is a co-host of The Real Estate Guys™. He has been a financial strategist since 1986. The financial system is going to behave as it will, and we hardly have any control over anything that goes on within it. Robert sees this time as the perfect opportunity for real estate investors to educate themselves and build their networks to be at their best form for whatever comes next. In every crisis, there will always be winners and losers. Listen in and learn about the things you have to consider if you are to thrive in the REI business amid a crisis.

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Opportunity In Crisis: What Real Estate Investors Need To Think About During This Crisis With Russell Gray

I’m excited for you to read this interview with a good friend of mine, Russell Gray. Russell is one of the Real Estate Guys Radio Show that I believe is still the longest-running real estate investment show. They’ve been on air since 1997. I got to know Russell back in 2010. I was invited to be a faculty member on the Investor Summit at Sea, which is more than a week-long cruise where investors from all over the world get and learn together. It’s an interesting dynamic. I was a faculty member there for nine years and there were other famous speakers as well. Robert Kiyosaki has gone on their multiple times, G. Edward Griffin, Peter Schiff, Douglas Duncan, who is the Chief Economist of Fannie Mae, Chris Martenson, and countless others. There are some experiences that changed my life. I did record podcasts when I was on the cruise.

I’m going to cut to the interview. Before that, thank you for the support of comments, questions, likes, shares. It’s been awesome. We’ve definitely had a tick-up in awareness of the show and the subsequent episodes. We’re active on Instagram and Facebook. Make sure you’re following us there, as well as a subscriber to the email list. We’re actively sitting on messages there and head over to TheWealthStandard.com. The resource section that I’ve spoken about. Specifically, a program that Mike Dillard has for entrepreneurs, that’s all life. You guys can check that out the resource section at TheWealthStandard.com. Finally, at the end of the interview, I’m going to do some Q&A, some commentary based on the crazy events that are going on. I hope you enjoy the interview with my good friend, Russell Gray.

Welcome to this interview with an incredible guest, and he is no stranger to the show as well as other mentions in writing, blogs, newsletters. He’s a good friend of mine. His name is Russell Gray. He’s mentored me, I think it’s been several years.

We met each other in the wake of the 2008 crisis. We were both in rebuild mode.

Through the experiences of seeing how the Real Estate Guys Radio took off, how you guys have expanded your network to all ends, it’s been impressive. I appreciate it. I’m grateful for the mentorship you’ve provided me for many years. I’m excited to extract out of you some of your insights into what’s going on with this new world and the new economy. On the thick of it, at the same time, there are some signals that would lead us to potential conclusions. I’m grateful for your time and grateful for your expertise. I would also say that the RealEstateGuysRadio.com is an incredible resource, subscribe to their podcast. Russ also writes personally a newsletter. It is well-written, full of good insights. His mind took off after 2008, 2009, in my opinion. He became an incredible writer. That being said, I welcome you to this interview.

It’s great to be here. They can decide after they’ve heard me ramble here a little bit if they think I’m worth somebody they want to listen to more, but let’s get into it.

TWS 47 | Financial Crisis

Financial Crisis: The health crisis is going to create an economic crisis, not because of the health crisis itself, but because of the reaction to it.

 

The consensus of our audience is on edge in a sense where things have been disrupted in all sectors. We’ve been hit with a black swan that no one anticipated, especially the response of the government to it, which I believe is a big earthquake. It’s going to have some ripple effects. First off, because we haven’t connected in a while, how are you processing the last couple of months when it comes to the economy and your role in providing guidance, insight, and wisdom to a broad audience?

To understand the answer, I’m going to tell a bit of the story. Back in 2008, it’s no secret. Going into 2008, I was in the mortgage business. I had accumulated a lot of properties all over the place. I was levered to the hilt, but I had great cashflow from my mortgage business. I was in the hottest industry at the hottest time. I looked like a genius, then all of a sudden, what happens is life hands you a bunch of humility, but I realized is that I was only structured for sunshine. When the mortgage industry imploded, it took my income with it, which was supporting this huge portfolio over-leveraged properties that were in many cases sitting empty.

I was speculating on real estate asset prices instead of focusing on investing in the production of income, which seemed boring at the time. Equity was easy money and I still believe in equity, but equity is a byproduct. Cashflow, not just rampant speculation, so there is a difference. I didn’t understand that back then. Coming out of that, I dedicated myself to understanding how could a guy like me that is relatively attentive, studious, not see such a disaster calming when I was in the epicenter of it. The net result of it was I had my nose too close to the ground grindstone. I was myopic.

We went out on a search and we started looking for people who had accurately predicted what had happened and got it right for the right reasons. One of those people, Peter Schiff, who we became friends with. He’s always been a part of our Investor Summit at Sea since 2013. Peter was a guy who began that process of explaining. I’d already read G. Edward Griffin’s book, The Creature from Jekyll Island, somebody else that we’re mutual friends with and whose book that we’ve read and it changed our lives. It began to understand the way the financial system operated and what it meant on a human level. That’s one thing to understand is how the system operates.

You may not like it. You may not think it’s great, but at the end of the day, it doesn’t care what you think of it. It’s going to behave the way it’s going to behave. Sometimes we have to set aside our political or economic proclivities and accept it for what it is and try to navigate it. When this thing hit part of that 2008, the recovery process was building out our network of smart people that we were around. Robert and I were always among the smartest people in the rooms that we were in going up to 2008. After 2008, we made it our mission to be the lowest guys on the totem pole to be around people much smarter, better connection, much wiser, much more efficient, and much more articulate than we were. It cost us a lot of growth.

Two of those guys were Chris Martenson and Adam Taggart at Peak Prosperity. They were at the forefront of understanding how bad this Coronavirus crisis was going to become. I was on the phone with Adam and he told me. I started to pay attention to. I was less concerned about the health crisis component of it. I was more concerned about the economic crisis component. What I was interested in was the chain of events. You asked me the question, how did I process it? I’m a big believer that before you can process a lot of content, there’s a lot of noise, a lot of information, a lot of opinions coming at you from all angles, I needed to set a context.

The context for me is looking at what happened. He said, “The health crisis is going to create an economic crisis, not because of the health crisis itself, but because of the reaction or arguably the overreaction to it.” Whether you think they were handling it responsibly or whether they went way over the top or they’re not doing enough, it doesn’t matter what you think. They’re doing, what they’re doing. It effectively has shut down the economy. It went from a health crisis to an economics crisis. What is an economic crisis? It’s a cessation of commerce.

That means no revenue to businesses, no paychecks to employees. What does that mean? It means that debts can’t be serviced. It goes from being at an economic crisis. It has the potential and arguably is going to metastasize or spread into a financial system crisis where it threatens both the banks and the bond markets. The Fed, in anticipation of that, is printing money like nobody’s business, trying to prop up the lack of economic equity activity. It’s like having a heart attack and your blood stops pumping by injecting a lot more liquidity, which is like giving somebody who’s had a heart attack a transfusion and hoping the pressure alone will force the heart to start to beat. It’s not going to happen.

The financial markets are in trouble and that’s what triggered the 2008 crisis. The job loss of 2008 was a byproduct of the collapse of credit markets, which caused a cessation of commerce. Here, the job market, which was the cessation of commerce created the financial crisis or is going to create the final answer crisis, in my opinion. That will reinforce the economics. In order to prevent this correct, what Peter calls, “The real crash,” which is going to be much bigger than 2008. The Fed is approaching it by printing trillions of dollars at a rate that is impressive, it’s not even funny. I have a question in my mind then is, can the dollar survive all of the pressure that is being put on it to prop up the system? I don’t know the answer to that, but that’s what I’m paying attention to. The context for me is understanding from health crisis to economic crisis to financial system crisis the dollar crisis. How do I see that coming? How do I position myself not just to survive it, but thrive? The flip side of all chaos is going to be an opportunity.

Let me unpack this. You established some good bullet points that we can address. Let me unpack the first idea, which is important to identify. The system is going to operate the way it’s going to operate. As much as we think that things should be this way or should be that way, the economy, and society, it is what it is. There’s only so much you can influence. Back in 2008, 2009, whether things should have been set up a different way or shouldn’t have, that’s beside the point. It comes down to what are you going to do with what happened? There’s a similar environment where there’s a lot happening that’s outside of your control.

There is a lot that maybe could have been done to prevent it or should have been done, whether it’s from health or an economic standpoint, but that’s beside the point. It happened. You don’t have any influence over it. What are you going to do now? You led to what happened was people stopped, period. School, work, spending, the list goes on, the economy is based on spending. Businesses need money and revenue from spending to pay their bills, to pay their taxes, to pay their employees. That disruption has created a void, I would say, of capital enough to pay bills, service debts.

The Federal Reserve has stepped in and it’s been around the world too. Central banks have filled that void. Because they filled that void, things are continuing on. Hopefully, things open up and so forth. At the same time, there are some fundamentals that I don’t think most people are aware of. As we look at leadership and how our education system is to teach us that there are those that are smarter than us that we should listen to. I believe that there are a lot of, why is people at the head making certain decisions? Most people are just following. Let’s talk about the unintended consequences or what could potentially happen because the void is being filled with artificial money, artificial resources.

You talked about unintended consequences. You could leave off intended or unintended because it doesn’t matter, it’s just consequences. It’s cause and effect. About the financial system, I think of the old game I played when I was a little kid called Mouse Trap. In Mouse Trap, a chain of events would happen. You put the little marble in the chute and it would go down. It would hit the boot that would kick the thing and another marble would go. Anyway, it went through this whole convoluted process, cause and effect, until ultimately the trap came down on the mouse. When I look at the economy, it’s that way. One of the things that I spent a lot of time doing was understanding the way the system worked so I could begin to anticipate when I saw a trigger event, I could follow it up through the chain and have more advanced notice on what I thought was coming.

Way before the Coronavirus crisis happened, I go back to my friendship with Chris Martenson and Adam Taggart. Back in September of 2019 in my daily perusal of the news. I was looking for what I call clues in the news. I saw this thing happening in the repo market. I wasn’t that familiar with the repo market, but I saw that the Fed was injecting hundreds of billions of dollars into this thing called the repo market. I said, “I don’t know what’s going on under the hood, but there’s a heck of a lot of smoke coming out. Something’s going on down there.” I did a little homework on it. To keep it in layman’s terms, in short, the repo market is like a pawnshop for banks to take their treasuries, which are their assets, like you hocking a watch or a piece of jewelry when you’re short on cash.

They show up at the repo market and they give the pawnshop, the pawnbroker the treasury and they walk away with their cash. They go put their cash fire out and then they come back and buy back their assets. They don’t have to give the asset up. They don’t have to write it off on their financials, which is what that’s all about is doctoring their financials so that their insolvency it can be hidden. We could talk about mark to market and all kinds of things that they changed in order to hide. There are many things in the accounting system they use to hide the weaknesses in the financial system. You don’t know what’s going on, but if you watch for these clues, so that happened.

We called Chris and Adam up and said, “I don’t know what this means.” They said, “We don’t know what this means either, but there’s clearly something wrong.” There was a cash problem brewing. There was a banking problem brewing in September way in advance of this. My antenna was up at that point and we wrote a few newsletters. I talked about it and did a couple of shows on it. I’m not being an expert but encouraging people to pay attention to it. It started there. The other thing too is after going through reverse-engineering the implosion of the 2000 financial crisis, one of the things that I became aware of was the hypothecation of bonds and what derivatives were.

Warren Buffett famously wrote in his Berkshire Hathaway letter to his investors that he considered derivatives to be weapons of mass financial destruction. This was back in the late ‘90s, it was oppression. With that said, what it means is that people who are speculating in the bond markets, and the bond market is the largest market except maybe the currency market, but the bond market is ginormous and much bigger than the stock market. Everybody pays attention to the stock market. Few people pay attention to the bond market unless you’re a financial geek. In the bond market, prices of the bonds, the value of the bond is inversely correlated to the yield on the bond.

If I want to drive interest rates down if I’m the Fed, then I’m going to bid up the price of the bond. For real estate investors, that’s like bidding up the price of an income property lowers the capitalization rate. It lowers the yield on your investment. It’s the same concept. When you understand that people don’t buy bonds for the yields because the yields are nonexistent, in some cases worldwide, they’re negative. Why would anybody buy that? They’re speculating on the bond price because they know that the central banks are committed to driving interest rates down.

They’re front running the Central banks, knowing if I can buy a bond before a Federal Reserve bond-buying program, then I can turn right around and flip it to the Fed at a profit. You say, “Why would the Fed continue to push interest rates down?” It is much bigger than simply stimulating the economy, making it easy for already impoverished borrowers to borrow more. It’s more than about making money available to corporations to do stock, buybacks programs so that they can go to the stock market. It’s even greater than trying to simply supply and overspending federal government with gobs of money so that they can buy votes, pay for programs, and do whatever legitimate activities that they do.

At the end of the day, they are holding together the financial system. Here’s how that works. If I have a bond on my balance sheet, it’s my asset. If you’re the bond issuer, it’s your liability. It’s the same relationship people have with their banks. If you have a bank account, it’s your asset on your balance sheet, but to the bank, it’s their liability. They owe you the money. That gives you something called counterparty risk, which is rife in this system. You’ve got this asset on your balance sheet and you decide, you need some liquidity. Whether you go to the repo market or anywhere else, you can borrow against that. When you borrow against it, you do it using margin. Now I’ve borrowed against that bond on the margin the way you could on your stock portfolio. The problem you have is if the bond price goes down. Why would it go down? If interest rates go up, you get a margin call.

The margin call means that you either have to post more cash, which means you have a cash crisis, or you’re going to sell the bond at a loss. Take the loss on your balance sheet and show your insolvency. You’ve got to find a way to raise cash. A repo market is a place that you can do that. That activity in the repo market was like a warning sign, a canary in a coal mine that there were things going on in the bond market. The Fed is obligated to try to continually keep interest rates suppressed in order to prop up the bond markets where they get a repeat of 2008. The difference is the number of bonds, the amount of debt, and the number of derivatives in the system dwarfs what we had in 2008. Therefore, the impact of losing control of that would dwarf the impact that we felt in 2008.

I don’t have any way of knowing this for sure, but I suspect a lot of what’s going on is trying to figure out how to keep the bond market going because when they tried to raise interest rates, Peter Schiff predicted they’re not going to be able to do it. They’re in the monetary, “Roach Motel,” as what Peter calls it. The good news is especially for real estate investors, it means you’re going to be in an environment of low-interest rates for the foreseeable future. You need to be able to use debt to make money. That’s a whole investment strategy in and of itself.

It means that if you’re a saver if you’re investing in hoping to get a yield on your savings, probably going to end up being a loser. It’s why Robert Kiyosaki says, “Savers are losers.” There’s a lot there. The main concept to understand is to pay attention to the bond market, understand the inverse relationship between interest rates and bond prices. The pressure on the Fed in many areas, but mostly in propping up the financial system. It’s got to keep those bond prices down or bond yields down to keep the bond prices up. They have to print money to do it. A lot of pressure on the dollar.

TWS 47 | Financial Crisis

Financial Crisis: Residential real estate is a great place to be because people will always need a roof over their heads.

 

This is a worldwide phenomenon. It isn’t just the United States problem. Some of the reactions and that impact on real estate in general, which I think is the only tool that the governments have which is to continue to push liquidity into the system, money into the system. It’s in the form of a stimulus check to people, so they can pay their bills. That’s most likely going to continue with multiple stimuli. If that’s the case, interest rates are going to stay low. At the same time between mid-February, March maybe, going into the summer, the disruption caused many businesses to struggle as well as people. That impacts whether they’re rents, mortgage payments. Let’s talk about how the disruption it has caused some challenges when it comes to people being able to serve as debt or to pay landlords. It ultimately is going to impact real estate prices and create opportunities, but also some reshuffling of resources where some real estate may not be as valuable as it once was given the disruption.

There’s a ton there when most people think of real estate, especially people who aren’t in real estate as investing. They think about houses and apartment buildings. That’s the easiest thing to talk about to start with, but retail was already in huge trouble with the Amazon effect. Things going on there, it was a boon to industrial with warehouses, distribution centers, and markets that supported that. There are always winners, there are always losers. There are shifts sometimes. When you look at residential, it is a great place to be because people will always need a roof over their heads. Either they’re going to own the property or someone else is going to own the property. These people get poorer, the probability is that someone else is going to own the property who’s less poor and going to have some mechanism by which to generate income, getting a share of that worker’s productivity.

Rental real estate, income-producing real estate, residential real estate, all are predicated on jobs. I had the chance to interview Donald Trump, I only got a chance to ask him one question. When he was running for president, we were at Freedom Fest. I asked him, “Mr. Donald Trump, a lot of people look at what happened in 2008 and the financial crisis lay that at the foot of the Fed, monetary policy and government policy. What does a healthy housing market look like in a Donald Trump administration?” He gave me a one-word answer, “Jobs.” When he got into office, that was what his emphasis was on jobs. That was his big claim to fame was jobs, “I’m going to bring manufacturing back to America.” Every rally was jobs. We just lost 30 million-plus jobs. To your point, some of those are never going to come back. Human behavior has altered permanently. People have discovered they can work at home. If I can work at home, why do I want to pay $5,000 a month for a 400-square-foot apartment in New York City, if I can go live in Central Florida in a nice house, on the beach, in the sunny weather and do the same job?

There are going to be markets that are winners and losers. Landlords that are going to be winners and losers. One thing about real estate is it’s not an asset class, it’s not a commodity. It’s not like gold, currency, or oil where there’s one price for the same product universally around the world. Every property, neighborhood, ownership, and financial structure is unique. Because of that inefficiency and uniqueness, real estate is a lot more art than it is science. That’s what makes it fun. There are going to be gobs of opportunities, but there are also going to be problems and it’s all going to be predicated on the disruption of income. We have enhanced unemployment. We have helicopter money, direct infusions of cash, although you’d make the argument it’s not much. You have the Paycheck Protection Program, which is designed to keep people employed and cashflowing in that regard.

Forgivable loans and all the bad debt now with the Fed stepping in buying local bonds, muni bonds, and ETFs. In addition to treasuries, a whole lot of other things they’ve been buying any way through proxies behind the scenes cropping up the stock market. Mostly for optics because a lot of people look at the stock market as a proxy for the economy. The stock market isn’t bad, therefore, the economy is not so bad. That’s not true, but that’s the way people feel. The people in power understand how to manipulate the optics to create the scenarios they want. In this day and age, because of technology and guys like you and me being able to get out there and have a conversation whose voices would never ever be heard.

The financial system is going to behave the way it’s going to behave. We have to accept it for what it is to navigate it. Click To Tweet

If it was mainstream financial media were our outlets, there are more people informed about what’s going on and alert. It’s harder to manipulate the optics, but you do have to avail yourself of what’s going on. Residential real estate is going to get a lot of attention from the government. Protect the resident level forbearance agreements. Last time in 2008, when everybody started to default, the banks are dragging their feet. Nobody wanted to take the hit. They were all afraid. Now, there have been many changes made to the way the banks report from the market. I talked about that activity, the repo market, and the Fed overtly. We’ve got your back, we’ll buy anything that you have so you can stay solvent.

It means that the banks are okay, and the government is stepping in right away with forbearance, anti-eviction, providing a paycheck, subsidies, subsidizing loan servicers, and propping up everybody in the food chain from Main Street to Wall Street. That even though it’s scary and you have to pay attention, there are going to be disruptions. You also, to a large degree, have the wind at your back when it comes to residential real estate because people always need a place to live. Politicians, industry, and bankers are all highly motivated to prop it up. I don’t even know exactly what that’s going to look like. To your point, they don’t always hit what they’re aiming at. However, you can be assured that you’ve got a lot of folks on your side if you’re in that space.

It remains one of my favorites in this environment. You’ve got to look at the specific deal, feel the specific market, specific management team, specific financing structure against the backdrop of your own specific financial situation and how much risk you can bear. There are going to be some bargains available in the next many months and years. It’s a good time to be aggregating capital and building your team and your knowledge. Whether you’re going to be a hands-on direct investor where you’re going to look at properties, cut your own deals, or work through your team. If you’re going to be a passive investor, buying into portfolios that private syndicators put together, which is like buying a mutual fund of properties, but you’re not buying through Wall Street. You just buying through private individuals. We have a lot of people in our world that do that. We think it’s one of the great business opportunities in all of the business, but especially in real estate.

What’s your litmus test for making a decision? Because we have biases, we try to gain a lot of insight and information to reinforce that. Everyone has a blind spot. Feasibly, the Fed could continue to print around the world and we can get back on track. You look at that being another perspective and bias. When it comes to what you had said, which I agree with, that the shift in employment where businesses are learning how to work remotely and they were forced into it. I would say experiencing a lot of success.

Some success, from what I’ve heard, and that is going to put in jeopardy potential, local markets, especially when they’re not climate-friendly. When you have harsh seasons where you can potentially move to a nicer climate. With all that being said, there are many different variables that could lead to potential opportunities. Is there a litmus test that you use to identify an opportunity and then subsequently do due diligence in a specific way, to ensure that what’s being pitched to you is in fact as much truth as possible? Their truth is to sell you the deal but to have enough truth in there, enough details, facts for you to make a wise decision.

I don’t know if I have a litmus test. I have a methodology. Robert is the host of the Real Estate Guys Radio Show. We teach a lot together. We’ve invested quite a bit together over the years. Our basic approach, number one is you need to develop your own personal investment philosophy. You have to figure out what it is you are trying to accomplish, what you’re willing and not willing to do in order to get there. That’s done based on your life experience. It’s done based on looking at other people who’ve had success and failure. I learned a lot more through my 2008 failures and all my successes leading up to that. It’s interesting because I forgot. I had mentioned my one question of Donald Trump, but I had a chance to interview him the first time in Iowa before he was a candidate. I asked him that exact question, “Mr. Donald Trump, you’ve seen good times and bad times. What did you learn in the good times? What did you learn in the bad times? If you decide to run for president, how will that help you?” He didn’t answer the last part of the question, but in the first part of the question he goes, “I didn’t learn anything in the good times, but in the bad times, I learned it’s always good to have a little cash.”

I took that to the bank literally because it is important always to make sure that you have a little cash. Anyway, you come up with your personal investment philosophy, “Am I looking to grow my capital? Am I looking to preserve my capital? Am I looking for the production of income? Am I looking for tax breaks? Am I looking for privacy? Am I looking for lifestyle?” There’s a way to invest in real estate for lifestyle. You can buy properties that you’d be happy to live in, vacation in, and rent them out when you’re not using those. There are lots of ways to approach the game of real estate. That’s number one.

Number two is whether you want to be hands-on or hands-off. That’s an important decision to make. Regardless of how you choose to do that, once you’ve got it figured out economically, you’re looking for geographic marketplaces, first of all, product niches, and then demographics. When I say the word market, I don’t just mean geographies, I mean product niches and demography also, in other words, people. For example, if you believe in the Baby Boomer generation and you’re like, “The Baby Boomer generation has been an economic driver for all kinds of industries as they’ve gone through the cycles of life.” That begs a big question, “What cycle of life are they in now?” It’s healthcare.

We have a mutual friend who teaches people how to create residential assistant living facilities, nursing homes. Not big ones, little ones, in homes. If you followed what’s been going on in the news, all the big homes are coming under attack and they were being told it’s safer because of this virus to be in smaller homes. If you’re investing in the big boxes, that’s a loser. If you’re investing in the small ones, that’s a winner. Winners and losers always. There’s a lot of people look at the Millennial generation, which is even bigger than the Baby Boomers. I want to cater to that generation. They have challenges with student debt and jobs things like that. If you focus on affordable housing, a certain lifestyle type housing that appeals to Millennials.

You get the idea, so you’re going to figure out your market. You want to figure out geography where you are going to have good economic drivers more than one. Back when shale oil fracking and all that was the rage before we overproduced and oil prices crashed. It was not oversupplying, it was a collapse of demand because of the shutdown. Be that as it may, the markets that are primarily dependent upon oil and oil production, as the oil prices crashed, they didn’t have another leg to stand on. They were a one-legged stool up in North Dakota and places like that. We never got involved in those markets because they weren’t diverse enough for us.

You look at the market next, then you look at the team. If you’re investing in the production of income over a period of time in a market, the most important person on your team is your property manager. That’s the person who’s responsible for producing the income and whose income, if the compensation structure is correct, is directly indexed to the performance of the property. Now you have aligned interest. You don’t have a broker who’s trying to sell you a hyped-up, glossy pitch deck and get you to buy. Then they move on with their fat commission and you’re left holding the bag.

I liked to work with property managers. Once I picked the niche in the marketplace, I work with property managers to try to figure out who I am going to hire to manage the properties. I ask them what markets and specific neighborhoods I should be in. I had them help me find the property. Now, I’m getting someone. I can always find it a broker to represent me. A lot of times they’ll have relationships, but I think property managers. There’s a lot of talk about unsung heroes of frontline heroes in different industries after 9/11, it was the first responders.

The Coronavirus, it’s the healthcare workers. In real estate, it is the property managers. They’re the unsung heroes. You focus on that. That’s the approach. The financing approach in nowadays environment. Could interest rates go lower? They could, but I don’t think they can go lower. Locking in long-term financing is a smart move. If you borrow long and cheap to control an asset, it’s likely to be the beneficiary of inflation, we may get a little deflation to start with. It may drop before it goes up. The long-term history based on the economy is built on and the way it’s operating. The people are pulling levers. Like the book says, “Equity happens.”

Over time, prices are going to go up. If you fix in that dollar for the long haul spread between what it’s worth in dollars, nominally worth, not in utility. It’s still going to be a three-bedroom, two-bath. Nothing’s going to change in terms of how useful it is, but it could go from $50,000 to $500,000. If you bought that with a $40,000 mortgage, the inflation makes the debt atrophy. It makes it go away. People don’t realize that when it comes to a potentially inflationary environment, the safest best investment you could make is leveraged real estate because you acquire a cheap long-term debt fixed. You secure the rental income to service the debt. Tax breaks to mitigate especially with nowadays’ Tax Code and the bonus depreciation.

You only have a fraction of your own money, maybe 20% 30%, which means you could endure a lot of deflation before you take a hit, as long as you don’t lose the property. Even if you bought a property for $100,000 now, 30 years from now, it was only worth $50,000. If you put $20,000 down and the tenant paid off the mortgage, at the end of the day, you still own a $50,000 house in 30 years. You’re up in dollar terms. More importantly, in any environment at whatever price point, a home that’s paid for that’s generating rent is a real valuable asset. Real estate works in this environment, but you do need to be careful in your market selection especially in your team selection and your financing structure.

TWS 47 | Financial Crisis

Financial Crisis: Think about what you want to do with your capital and decide on your personal investment philosophy.

 

The philosophy of three-bed, two-bath goes to three-bed, two-bath in a home office. That maybe is a point for another conversation.

There are a lot of opportunities in that regard as you could make the argument in some neighborhoods. There’s a lot of opportunity in one-story houses because Boomers can’t climb stairs. This is you get to understand how your customer uses property and what they need from it. Giving them what they need. To your point, from internet connectivity to workspace or workout space. I live alone and I have a five-bedroom house, but I have a studio in one room, an office in another room, a bedroom in another room. I have a den or reading room, and then I have a guest bedroom because I have a family that comes to stay with me. Then I have a big loft area where I have a gym. I can live a lot of my life productivity in my own home. It doesn’t feel like it’s a big house for a guy living by himself. There are a lot of things going on it. There’s going to be more demand for folks to have more space, which is a trend is shifting, a little bit from where we were headed prior to the Coronavirus.

All real estate is appeasing demand. Demands, tastes, preferences, they’re always changing. Keeping a pulse on that is important. One thing I wanted to pick your brain on. Going back to 2008, 2009 and I’m assuming that some people that are reading now, there are properties they do own that may not be able to weather this storm. Even though there may be liquidity in the bank account of the investor, how do you approach vacancy? How do you approach when you decide to either supplement the mortgage with your income, with liquidity, or maybe the property is it’s time to let it go? I’m assuming similar decisions are going to be made now. What would you have done differently if you were to go back during that period? What would you recommend based on that experience to those that are going to potentially face out in the future?

First of all, you want to make sure you have adequate liquidity. I had none, I was 100% dependent upon healthy credit markets across everything. I brokered debt to generate income. When credit markets collapsed, I had nothing to sell. I operated my business on my credit lines. When those credit lines got shut off through no fault of my own, just banks limiting their risk and a collapsing credit, all of a sudden, I lost operating capital. That limited my ability to shift the focus of my business and develop income streams. On a personal level, I had a lot of credit card debt. I was carrying a lot of debt because I felt like paying it off. I had higher-yielding uses of capital. Putting it in a business, putting it into properties. It all penciled on paper. Businesses do a thing called a SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats.

Every prudent investor should do that. It’s one of the things that I learned and would have done. I wished I would have done is looked at everything I was doing and do a SWOT analysis. It would have helped me see the things that I had to work on with, so that when the stuff hit the fan, instead of being in panic mode. Blair Singer says, “When emotions run high, intelligence runs low.” When you’re panicked, your brain freezes. I could not see all of the resources I had available. All I can think about is what I didn’t have and what was going wrong. By the time I woke up out of the fog, some of my assets had atrophied or been completely lost. I wasn’t able to react, not because I didn’t have things to work with, but because I didn’t have the mental capacity and the emotional strength or the right advisory team to help me see it, so strengths.

Weaknesses, you always want to be aware of your weaknesses. You want to be aware of your individual weaknesses as a person. Your weaknesses in your personal financials and your portfolio. If you have your own business and if you have a job, that alone is a weakness because you don’t have control. One of the most resilient things you can do is at the least create some type of side hustle. Give some serious consideration in figuring out of how to start a business that you want to control or more than one. That is a whole art unto itself. Be aware of your weaknesses. You want to do that for each and every property on an individual basis. You’re going to look at the market, you’re going to look at the team, you’re going to look at the demographic you serve and you’re going to look at the financial structure. Ask yourself, “Is this a strong property? Is it a marginal property? Is it a dangerous property?”

The flip side of all chaos is opportunity. Click To Tweet

You want to know to clear the deadwood. You want to, in a market like this, jettison your marginal properties and then reinforce your stronger properties. Better to only maintain 20% or 30% of your portfolio than try to hold onto 100% of it and lose 100% of it. That was one of the other things I did. I tried valuing to hold on like a lot of stock traders do. I traded stocks for a little while and studied stock trading. I don’t advocate it as a way to make money or to maintain certainly. It’s great for understanding investor emotions and experiencing investor emotions. I had 37 straight consecutive winning trades, but the 38th trade I could not take the loss. I could not admit that I made a bad trade. I wrote it all the way down to the bottom. I lost way more money than I should have. It was simply because of my own pride and unwillingness. As long as I don’t sell, I haven’t taken the hit. Robert calls this zero-sum thinking.

When you look at your portfolio, whatever you’re doing, you say, “If I didn’t already own this, would I buy it now? If not, then why are you keeping it?” Sometimes you are holding a position because you say, “It’s going to come back.” The shortest path to coming back might be a different property, a different market, maybe a completely different investment or investment strategy. You got to keep an open mind to using what the market will give you. Strengths and weaknesses, that transitions into opportunities. Opportunities are a combination of what the market is giving you and what you have to work with. That’s how you do strategy. What’s available to me both that I have control over and things that are available to me that I can get in the marketplace?

Threats are things that are directly glaring up. I have a process when threats rear their ugly head. The first step is triage. I’ve got to stop the bleeding, nothing matters. It’s urgent. The first priority is anything having to do with survival. The next thing is rehab, which means I’ve got to patch things up and get a stable base. I can’t get stronger until I reinforce what’s going on. I got a property, for example, that’s bleeding out. I’ve got negative cashflow. I’ve got tenancy issues. They’re trashing the property. I’ve got a big problem. I got to go in and step in right away. I got to get the problem tenant out. I’ve got to patch up the property right away and secure it to make sure that I don’t have squatters or anything going on. I got to do rehab, which is, how did my property manager let this happen? I got to replace that property manager.

Now I can get to phase three, which is strength and conditioning. If you’re strong like with this Coronavirus if you’ve already been paying attention to your immune system, your nutrition, your health, and you’re a sanity protocols and whatnot, you’re a lot less at risk than a person who hasn’t paid attention to any of those things whose lifestyle is inviting of health issues. I hope a lot of people will be cleaning up both their financial areas as they go through this, as I certainly did after 2008. The others are also going to clean up their health issues. We’re learning a lot of lessons. That’s one of the things that I would have done differently and I’m doing differently now.

It’s interesting the relationship between opportunity and emotion. In many respects, there’s an inverse relationship where the biggest opportunities come from when there’s the greatest amount of fear. The most amount of euphoria or excitement is when there’s the least amount of opportunities. It’s an interesting relationship. I would look at it of unpacking one of the things that you said, which is during that period of time, there’s going to be an emotional reaction. Oftentimes, emotion leads to bad decisions and increasing information, education, as well as perspective will help mitigate poor decisions. It goes both ways because there may be those that have liquidity going into this a downturn and there are going to be opportunities that present themselves.

It could be a retail strip mall they’re trying to sell for $0.10 on the dollar. Because it’s $0.10 on the dollar doesn’t mean that you should invest in it. There are going to be opportunities when it comes to making good decisions with current investments that may go sideways, but also opportunities to pass on a deal. Even though on the surface it may seem a good deal based on principles and variables of the past. Do you also see that potential coming where I saw a lot of people make good decisions in 2010 and 2011? What an incredible time to buy. I also saw a lot of bad decisions.

If you study failure, which I think you need to, then you begin to understand how those things happen. Nobody sets out to fail. I certainly didn’t. Nobody constructs a life to be weak and vulnerable, but yet people do it all the time. They don’t take care of themselves, don’t take care of their finances, don’t take care of their relationships, don’t take care of their business, don’t take care of their property. The list goes on. I’m guessing the type of person who’s read this far into a program like this is probably not in that camp. They’re investing time. Pay attention to what’s going on. The two investor emotions are greed and fear.

If you’re driven by either one, a greedy person will charge in and they will see nothing but sunshine. They will go after the opportunity with reckless abandon. That’s the operative word of a reckless abandon. End up getting in over their head and having a problem. A fearful person will sit on the sideline waiting for everything. Conservative people tend to be that way. In some ways, that’s the greater danger because it’s easy if you get in over your head to find people who can help you. It’s scary but you can find people that can help you. There are a lot of fixers out there. A lot of times, the problems you’re having seem overwhelming to you because of your lack of experience or access to resources.

Whereas an experienced investor would come in like, “We can handle that.” Remember the first time I was having a financial meltdown, my dad came and he looked over all my finances and he’d already gone broke in the 1987 stock market crash. He says, “You still have a lot to work with.” It was just a perspective. I couldn’t see it. I was hitting the panic button because that stock trading trade I did was a big one and I got it all wrong. I thought I was going to have to sell my house. I freaked out. When you are in over your head, you can get help. The challenge about when you’re sitting on the sideline in isolation, there’s a lot of that going on now, waiting for the smoke to clear, there’s nobody available to help you.

There’s nothing to fix except what’s going on between your ears. You won’t know that you’ve made a mistake until you go out and you can’t buy anything that’s worth buying because all of the buyers have already done what they do. Here’s what’s going on. The way a bottom gets put in a market is the brave and the bold, the aware and prepared, the experienced, and equipped. The people that have the right teams, step into the market and they begin to go bargain shopping. The act of snapping up those bargains bring the stability that you’re waiting for. By definition, it means all the bargains are picking over by the time you get there.

Warren Buffett famously said, “Buy when there’s blood in the streets.” You’re not being a vulture. You’re being a white core puzzle. The problem exists with or without you, you’re not capitalizing or victimizing someone. You’re often solving a problem because people who were selling because they don’t want or can’t handle the property for whatever reason, it could be mental, emotional, relational, financial. It doesn’t matter what it is. Their problem becomes your opportunity. Some people are wired that way. This is not easy.

The only tool the government has against this crisis is to continue pushing liquidity into the system. It’s not going to work. Click To Tweet

You can’t sit in your crib with your trading app and just order up real estate. Even though people are building online marketplaces, one of the biggest mistakes is taking a look at a property on an online portal. Having never met the market, not knowing anything about the team, buying it because the numbers make sense based on some YouTube video. They will watch how to do a financial analysis and then they buy it. They go looking for a property manager. They start trying to understand the market that they bought in. They do everything backward.

It starts with personal investment philosophy, market, team, property. A lot of people start with the property and then figure out the rest. The problem is by the time they get the first personal investment philosophy, they’re there because it’s been painful. They’ve discovered all the things they don’t like and can’t stand. Sadly, a lot of people will walk away from real estate. I have to confess after 2008, I was a little sour here. I’m a real estate guy, wrote a book on it, Equity Happens, and how great real estate is. I went and reread the book, making sure that we weren’t pitching snake oil, but it’s still penciled after the fact.

My problem wasn’t what we wrote. It’s what I did knowing what to do and doing it. There are lots of people who aren’t at their idea of weight. It’s not because they don’t know what to do, it’s because for whatever reason they aren’t doing it. It was the same thing as me. I knew what to do, I for whatever reason wasn’t doing it. That largely had to do with split focus and arrogance and thinking that I could make more money and in business than managing my properties. Anyway, the mistake is to sit on the sidelines. Now are the time and I commend everybody who’s made it this far into this monologue or this epic discussion.

It’s good. Now is the time to be investing in your education. It is time to be investing in your network and getting plugged into people who are already doing the thing that you want to be doing. There are clubs or mentoring programs you can join. None of those things should cost you money. They should make you money. You might have to front a little bit of money till you get up to speed and get going. Their investments like any professional education, the intent is that you’re going to make money, but this is a relationship business.

Once you’re plugged in and you have your finances in order, you’ve worked through your investment philosophy and you’ve got your team in place, and you’re starting to understand markets and product types and all that stuff. Your relationships are going to be the people that are going to get you into deals. You’re going to be active. You’re going to need more education and a different kind of education. If you’re passive, then you need to understand what it is to be a passive investor. You need to start looking at some offering documents. Understand how to understand the risks. They’re all in the prospectus. A lot of people buy stocks and they can handle prospectus. Both of us know, nobody ever reads them, but they should.

When you get a private placement, a real estate syndication, for example, you’re going to get handed a subscription agreement. Part of that in the subscription agreement, in your offering documents for private placement memorandum is going to be sobering, explanation of all of the potential risks. Remember, you’re not looking for a reason not to do the deal. You’re looking for reasons to do the deal, but you want to go in there, eyes wide open. Sam Zell is one of the most iconic, real estate investors ever, much bigger than Donald Trump and not a controversial figure, at least not in the same way Mr. Trump is. Sam Zell wrote in his book, Am I Being too Subtle?, that the thing he attributed his success to was not his ability to see the upside. He goes, “Everybody sees the upside. It was my ability to see the downside and still move forward.”

The marketplace is showing everybody a lot of the downside. Your ability, my ability to be successful isn’t going to be to sit on the sideline and wait for things to stabilize. It’s going to be to see the opportunity and the risks and find a way forward. You’re going to do that through education and other people. Don’t camp out on the internet while you’re sheltering in place. Try to find ways to join virtual or God forbid, risk your health and go out and get in some real-world conversations, get together with some folks and get connected. It’s a fun community. If you get into the right tribe, we build those. I know you put on events. You’ve been at many of our events. The kind of people we attract and what we do. We’re not giving up on the event side of our business or getting people together.

We’re taking a time out and we’re doing more virtual stuff, but the concept of tribe is super important. That’s the season we’re at now. There’s a lot more to learn, but you got to pay attention. This is a slow-motion train wreck. It doesn’t mean you have to be run over by it or injured by it. You need to know what’s happening because when the collision occurs, there are going to be parts and pieces and things flying all over the place. You want to make sure that you’re not in the path. A few treasure chests are going to crack open and you can go bargain hunting too. That’s part of the reason we like to pay attention.

TWS 47 | Financial Crisis

Financial Crisis: The shortest path to coming back might be a different property, a different market, or a completely different investment strategy. Keep an open mind to using what the market will give you.

 

Your mission statement is, “Education for effective action.” You look at the environment in which we operate, summarize what we’ve been talking about. It’s an environment that we can’t control. There are lots of things that are going to happen. Ultimately, we can control what we do, our actions. I look at something I learned but understood it didn’t necessarily implement. There’s no such thing as a perfect deal and pass a certain point, trying to get more information and have more, “This detail has to fit,” only increases the benefit marginally. It comes down to having more pros than cons.

Also having multiple perspectives, which is a good benefit from having a tribe, having a network and having different perspectives in this information age. Let’s end with that. How do you balance your perspective? You’re in the thick of real estate. You have the longest-running podcast radio show focused on real estate investment of anyone. You have a certain perspective that has been added to by multiple perspectives. Who do you continually follow and pay attention to that helps you have a different supplementing perspective that helps you grow and learn and be clearer about what’s happening so that you can take effective action?

I’m a student first. I have a huge library and I read every day. I budget an hour every morning, from 5:00 AM to 6:00 AM to read. I do that when I have an uncluttered mind. Enjoying my coffee gives me an excuse not to have to get up and get going. That’s part of it. I listen to podcasts, many of the people that I’ve become friends with because I find people through different mechanisms or books or podcasts. We then seek them out. We leverage the fact that we have this show, as you do, to talk to people. We both host and participate in mastermind groups, on various topics both business and investing. We do our annual Investor Summit. We’ve been doing it now. This will be the eighteenth year. Normally, we do it on a cruise ship. We’re not sure that’s going to happen this year. We’re still cautiously optimistic, but it’s uncertain. We’re supposed to be leaving in a few weeks. I don’t know, we’re going to see. Somehow, someway we will get together.

I was on a call with a mutual friend, Richard Duncan, who wrote the book, The Dollar Crisis. We were talking about life from his perspective. I’m going to be on the phone with Brian London, who’s a gold expert and runs a New Orleans investment conference. He’s a plugged-in guy. I’m sitting here talking to you and you have a perspective, I mentioned Chris and Adam, I’ve done webinars for them. We do some joint stuff together. They have a way of looking at the world. It goes back to using what you have, whatever you have. It could be the ability to write a check and pay to be part of a club. It could be if you have a show or some outlet where you can talk to people if you have time to read.

Most of us have something we can work with. Try to find a way to put good ideas in your head and then try to get into conversations with other people that are interested in the subject matter as well. Even if it’s the blind leading the blind, concentrate on what the author, the podcaster, or the video host is saying. Talk about it and process it. That’s a way to learn. If you can get somebody who’s got some professional expertise or real-world experience or whether it’s a CPA, an attorney, a 1031 tax-deferred exchange guy.

In bad times, it’s always good to have a little cash. Click To Tweet

Somebody that does infinite banking or mortgages, bring them into the conversation whether those are conference calls or Zoom calls. Eventually, you could start your own investment club. We did a white paper. You send an email to Club@RealEstateGuysRadio.com. We’ve been putting together investment clubs for a long time. We’ll send you a free white paper. You can look at it and figure out how to start your own investment club. Tips and tricks from guys that have done it on how you can start one on the cheap. Grow it, have it be successful and begin to attract people into your world.

The point is to do what you can do. I have a saying, “My dedication is to be diligent about doing the things that I can do so that I am best prepared to handle the things that I can’t control.” In other words, be diligent to control the things you can control so that you are in the best position to react to the things that you cannot control. There are so many things that you cannot control. There are only a few things that you can control. The good news is if you focus on them, you can control things. The idea is you put in your head the people you hang around with, your self-talk, and your emotions.

What happens on your balance sheet, in your physical body, in your environment, you can control all those things. Those things will help you react better when there’s a Coronavirus crisis, an economic shutdown, a financial market collapse, a banking crisis. The list goes on and it will never end. This is not the last crisis. Certainly, not the first. It’s going to continue to happen. It’s part of being alive going from crisis to crisis. Don’t withdraw, lean in. There is an opportunity on the flip side and going through all these problems. Your mission is to try to figure out which opportunities are for you. Who you need on your team, what you have to work with to make it happen, and then never to put all your eggs in one basket? It’s to take reasonable risks that you’re aware of the threats.

TWS 47 | Financial Crisis

Equity Happens: Building Lifelong Wealth with Real Estate

You have a mitigation strategy so that if we have a fire, I know to run out this window or this door. If somebody breaks in the house, I know where the phone is and how to call 911, or maybe where the weapon is or however you choose to defend your home. Have a plan A if everything goes great. Have a plan B in case certain things go wrong. Try to anticipate as much as you can. To your earlier comment, understand there will always be an unexpected event that nobody saw coming that you couldn’t plan for. The best you can do is have some liquidity, have a great tribe, have some stability in your financials especially avoiding counterparty risk is one of the things that I’d be concerned about.

That way you may lose a piece of your portfolio, but you don’t lose a whole thing. Be ready for inflation, be ready for deflation, be ready for a banking collapse, be ready for hyperinflation. Be ready for high taxes, be ready for high-interest rates. None of those things may happen, all of them may happen, we don’t know. Something’s going to happen. Think it through, be ready, and have people on tap that you can tap into when you’re not sure what to think. If you make those investments now, then I think your future is bright come what may. I encourage you to do that.

There’s been so much we’ve covered. Russ, thank you. It’s always amazing talking to you and I definitely learned a lot.

I appreciate it. I’ll make it easy for everybody and makes it easy for you. They can send an email to WealthStandard@RealEstateGuysRadio.com. You get a quick autoresponder with the latest copy of our newsletter and links to everything that we do. That is if you’re interested, if not, then unsubscribe and no harm, no foul.

We’ll have to do a follow-up as things unfold.

I look forward to it.

Thank you for reading my interview with Russell Gray. He is an amazing guy and hopefully, you can follow the Real Estate Guys Radio Program. It’s an incredible podcast. They have awesome guests on. They’re insightful in the way in which they analyze things. You will get much value out of following them. Russ also writes his newsletter, which is also incredibly insightful, somewhat comedic. It’s informative and I believe you get a ton of value from it, plus it’s doesn’t cost anything. That’s it for now. Thank you for your support.

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About Russell Gray

TWS 47 | Financial CrisisRussell Gray is co-host of The Real Estate Guys™ Radio and TV Shows. He has been a financial strategist since 1986. As a faculty member for the California Association of Realtors, Russ taught Real Estate Finance to Realtors® pursuing the prestigious GRI designation. He is a popular speaker and author.

Robert and Russ have co-authored the very highly rated book “Equity Happens: Building Lifelong Wealth with Real Estate.”

 

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Creating Value During Times Of Crisis With Garrett Gunderson

TWS 43 | Creating Value

 

 

Today, more than ever, we all need to learn to create value for ourselves instead of relying on the system to work for our benefit. We need to rethink how we align our personal finances to achieve genuine happiness. For Garrett Gunderson, societal agreements anchored on materialism and consumerism are what hold us back from creating real wealth for ourselves. A keynote speaker, bestselling author, and the Founder of Wealth Factory, Garrett joins Patrick Donohoe in this episode to talk about what truly makes us valuable as human beings and how we can make our finances work towards that end. On top of all that, he also gives sound and practical financial advice to everyone as we brace ourselves for the inevitable economic impact of the COVID-19 crisis.

Watch the episode here:

Listen to the podcast here:

Creating Value During Times Of Crisis With Garrett Gunderson

My guest is a great friend. His name is Garrett Gunderson. He’s the Chief Wealth Architect at Wealth Factory and the author of Killing Sacred Cows, a New York Times bestseller. He also co-wrote What Would the Rockefellers Do? and The 5 Day Weekend. He is also a contributor to Forbes. I’ve known Garrett for a long time. He’s been on the show before. Knowing him for the better part of several years, I wanted to have him here to discuss what he’s seeing and his perspective is regarding the current state of the economy, where it is going, what he is hearing, seeing, and listening to? I was also curious about our response to some of his more controversial videos as well as Forbes articles. It’s a great episode. You are going to enjoy it. Make sure you visit Garrett’s website, WealthFactory.com. He also has a great YouTube channel, YouTube.com/garrettgundersontv.

Garrett, what’s up? How are you doing? 

I’m glad you’re still talking to me after I brought you to my house to work out.

I still think about that. Coincidentally, I haven’t had much of an extreme response to a workout because I got into biking. I crashed my bike coming down to City Creek Canyon. The good memories are the most painful.

One of our mutual friends I went with, I did the Wasatch Crest with Garrett White and I broke my elbow on that. I got a concussion.

We’ve got to get this story about the workout. We live close to each other and I don’t even know how it happened. You’re like, “You should come and work out at my house.” I’m like, “Alright.” I go to your house and you have this amazing set up in your basement and then you have this big blackboard. It has times on there and apparently, there’s a challenge.

It’s 60 seconds because it sounds easy when you say 60 seconds.

It’s 60 seconds of Airdyne which is those bikes that have a fan on it. How many calories do you have to do, 30 in 60 seconds?

Thirty to you get a shirt and 40 to be on the elite side of the board.

I have no idea where I landed.

You got a shirt, right?

TWS 43 | Creating Value

Creating Value: We live in an extraordinarily consumerist and materialistic society. The reality is that most of that doesn’t bring genuine happiness.

 

I got the shirt.

It wasn’t worth it but you got it.

I think it was worth it. It’s a good memory. We’re talking about it. I found myself almost passed out on your floor, your dog was looking me in the face and then I had to use the toilet. It was a great experience. Thanks for having me over. I appreciate it. We should do that again.

We are taking it a little easier these days with workout so there’s a lot more pleasant. We realized we didn’t have anything to prove and being sore all the time. It didn’t make a lot of sense. We do some functional stuff and we take it easy.

Anyone that comes in works out at your house, it’s the nature of a challenge. They’re going to do anything you tell them to do.

I did that at 2,000 higher elevation on an Echo Bike, which is worse. It’s a little bit harder and beefier. I couldn’t talk to people for twenty minutes and then when I finally spoke words, I said, “It wasn’t worth it.” That was my final comment.

Garrett, it’s awesome to have you on again. I know you’re on a couple of years ago and I have tremendous respect for you with what you’ve done with your career and your business. As I mentioned, you’re always pushing limits and trying to understand the economy, life, business, and then communicate that to others. I have tremendous respect and admiration for you so thanks for what you do. We live in a gnarly time. We were talking about how the last months have been crazy from the standpoint of change. What’s been your experience through the last couple of months? What do you find yourself observing the most?

The good part of it is my kids are listening to me more. I’m able to use the concern or the so-called crisis as a way to heighten their attention and talk about why they are afraid. If they are afraid, where does that fear come from? Is it in the present moment? Are they worried about the future? That’s been profound that we’ve been having these weekly family meetings, talking about our family mission statement and our values. I’ve bonded especially with my youngest son during this time in a deeper way. That’s been the good side. The bad side is, I called a family member and they work with hospitals and they research this stuff for 6 to 7 hours a day. The level of concern, fear and frustration. I’m like, “It’s time to change the narrative.” I don’t think it’s healthy to let the media control the narrative because their job is to be profitable. When we get clear that that’s their job, they’re not always using headlines that are accurate.

I stopped reading things about COVID for two reasons. One, the governor of California said within 30 days they were going to have 22.5 million people infected. The second thing is I read an article out in New York where it said it was an apocalyptic sight. Using the term apocalyptic is fear-mongering and there’s no doubt there are deaths. There’s no doubt that there’s this COVID and it’s tough on people to get it tougher than the flu. I went to Utah’s website and they have Utah COVID website and they said, “For every person that’s reported, there are 5.5 people that have it.” I want people to extrapolate one thing that it’s the same death rate as the flu if that’s true. If we’re only reporting 1 in 5.5 and we’re looking at the percentage like 6% death in the United States. If we look at that 5.5, it takes it down to less than 1% so it’s real. I admittedly have flown and it felt good.

I wore a P95 mask. I take those precautions especially for other people that are in my family. As much as it was quiet and sparse at the airport, I felt good. I went to this place 200 acres in Nashville, everybody’s out playing and we built a fire. If you could find a way even if it’s isolated, get out somewhere in nature and reconnect because nature has a parasympathetic context to it. When we’re in a sympathetic state, it’s fight or flight. When we’re in parasympathetic, that’s where we do a lot of healing and relaxation. This has created a lot of chronic stress and that chronic stress has people a little bit more agitated. I started yelling at my son about something and my wife was on FaceTime and she was like, “What is wrong with you?” I’m like, “I don’t know. I’ve given in to the stress and succumb to it too much.”

We all have to learn to be value creators. Click To Tweet

It has a massive impact on the economy but I want to assure everyone, this economy was doomed already. 2020 was the year. You can go back and watch any of my YouTube videos. I’ve been saying it since 2018. I don’t know when it’s going to hit, but if it’s not at the end of 2020, I’m out. I will never talk about finance again. That was where my stand was. This exacerbated it. The problems were already there underlying. When it comes down to it, there’s one solution to all this and it’s we’ve got to all learn to be value creators. People think that someone can save them. I’m here to assure you, the government can’t save you, corporations won’t save you, and effort isn’t enough. It’s time for intelligent action. We’ve got to discover who we are, what we’re capable of, how we can serve others, and how we can deliver value. Right now, fear is bringing selfishness where people are thinking in isolated thoughts because we’re physically in isolation.

This has been in a sense from a psychological perspective, a very healthy event. It’s healthy because it’s disruptive and sometimes the system needs a shock. We all get in habits and I caught myself in very similar patterns and habits as you where I wanted things to be the way they were, not consciously, it was more subconscious. I want to go to my office and have those meetings, have my collaboration, and people hear, come home and do this. We want those habits, consistency, and certainty. When it’s not there, we get caught off guard. What’s been challenging about this situation is you don’t know. There’s so much unknown. How long are we going to be home? How long is this going to last for?

What I think it’s done for those that I’ve been speaking to and myself included, I assume you as well, which is we’re learning ways to focus on, things are going well with things that we can control. Simplicity and the essentials of life come into focus. That has been valuable for people. It’s been a breath of fresh air and hopefully, it’s given people a new perspective in a lot of ways. One, what’s happening? How much influence media does have? Where do we find an appropriate opinion so that we can hopefully find our own, not gravitate toward what the common opinion is and stick to that but learn the truth and have our own? There are lots of lessons and lots of principles throughout this entire event, including the financial ones. Everything was fragile and it kept growing and growing. This is something that’s knocked it off-kilter.

I’m happy that I learned my lessons in 2008. I was an optimist to ignorance. 2007 was such a big year for my firm and I was like, “This is always going to get better.” I had a track record since 1998 that every year did get better and it continued to grow. I had this level of ignorance that was making me very susceptible to risk. I was spending money too quickly even though I was calling it investing in my business. You saw the office I had back then, the money I’ve spent on my book, and all this stuff. 2008 hit and it was like, “I’m overextended. I’m redlining.” It was painful for six months to the point where I didn’t know who I was. It crashed my identity. I’m no longer worthy in my mind. I’ve failed my family and I got a lot of gray hair. It was this grind that I got in and what I learned was cash and cash management is so critical. I wasn’t like, “Let’s build six months of savings.” I was like, “Let’s build years inside of cash value insurance that will give me stay in power.”

Let’s be careful with our outgoing cashflow and consistently monitor it just 5 to 10 minutes a week to say, “In a mindful way, is this productive or is it not productive? Do we have enough saved up?” I hired someone right after that that they were brilliant at cash management. It was their gift. I was like cash-in, cash-out, like, “Let’s do it. Let’s go for it.” I became good at spending. This time around, it felt good that when this started to happen, I sent an email out to all my family and I said, “We’re prepared for this.” Everything from food storage makes me sound totally like a Utahn. I always felt weird about it and I’m like, “That feels good.” Having enough cash, I said, “If anyone has financial woes or problems during this, please call on us, we can support.” Instead of being in the grind and in crisis mode to be in like, “Let’s reimagine, let’s recreate, let’s re-engineer everything that we’re up to.”

Anything that I can’t do that I was doing before rather than being in pain about it, acknowledge that that’s not going to happen like I was supposed to give a TEDx Talk in New York. I was supposed to take my son to Asia for a month and do service projects in Vietnam, Cambodia, and take him to South Korea where I taught English. All those plans changed. I looked at it like, “What if this isn’t happening to me, it’s happening for me?” In that context, I now get to spend a lot of time with my wife which there’s only one other time in my life where I was home or around her for 60 days with no travel. That was when we went to Italy. I was like, “This will be our version here to go to our cabin, have a lot of connection, and a lot of time together.” We’ve had more conversations now than we’ve ever had in our life. It’s allowed us to be connected. Honestly, I’ve been doing a lot of righting my wrongs. I look back when I was an ass. I looked back when I was arrogant or stupid. I wrote five letters one time. I find that it gives me a chance to make the whole something through immaturity or whatever like do something different with it.

Life has gotten a lot quieter and you’re able to listen especially to the lessons and focus on what’s the most important. As you are going when we’re still in it, I know that things are getting better but from an economic perspective, we most likely have some challenging times ahead. What would you say are the primary lessons that you’re extracting from this?

The things that are getting concrete for me is that in society we become extraordinarily consumeristic and materialistic. Materialism almost is that feudal times of like, “Look what I’ve got.” “I’m my stuff. I’m my net worth.” Our identity gets wrapped up in this. The reality is most of that doesn’t bring genuine happiness. I had this moment in my office, I’m looking around and I’ve got pictures of my family and my wife, comedy, things that I’ve done, people that believed me from the time I was young, and I don’t have a single award up in my office. There’s not a plaque anywhere. There’s just stuff that were gifts from people or moments that were important. I feel a lot of the pain people have is the definition of societal success. When I went to Italy, the gift it gave me was I used to see my value as my business. If there was a customer complaint, I felt terrible about myself. Not about the complainant but about myself and what that said about me.

If we had a bad month, I felt like less of a human being. I was into materialism. When you and I knew each other for a few years and I built that building, that was my demonstration of like, “I’ve made it.” The reality was I had a hard time making those payments. In 2008, it was like, “We’re going to have to sell this building.” These times, we get to redefine what makes us valuable and what makes us valuable is we’re human beings. Human beings make mistakes, can show love, and in these times rather than pointing out anyone else as like, “You’re wrong with this philosophy,” it’s time to show a little bit more love, compassion, and find ways to connect.

As much as that might sound airy-fairy to the value of significance. All it means is like, “I feel whatever I do to someone else, I do to myself.” One time when I was leaving the airport, the machine didn’t work and I was all pissy with the gate agent. It’s not even his fault and there I am just having to go, “I’m still a human being and I feel bad about it. What can I learn from it?” It’s time to focus on ourselves versus the global economy that we can’t control. It’s overwhelming. When we’re overwhelmed, we check out. We go to escapism and right now is the time to connect.

The lessons that you’re learning, do you see others learning that whether it’s your audience or listeners? I know you do tons of stuff online. You write for Forbes. Do you see these lessons being learned by others?

TWS 43 | Creating Value

Creating Value: These times, we need to focus on ourselves and redefine what makes us valuable as human beings.

 

What’s interesting is my YouTube channel has hit stagnation during this. I had 87 subscribers before and then I’m about 40,000 now. It went up by 8,000 people before the COVID crisis in a month. I had three million views. I’m at a million views and 1,500 subscribers. I was like, “Am I after this for the views, or am I after this for the impact?” What’s been nice is if anyone who wants to go to my YouTube channel and look at the comments, they’re overwhelmingly positive 95% and only 5% negative, smart aleck, called me a snake oil salesman or I need to cut my hair. I see people that are coming forward and going, “I’m ready to learn.” The most positive thing that’s happened from this is people are ready to learn.

Fewer people truly listen when times are good. If I try to point out the problems with the stock market, they don’t want to hear it. If I point out the problems of prepaying a mortgage, they think that’s stupid because you can always sell the home, I’m like, “I got it.” They’re not ready to hear things. The people that are listening are listening so much more intently. Our weekly Q&A sessions are getting hundreds of questions. That’s up big time. We did a virtual Wealth Acceleration Workshop, which we’d only done in person before and we had at the lowest point three times more people online watching it than we’ve ever had in person watching it.

There are some things that are interesting that way. The gift is I’ve been trying forever not to be attached to the road. That didn’t have to be an instrumental part of my business. I think that you’ve done a much better job than me at that. This has created that opening out of necessity where if I don’t go on the road, it doesn’t matter, it’s a choice. It’s not required to feed the firm and that’s a gift. I like being around my family, that’s nice. It’d be nice to not have the kids around all the time. They’re still romance terrorists at this point so I would say my romantic life has diminished.

Our kids are roughly the same age. I can attest to that. In a couple of years, they’re going to be gone. That’s what I’ve seen and observed is people are experiencing the same thing as it relates to their most important relationships. That’s going to change the direction of society as well because things were so busy whether it’s the amount of time we worked and the extracurricular activities that we did. Now everything is simpler which is amazing.

We were a slave to our habits. It’s unchecked and unquestioned.

We were in a sense slaves to material things. Slaves to this has to happen for me to feel and experience this.

I’ve spent so much money and I don’t have any less happiness. I was spending a lot of money in January and February. I had a big December and I was like, “I’m going to buy this and that.” It’s like, “I’m not buying any of that right now.” I feel totally fine. I felt no different.

You mentioned that your YouTube views, the engagement with some of your Forbes articles, what’s received the most response and then how are you characterizing that response relative to the other articles and media you’re producing?

The articles are my best articles. They are the biggest part of who I am and my discoveries are getting very minimal views. They’re very philosophical constructs in the big picture. The articles on Forbes that get the most views are telling someone they’re doing something wrong. Part of it is the people that want to read it so they can debate. The article you know that got the most views is Paying Off Your Mortgage Early Will Destroy Your Finances. The title is a little bit click-baiting. The article doesn’t say that you shouldn’t pay off your mortgage. I’m not the moral authority on whether someone should pay off their mortgage or not, but the methodology of how they do it is instrumental. We’re getting that proven in the COVID crisis because I’m saying if you put too much money by prepaying an amortized loan, that money ends up in equity gel. If you have a time where your cashflow is weak and we’re seeing unemployment on the rise, the banks are never going to lend you the money and you’re going to be more susceptible to being foreclosed on.

People are like, “You could always sell the home.” I don’t think it’s the easiest time to sell a home. I don’t know for sure but I imagine with quarantine, that’s got to be a problem especially if you own one in New York. That got a ton of views so when I said, “Financial planning is broken and then you’re better off to blow your money.” That was the other title. That got a lot of traction like 279,000 views. The articles about the recession and the CARES Act have gotten a decent amount of views. My favorite article that I put out is one of your partners in Prosperity Economics, Todd Langford. I interviewed him and wrote an article on cash value insurance that was all about the problems of universal life. That’s the most pedal product that exists out there. It’s got 8,000 views but that I hope over its lifetime ends up getting millions. It might be a slow go and someone’s going to read it, have it catch on because it’s so important to know. Those articles are very interesting. The bottom line is the title makes such a difference more so than the article itself.

I’d love to understand how you’ve grown with being able to speak and write about hard things especially when you’re telling a person that they’re wrong or telling someone something that is against conventional wisdom. You wrote a whole book about it, Killing Sacred Cows, which is conventional wisdom. It’s what everybody does. Doing that tactfully where you’re able to, not only prove the point but do it in a way in which it helps a person think because you can easily attack in a person who’s going to defend themselves to the nth degree and not learn anything from it but you’ve been able to evolve a lot. Speak to that a little bit about how you approach those challenging topics where it’s telling a person that what they’re doing is wrong but yet you’re doing it in a way where they’re able to learn.

Social agreements are what create the pain of materialism and consumerism. Click To Tweet

In my twenties, I had this attitude of like, “I needed to go after it.” There was almost anger right to it and I don’t think that that was effective. This mortgage article I lead with when I was in high school in a math class. I saw the math of what happens when you do a 15 versus a 30-year mortgage. When I came home, I’m like, “Mom, are we on a fifteen-year mortgage?” She goes, “Of course, we are. We’re saving all that interest.” I’m like, “Thank you.” I went to college and I had this class from Professor Hamlin on Economics and he taught me the opportunity costs and cost of money. I was like, “If you could earn the same interest that doesn’t matter but you have more flexibility and potential tax about it, then you have more control of your money.”

The big argument people give me is like, “People are going to blow that money.” I’m like, “Let’s say that’s true. They’re going to put themselves at risk if they’re going to blow that money by trying to prepay a mortgage because they’re going to blow the rest, get into it high-interest rate credit card debt. I’d rather see them pay off the credit card.” You get the picture. I admit my initial limited thinking. I start with self-deprecation of saying this is how I thought it was too. I have no dog in the fight. It doesn’t matter what the solution is. If it’s a fifteen-year mortgage and that’s the most beneficial thing for someone, I don’t get paid more or less forgiving that advice. If I use Suze Orman as one example, she is a sell-out that gets paid by sponsors. She’s been paid by the FDIC. I believe she’s been paid by Starbucks because she went from, “You shouldn’t do it,” to “You do it.” She always had a cup of coffee on her show.

It’s hard not to bring bias. Dave Ramsey says, “Everybody should do everything they can to pay off their credit card debt.” How to do it? I’m okay with all the advice on that. I’m not okay with once you do that, you put your money in the stock market because of the things that we deserve a little bit better thinking. That’s been over-promised and under-delivered. There’s too much volatility. People don’t do well handling it. It creates unnecessary stress for them. One of the articles I wrote that didn’t get nearly the traction that deserved was The Stock Market is Still Overvalued. That was when we start to see it. Here’s why. Eighty-four percent of the gains in the stock market go to 10% of the investors. What people don’t understand is, let’s say the market is done 6% over the last twenty years, and that’s more accurate than when people think it’s done ten. Ten comes from the ‘90s, what it did better than that to boost it up to ten and that’s a pipe dream. It’s never happening again because too many companies are going to go out of business through disruption. Here’s why it matters that 84% of the gain goes to 10% of the investors is because of hedge funds, options, and derivatives.

It doesn’t mean that all investors average to 6%. It means that some people got 30% and other people got nothing because it went to the few that were in the hedge funds that were selling short. I don’t think people get that. They’re investing in companies they don’t believe in. They’re taking risks that are unnecessary because the world has done a good job in making stocks synonymous with investing. I have this whole comedy bit I’m starting to work on which is about Wall Street. If we surveyed the world and said, “Do you trust Wall Street? Yes or no?” It’s got to be 90% would say no. You don’t think warm fuzzy feelings with Wall Street. Every movie about Wall Street, Gordon Gekko, Wolf of Wall Street, Jordan Belfort, there are these terrible movies about harming people or stealing money and yet this is what people are doing. My premise is, would you let someone from Wall Street babysit your child?

The answer is no because you’d come back and be like, “They’re missing 8% of their body. We lost some toes. Hopefully, they’ll grow back and recover.” It’s like, “Why do we do that with our money?” It’s because of social agreements and social agreements are what creates the pain of materialism and consumption. Social agreements have a spill less worthy than we are. I feel like we need to have what someone else has. It creates jealousy and this is, unfortunately, the consumption-based system that we’ve got into. My problem with it is capitalism has become more about taking than giving. It’s become more about competition than creation. That’s why I’m more like a free market. We’ve got to stop having an agenda for someone and telling them what to do and they’ve got to discover things. They’ve got to make mistakes, they’ve got to learn lessons, and anytime we try to so-called protect them, then we rely on a government that’s not capable of protecting anyone because they’re not functional themselves. That’s my little diatribe on that.

That’s human nature. There are so many things that we consistently observed but never understand the nature of the root. My oldest daughter was like, “Why did Donald Trump come up with Make America Great Again?” We were having this competition of questions where you have to answer a question with a question. I asked her, “Where did the word America come from?” That sparked a cool tangent. The point is, most people do not know where that word comes from but you look at it, it’s our country. It’s on Donald Trump’s hat. Everybody talks about that all the time. With the stock market, what you do with your money, there haven’t been enough questions asked around it. Why does it exist? Why do we do this? Where did it come from? What’s the end objective? It’s been preplanned for us, therefore we don’t have to think about it and can focus on other things.

The biggest issue that we face as a nation and as a world is that we’ve lost sight of how to create a vision. The vision exists within a box of well-intentioned preachers and teachers and not so intention governments and the corporations. If we left money on the side for a minute and realize that’s a byproduct and you said, “What do we want to do?” What some people want to do won’t pay as much as other things. That’s the nature of value, what people value, and what people are willing to pay for it because that’s part of a free economy. If we don’t identify ourselves as our money. If that’s only an indication of the value we’ve created in the past and a ledger of that and that snapshotting, what that means is it doesn’t dictate the value we create in the future.

What’s been lost upon people is there are two more precious forms of capital. One is our mental capital, and if we develop that by investing in ourselves to gain knowledge, insight, wisdom, tools, and strategies. The second thing, which it’s an unprecedented time to build is relationship capital. We can build relationship capital because when people are in fear, they’re looking for leadership. Here’s the secret that I’ve had a hard time learning my own life. The secret is not knowing everything. The secret is listening and then what you did with your daughter. Asking questions that moved the narrative to one that’s productive. If you could ask great questions and listen, you’ve got the keys to wealth. I feel like now is the time to ask better questions and ask different questions.

I don’t know if you remember this. This was when Killing Sacred Cows came out and we went down to Vegas and you spoke. That was the first time I heard Keith Cunningham. I love him. He’s such a cool guy.

I remember when I was speaking at that event, he walked into the room. From the back of the room while I’m speaking, “I love Killing Sacred Cows. It’s a great title. What a title.” I was like, “That’s cool. Let’s speak of it. That’s who I love.” He tells it like it is.

He’s big on principle. He’s big on questions but there’s something that he talks about all the time which is thinking. It’s the idea of listening, asking questions, but then taking time to think. This has given people a lot of time to think.

TWS 43 | Creating Value

Creating Value: People are taking unnecessary risks because the world has done a good job of making stocks synonymous with investing.

 

Is this in his new book, The Road Less Stupid?

Yes. If you’ve heard him speak before, he’s like, “You read the book.” Hear his voice. It’s hilarious because he has this thick Texas accent but the point is this is at least for me, I never asked why am I doing this? What am I trying to achieve? Sometimes we ask those questions but we only go one or two layers deep. If you keep asking yourself questions about, why do I want to do that? If I had that, why would that make a difference? If I didn’t have it, where would I be? What would I think? What would I feel? The end-objective is way more important than sticking to a status quo and gain the same end-objective as everybody else. Those are the simple deep questions. Help us understand why we’re doing what we’re doing, what we want and hopefully give us direction as to things to adjust or get rid of to get what we want. I’ve gravitated and I’m not sure what your opinion is toward Ray Dalio but some of the stuff he says is amazing.

Risk management staying with a beginner’s mind, learning, and not learn it. A lot of that is so profound.

It’s so simple but it’s the Pareto Principle, the 80/20 rule where you get 80% of everything off and 20% of effort and information. I was reading that and it hit me. I’m like, “This is like COVID where we’re getting way more satisfaction with so much less noise, activity, and busyness.” It’s profound and those are valuable lessons. I know you’re always pushing the limits, growing, and trying to be more valuable. What would you say is your intention behind some of that writing? What are you hoping people will gain by understanding more about their mortgage and market? Also, more about the idea of value and where value comes from, purpose and legacy, the stuff that you are clearly passionate about? What are you hoping others take away from that? What’s the ideal outcome you hope for them?

The one thing that’s always at the core of it is a personal responsibility. The only way that we grow. With that accountability and personal responsibility, we become less duped, less reliant, and we can learn. There’s no learning. For me, without personal responsibility, there’s no way to have a relationship with someone. If I can bring that to them because I can help them think and learn. In doing that, I continue to write in a way that is simpler and simpler. Simple does not mean discounted, it means understandable. If you look at Killing Sacred Cows, people can understand the book but even when I did the audiobook, it was too elaborate at times. The sentences were too long and they become redundant that way. I’m using vocabulary that why did Make America Great Again work as a campaign is because everyone gets to define what great is subjective. Everybody could understand it even if they were in third grade.

If I write to sound intelligent, then I’m not connected. I’m not giving the reader the resources. If I could take what feels complicated and make it understandable, they’re empowered. I don’t write for everyone to agree, but if I can at least get them to question at least one thing and go, “That’s a valid point.” The one article that has the most views, half the reason it has the most views is that it’s very polarizing and people will defend their life that paying off a mortgage is the best thing you could do in the world. My grandfather said, “You can’t be the man who has paid off his mortgage.” I’m like, “I don’t even know what that means,” but obviously, he cared about his grandfather and so it’s a way to honor his ancestors.

I think we’ve got to shake loose ancestral damage. We can honor our ancestors and be free moving forward. We have a lot of ancestral knowledge that was limiting based upon the consciousness of the time and the situation. As situations change, the context changes if we keep the content the same, then we create unnecessary pain and we don’t honor ourselves. Too many people rely on everyone else. If I can get them to rely on personal responsibility, I feel like I’ve done some good in the world. That’s where I come from.

This is profound because I look at what’s been done in the past and this is a general statement. There were good intentions and they wanted something as an end result. What’s most important isn’t the way they did it. What’s important is the end result of why they did it. I’m not sure if the result has changed that much. We live in such a modern society where things are easier. They’re quicker. They’re more efficient and they take less energy. Going into the method and then the objective, the objective is way more important to understand and be clear about before you get into methods. You’ve always preached that. What’s been awesome is to observe you over the years and how consistent you’ve been to the principles you believed in pre-crash and then post and you continue to write about the same things but it’s different.

That’s where I realized people need a certain environment to absorb that information. Be able to rewire their methods but then also understand at a clear level what the objective is. People are now somewhat humbled and I include myself in it. There are a lot of valuable lessons I’m learning through all this. When you’re in that state, that’s when you start to think about what you were doing and ways in which you can improve it. The beauty of humanity is solving problems.

We’ll make mistakes along the way. It’s part of the learning and that’s okay. A lot of pain and humanity is perfectionism. That’s why we get so stuck in what’s right and what’s wrong. It’s my way or the high way. I get it. You don’t want to make a mistake and you don’t want to admit it if you made a mistake because it shows vulnerability or whatever it is. If we can acknowledge that then we can learn from it and move on. Anything through my career is when I had a strong belief in something and someone showed me evidence of why that might not be the case. I remember my business partner, Les, and I was sitting down analyzing 401(k)s. We’re like, “If this thing got 15% in investment, nothing could beat it.” With the tax deferral and then we started going, “What’s going to get 15% long-term?” I could understand for a year because we used to think of hard money lending at that time and it was going nuts.

You thought he was being conservative. We start looking at like, “What were tax rates?” We sat in a hotel room and after three hours we were like, “These things are riddled with fees. They have penalties that keep people stuck inside of them. They haven’t managed their cashflow appropriately. How much more powerful if you’re economically independent and have cashflow to cover your expenses, then every dollar you earn can be reinvested versus only 10% of it?” This world unfolded and I’m like, “I’ve got to admit that I was wrong. I’ve got to tell people that I’m cashing out my 401(k).” That’s not comfortable. I didn’t want that news but I think that intellectual integrity is the key to the evolution of our financial world. If I learn new things that are different than what I believe, I have to be willing to say, “I was wrong.” In real estate, I’ve done wrong. I’ve made mistakes with investing.

The most positive thing that has happened from this is that people are ready to learn. Fewer people listen when times are good. Click To Tweet

The good news is I haven’t in the last decade. People could point out that I could have gotten better returns, but the reality is my returns came in my business and I captured and transferred that into personal wealth through my cash value. That is very simple to me. I’m sitting on it because I’m going to buy some businesses through this crisis. That’s going to be good for those employees. It’s going to be good for the business owner that might’ve gotten nothing instead he got something. I feel like I’ve got a clear value system.

What advice are you giving the most or the things you’re talking about the most with your audience? What are some of the things you are advocating not to do, things to do and be focused on and things not to do and not be focused on?

It’s too early to allocate capital to investments. We don’t know how long it’s going to last so get access to cash. Do refinance and get equity. Put that in your bank account. If you have a line of credit, tap into it. Pay the interest for a few months. Put that in cash because the banks are going to cut that down. Unfortunately, I have been giving advice on how to get money from the CARES Act and the EIDL’s and the PPP because we paid the tax, they’re offering it, and it’s important for the smaller businesses. I was frustrated to find out 80% of people got the loans were big businesses and hopefully they are returning the money. There are a lot of big businesses that if they went out of business, I wouldn’t miss them for two seconds, but there are a lot of small businesses that I would care about that would suck to see them go out.

Refinancing to get lower outgo. I’m telling business owners that they should move to production-based compensation where they give minimal salary and they give a lot more upside. What happens is during good times, business owners make a disproportionate amount of money and during downtimes, they lose a disproportionate amount of money. If you can create a structure where everybody’s in the boat and they understand when it’s sinking and they all need to work towards being it rising or when it’s rising, they all benefit from it rising. That’s a big game-changer and it’s better for nowadays economy. It was okay to pay people time for money in the Industrial Age, but we’re not in the Industrial Age anymore. You can get more out of people and they can get more out of what they do too. You work together in a team format.

Those are cash-and-cash management, compensation, and making adjustments quickly. Don’t wait until it’s too late like I did in 2008. Everybody got paid but me. I wrote an article in Forbes called Are you the only one not getting paid right now?. That’s a problem because sacrifice leads to destruction. It’s important to take care of yourself during this time. Otherwise, you have nothing to give. You don’t want to run out of the room because you tried to get everybody else to be okay. When I have partners, we hemorrhaged money because we had 42 employees. I didn’t even have to tell them what to do because I didn’t have time. I didn’t have the bandwidth and I lost two people that would normally delegate that stuff. What I should have done is take a week off, sit down with everyone, figuring out what they were going to do, whether they were going to stay. All I did was pay people to mourn than be confused about what to do and then take on a burden that cost me years of my life when it came down to it.

That’s great advice. It’s advice that doesn’t come from information. There’s a difference between information and experience. One of the greatest lessons that we learned was during the times when things went haywire, we lost, and we’re not prepared. Now you’re going to protect yourself from not doing that again. It’s an example of how long the bull run was and how quickly things started to unravel which is going to continue. Let’s end with you talking about what’s exciting for you. What are some of the things you’re working on, you’re doing that lit up about?

One thing I’m doing is a one-man show. I had this dream where I was directing a one-man show, and I don’t know if you’ve ever seen the one-man show that Bo Eason did call the Runt of the Litter. That’s one of the first ones I’ve seen. Mike Tyson did one called Tyson that Spike Lee directed. Billy Crystal did one called 700 Sundays. I feel like entertainment is the gateway to transformation. If I could bring entertainment into a normally tough dry topic of money that I could help with giving people new confidence and give them an experiential way to learn how to create value. I act in it, that’s where I’m going to practice it, do a full run-through. I played four characters in it. I dance at the end of it. It’s this full expression to give people permission to have the freedom and engage in a way that delivers value. I have a director, screenwriter, and comedic writer. It’s been a big collaboration but it’s one of the most fun things I’ve ever done.

Are you filming it?

It’s a practice. We’ll run through it from beginning to end. We are recording and I’ll start listening to it. We’ve been working on stage direction, props, and the characters. I do acting. I had never acted before. I’m doing everything from a little stand-up in it to playing my guitar while I run people through an exercise. In the end, I dance as a sign of expression and I’m not a dancer. It’s like, “Let go of what people think and let’s be ourselves,” type of thing.

When is that due to?

I was going to perform it for the first time in June 2020.

TWS 43 | Creating Value

Creating Value: There are two precious forms of capital: one is our mental capital, and the other is relationship capital.

 

Is this something that’s videoed or something that’s done in live performance?

It will be live. I’m hoping I got someone on the board of Hale Centre Theatre that saw me do stand-up and said, “I would love to have you do a Hale Centre gig.” When this COVID thing is over, I’ll film it and do a full production and they’ll be right here in your backyard. I love to get a bunch of people. For me, it’s my love bomb on humanity.

Garrett, how can the readers tune in to you, your YouTube channel, your social media, follow you and keep learning from you?

YouTube channel is the way. You’re going to go Garrett.live in an internet browser or you can go YouTube.com/garrettgundersontv. Either way, subscribe, I’m doing videos there. That’s the best way to stay connected. I respond to almost every comment.

This has been enlightening, to say the least. I expect nothing less. Garrett, thank you for your time. I appreciate it. Thanks for sharing your wisdom with the audience. I can’t wait to see the one-man show.

You’re always out there as a symbol of abundance. You have always been a man who has been abundant and sharing. You are willing to tell people how you’re doing things, what you’re up to, what mistakes you’ve made, and how you do it differently. I appreciate that about you because not a lot of people are willing to share at that level. Thanks for who you are and how you show up.

Thanks, Garrett. That means a lot. I appreciate it. Take care.

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About Garrett Gunderson

TWS 43 | Creating Value

Garrett B. Gunderson has dedicated his career to debunking the many widely accepted myths and fabrications that undermine the prosperity and joy of millions of hard-working, honest business owners. Gunderson’s company, Wealth Factory, empowers its members to build sustainable wealth through financial efficiency and organization leading to clarity, peace of mind and financial confidence. You may recognize him from his appearances as a guest contributor on CNBC, Fox News, ABC, and many others.

Gunderon is the New York Times bestselling author of “Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity,” “Portal to Genius,” and “What Would the Rockefellers Do?: How the Wealthy Get and Stay That Way … And How You Can Too.”

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