Kathy Fettke is Co-CEO of Real Wealth Network and bestselling author of Retire Rich with Rentals. She is an active real estate investor, licensed real estate agent, and former mortgage broker, specializing in helping people build multi-million dollar real estate portfolios that generate passive monthly cash flow for life.
With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.
Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for Investors — both top ten podcasts on iTunes with listeners in 133 different countries. Her company, Real Wealth Network, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create “real wealth,” which she defines as having both the time and the money to live life on your terms.
In this episode, Michelle Bosch chats to Kathy about her career in real estate investing as well as how her outlook on money has changed in her life. Kathy has had some incredibly difficult experiences in her life and you’ll discover how she worked through them in order to become an amazing, financially independent investor. You’ll also learn about the incredibly interesting way that Kathy got into the world of real estate via her career in broadcasting. All this and more on this week’s episode of InFLOW!
Listen and enjoy:
- Learn about Kathy Fettke’s career in real estate
- Discover how Kathy pushed through adversity to become the investor she is today
- Find out how Kathy Fettke started in the world of real estate
- Discover amazing tips and tricks on how to become financially free
Find out more!
- Subscribe and rate our podcast on iTunes at: http://www.michellebosch.com/itunes
- Android users can subscribe and rate our podcast at: http://www.michellebosch.com/android
- Follow Michelle Bosch on Instagram to see what she’s up to: https://www.instagram.com/michelleboschofficial/
- Learn more about Kathy Fettke at: https://www.realwealthnetwork.com/
- Get Kathy’s Book “Retire Rich With Rentals”: https://www.amazon.com/Retire-Rich-Rentals-Ongoing-Forever/dp/1500881589
- Listen To Kathy’s podcast “Real Wealth Show”: http://www.realwealthshow.com
- Listen To Kathy’s podcast “Real Estate News for Investors”: https://www.realwealthnetwork.com/learn/real-estate-news-investors-podcast
Michelle: Welcome to the “InFLOW Podcast.” I am your host, Michelle Bosch. I see a gaping hole across society that focuses on the outer work and forgets about the inner work, when what we really need is to bridge the gap between prosperity and spirituality, to live a life inflow with inflows of light, inflows of cash, inflows of creativity, inflows of grace in our lives. Each week, join me for powerful messages and interviews that will leave you inspired and ready to step into flow in your higher work. So now, let’s go.
Welcome to the InFLOW Podcast. I am your host, Michelle Bosh. I have been so looking forward to chatting with my guests today. About a year ago, I decided together with my husband and business partner to join a multifamily mastermind. And the lady that I have on today was the only lady. She and I were the only two ladies in a group of about 40 guys. So I was super-impressed by what she and her husband have been doing for families that wanna create passive income and that wanna live life in their own terms. And she has an incredible passion for researching real estate market cycles. She’s a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch, and The Wall Street Journal. She was also named among the top 200 most intriguing entrepreneurs by Goldman Sachs two years in a row. My guest today is Kathy Fettke. Kathy is a Co-CEO of Real Estate Wealth Network and bestselling author of “Retire Rich with Rentals.”
She’s an active real estate investor, licensed real estate agent, and former mortgage broker specializing in helping people build multimillion-dollar real estate portfolios that generate passive monthly cash flow for life. I love that. She also has two podcasts. She’s the host of the Real Estate Wealth Show and the Real Estate News for Investors. Both of these podcasts are in the top 10 podcasts on iTunes with listeners in 133 different countries. Her company, Real Wealth Network, offers free resources and cutting edge education as well for beginning in real estate investors. She’s very passionate about teaching others how to create real wealth, which on Kathy’s book is defined by having both the time and the money to live life on your terms. Without further ado, welcome, Kathy, to the “InFLOW Podcast.”
Kathy: Thank you so much for that beautiful intro.
Michelle: Thank you. I mean, it’s impressive what you do, Kathy. So thank you for being here with me today, and I just wanted to mention that I deeply resonate with your definition of real wealth. I think, as a matter of fact, in an that was released, I think, last week on the InFLOW podcast, I was talking about the freedom of money, freedom of time, freedom of relationships, and how that really allows you to go and pursue the freedom of purpose. So let me start by asking you, Kathy, how did you grow up around money and finances? Are you a native of California because I know I saw on your website with surfboards, you and your husband on [inaudible 00:03:23] like are you a Cali girl? How did you grow up around money, finances in general?
Kathy: I am. I grew up the youngest of five kids in Menlo Park, California, when it was just a normal place. In fact, I just, whoa, I’m gonna date myself now, but I just went to my 40-year junior high school reunion, my elementary school reunion. I don’t know if anybody does that, but it was so cool in Menlo Park. And we were talking about how back then we would ride our bikes everywhere, we wouldn’t get home until dinner time. You wouldn’t call a friend because you didn’t have a cell phone, you would just ride up to their house and start playing. I don’t know that obviously Menlo Park has changed quite a bit now that it’s the center of the Silicon Valley. So I grew up just kind of a perfect middle-income lifestyle in a little…a home where we all had to share bedrooms because there were five kids, but there was always enough. My mom stayed at home, cooked for us, and it was very, very traditional, a very healthy upbringing.
But around money, I guess being the youngest of five and having parents who were the result of the great depression, there was never anything fancy. So I got all the hand me downs of five kids. So by the time it got to me, it was gross, you know, and old. And it would be like mom would buy some outfit that I couldn’t stand, but I had to wear it, you know, five years in a row because as soon as I’d outgrow one, I’d keep the next 10 feet down enough to wear it another year. So, you know, it was very different time. We were never given money, we had to work for money. I think I had my first job at 14 because I couldn’t wait to go out and buy my own clothes. That was really the motivation.
Michelle: I can understand, you know. If there are four, you don’t have even worn whatever…yeah, you’re right. By the time it got to you, it probably didn’t look so good anymore, colors faded. But hey, our parents do the best they can. And I grew up in a situation of being the fifth one, but humble, modest means for sure.
Kathy: Yeah, my dad was a dentist, so he made a decent amount of money, but he was self-employed and five kids. So we never had, you know, fancy meals, fancy cars, our trips were camping, and, you know, taking baths in the river. But all of that just gave me a foundation of what matters in life, which is family and really spending quality time with each other. So I think I just grew up…I didn’t grow up with a desperate need to make money. I think a lot of times when people are struggle growing up, then there’s always this kind of battle for money, like money’s gonna be the answer. And I didn’t have that, I knew the answer was love. But, you know, you kind of need money too.
But in growing up, we had, like I said, a very traditional, very, very Christian upbringing. And what came with that was an old-fashioned belief that, you know, I don’t wanna say old-fashioned, but very strong value that the women should stay home and not work. And when I decided to go to college, I was the only one of the five kids to graduate from college, and then I went out and got a job. And my dream was to be an anchorwoman. And I was very discouraged when my parents sent me to college, it was to get my MRS. I was supposed to find a husband.
Michelle: Now, so you go to college and do you stumble into real estate there, into business?
Kathy: That was what was going to sustain me financially so that I could be a stay at home mom. That was the financial model that I was given. I got my degree in broadcasting and I worked in the newsrooms of CNN and KTVU and ABC7. And I just, again, I had this dream of being an anchorwoman, which was disappointing to my family because they saw that as not being somebody who would be there for my future children. So I kind of had to break rules back then. I know it wasn’t that long ago, but long ago enough that at least for my family and the traditions I was around, I was breaking the mold because I thought, “Well, there’s gotta be a way that you can have a career and be a mom.” You know, there’s gotta be a way that you can juggle both, and maybe that’s an old belief that you have to be there all the time, you know.
So, you know, when I did eventually get married and have children, I was able to work it in a way that I had a flexible schedule, that I could be there for whatever was important to them, but also that, you know, if they were in certain childcare programs that helped with their development. You know, those were things I couldn’t offer them necessarily. So I just discovered that, you know, I could go out and build this career into both, as long as I was in control of my schedule. That was before real estate, I was broadcasting. And at that time, my husband Rich, it was probably 2002, 2003, we had two kids. We had just bought our first house that was just way too big for us. It was a 4,000 square foot home with six bedrooms, but it was awesome.
So that was our first house, and we were kind of just living the dream. He was a motivational speaker and business coach, and he just come out with a new book called “Extreme Success” that was published by Simon & Schuster. He got his six-figure advance from them and, you know, things were just perfect. I was working a little bit in the news, but also flexible so I could be home with the kids in this beautiful new house, and everything was great until Rich came home again in 2003 with actually tears in his eyes. He had just gone to the doctor. They had discovered he had melanoma, they did further tests, and they believed that the melanoma had spread to his liver and told him he had about six months to live.
Michelle: Oh my God, oh my God, my heart just like dropped right now. I did not know that. I was like, “Oh my goodness, that must have turned your world upside down.”
Kathy: Yeah, you know, just that’s kind of been my lesson over the years, is just when you think you got it together, life will send you a curveball. And I’ve come to learn that that’s really for our growth and for our benefit. You know, the more comfortable we get, the less we grow in a lot of cases. So it, you know, we’ve got to learn to look at our challenging times as really these opportunities for massive breakthrough and growth. And that’s what it was for me. I just thought, “Oh, boy.” You know, okay, first of all, I refused to believe the doctor, Rich is gonna be fine. And the good news is he is. You know, 15 or 17 years later, he is doing great. That is a beautiful, beautiful, happy ending story.
Michelle: That’s happy ending really, but you know what I mean. But it’s like being able to see you both as a family overcome his illness and him be strong again. And the things that you have built since then, probably all of that was preparing you for where you are today. Absolutely.
Kathy: Yeah, for sure because he came from a traditional family too. So the burden of the finances fell on him and, you know, the burden of raising the children was on me, and that was just our unconscious agreement or conscious was what we knew. And then all of a sudden, it was like, “Oh, boy, okay, I got to take over the finances and he needs to get better.” So we had a massive role reversal at that time where I just said, “You know, honey, I don’t believe the doctor is right, but, you know, why don’t you stay home with the kids? I’ll figure out how to make money.” And so I had a Saturday radio show that really made no money. It was just something to kind of keep me in the industry while I was a stay-at-home mom.
But I thought, “Okay, what if I just took this show? It’s something I love, something I already have going, and what if I figured out how to monetize that?” Because I didn’t want to go out and get a job and like not be with my family, especially under these circumstances. You know, I wanted to find a way to still be at home, but make money. And so I just thought, “Okay, how do I do that?” And the first thought was, “I’ll get a sponsor.” So I called and called and called and looked for sponsors, and I was falling flat with every phone call. And I thought, “All right, this next phone call is gonna be one that just, you know, nobody could say no to.” You know, like an offer they can’t refuse. So the next person I dialed on the list was a mortgage broker.
And I just called and said, “How would you like to be a star? I’ll make you a star if you’ll, you know, be a sponsor. You could be my co-host on this San Francisco radio show.” And guess what? He said, “Yes.” I came home to Rich and I said, “Well, guess what, honey? I am now the proud co-host of a mortgage show.” He laughed at me. He’s like, “Oh, boy, you’re gonna lose your audience.” And it was like, “Well, you know what? But we got a big check. So, you know, what do we do now?” And Rich said, “Well, why don’t you just do what you always do? Make it very human interest. Find out what people are doing with these loans. You know, don’t sit and talk about rates and their loan terms, but just find out what these clients are doing with the loans and, okay, that’ll be interesting.” So we designed the show to be, you know, what are his clients doing? And at the time, it just so happened out of luck or destiny or whatever that this mortgage broker was working with a bunch of real estate investors, people who were buying homes and fixing them. He was doing the mortgages on, you know, these fix and flips, but he was also helping people get into like a fourplex that they would rent out the four units. And I just started to learn this whole new world of leverage and it changed everything.
Michelle: Yeah, especially leverage that is not making you poor, but that could make you wealthier for sure.
Kathy: Yeah, and suddenly, you know, I’m interviewing these, sometimes people under the age of 30 who are already retired because of the choices they’ve made by getting loans that, you know, help them buy houses they could fix, flip for a profit, or keep and get all their money back out and go do it again. And, you know, it’s just story after story of these incredibly young, intelligent people. Some who never went to college and still had just found this incredible financial success. So our phones just started ringing off the hook. My sponsor was very happy because our listeners wanted mortgages and, you know, his sponsorship worked so well that he came to me and said, “I can’t keep up with all these people who want loans. Why don’t you go get your real estate license and you can be a mortgage broker and take, you know, all this flow of clients.” Then he pulled out of his wallet three checks he got that day, one was 10,000, one was 11,000, and one was 12,000 from three loans he’d just done and I said, “Sold.” I get to do that.
Michelle: Absolutely, wow. What a wonderful story. Yeah, I didn’t even know that you were in broadcasting, you know, but that makes sense. I mean, why you’re such an amazing communicator. I remember your presentation that day at that multifamily boardroom, I was like, “Oh my gosh, she’s so eloquent.” But, you know, you’ve…
Kathy: Oh, thank you.
Michelle: Yeah, now, and I wanna switch perhaps a little bit gears. I know, Kathy, that you probably paid your dues. You went and got your license, became a mortgage broker, and helped all those people out. And I don’t know if part of what you brought is probably your passion for researching of market cycles. Is that something that you were able to apply there or something that came later?
Kathy: No, it came through the show where, you know, I got into mortgages during the whole mortgage frenzy, you know, so I could give anyone a loan. And it just didn’t make sense to me. I mean, I would turn in loans to the bank, and they’d come back and say, “Oh, they don’t make enough money.” And I’d say, “Oh, that’s too bad. I’ll let them know.” And then they go, “No, no, no, it’s okay. We changed their income levels, so now they qualify.” And this was the bank telling me this. And I just thought, “Boy, that doesn’t sound right.” And I would tell my husband and he’d go, “No, honey, that’s called fraud.” And so I was like, “I can’t do this.” But at the same time, I had really high-level people on my show because it was a San Francisco station. So I could have people like Robert Kiyosaki on, and I would talk to him about this and say, “What’s going on?” And he’d say the same thing, “Boy, this is a bubble. Anyone could get a loan, but they can’t pay them back, and it’s gonna blow up.” And I said, “Well, what are you doing?” And he said, “Well, I’ve sold everything in California. I’ve sold everything in markets that have gone up, you know, so dramatically.” I mean, there were some markets that were going up 20%, 30% every year, some even 40%. I think at one time, Vegas and Arizona went up 40%.
Michelle: Oh my gosh, yeah. Yeah, yeah.
Kathy: Yeah. So he said, “You know, I’m just selling everything, and I’m buying in Texas.” And I said, “Why? You know, what’s going on in Texas?” Well, Texas at the time was not allowing these crazy loans, and their real estate was 28% undervalued, yet they had massive job growth, massive population growth.
Michelle: Which continues to this day, I think, yeah.
Kathy: Yes, absolutely. So that’s when I learned it. I learned that just because California, Arizona, and Vegas, and Florida were a massive bubble from this easy lending, there were other places that weren’t. So all these people that listened to my show, my show started to really grow at that point heard that. And so we were able to help them sell their California properties. And I flew over to Texas and I just started to create a network of people that could help them find property, you know, property management companies, lenders. So basically, people who listened to me at that time sold their California property at the peak, exchanged it, tax-deferred for properties in Texas. They quintupled their cash flow from doing that and never felt the recession. They tripled their equity and cash flow, and never felt the pain of the 2018-’19…I’m sorry, 2008-2009.
Michelle: 2008-2009, yeah. So you right there and there were in the middle of what could become a storm in California. You were able to get clients transitioned from California assets to assets in Texas. But in general, the economy in the U.S. did suffer a contraction. And so I know that, and I mentioned on an episode earlier from the InFLOW Podcast, there was a yield curve inversion that happened on March 22nd that is, you know, historically has predicted another market contraction in anywhere between 18 to 22 months. How do you think this would be different than what it was in 2008? What is different? So right now you mentioned two things, one was that specific market conditions in California versus Texas were very different. But as a whole macroeconomic, U.S. wide, what can we expect that could be different in 18 months from now than what we had in 2008-2009?
Kathy: Well, I think everything is different. Everything is different and very, very manipulated today. So indicators before don’t necessarily matter today. So basically, what I’m saying is that there is massive manipulation from the Federal Reserve and from government policy. So you have to understand and know that the economy is incredibly fragile and, you know, that it could continue to boom, and it could go the other direction. And whichever way it goes, if it goes in the other direction, it would go very quickly. So you have to be prepared for that. And unfortunately, there are people who feel so confident in today’s policies that they just refuse to recognize that things could turn, and there could be a downturn, even though there’s job creation today. I mean, there was job creation in 2006, too, but, boy, did that change, right?
So any investment you make, anything you do today, you have to do it with the understanding that there could be a recession tomorrow, not just 18 months from now. But, I mean, it could happen immediately. Today, we had issues with terrorists, you know, and there was a drop in the market. So it may not be the yield curve, it could be tariffs, it could be war, I mean, who knows what could trigger it. But what’s important is to understand that the market could grow or decline. We could have a boom or a recession without any warning. So back in 2006 when we were helping people sell one property, like I had a woman who came to me with three properties in Stockton, California that just made no sense in a booming market or a recession. They were $420,000 properties, they rented for $1,200 each. They were in a terrible area, high crime, old properties, always needing repair. There was no reason to have these. So, you know, we helped her sell those three properties for 420,000 each.
Somebody came in and bought those at that price, that made no sense. We helped her buy nine brand new properties in growing parts of Texas. She, like I said, quadrupled her cash flow and her equity has grown four times since then through a recession, through a boom. So, you know, she was set up such that she would succeed no matter what. If there hadn’t been no 2008 collapse, she would have been great. There was one and she was great. So that’s kind of the message I’m telling people today, is it is very, very sensitive, the economy is fragile. So any investment you make needs to account for that. You need to account for the possibility of lower rents. You need to have reserves in place, you need to have good loans that are fixed and that, you know, that you don’t have to have refine a couple of years when maybe rates are a different level.
Michelle: Or maybe banks are not lending in a situation when there’s a contraction. Yeah, absolutely, yeah. You’re already going into my next question, which was how should investors be preparing for the time ahead? So I’m like, “Perfect, that’s beautiful.”
Kathy: Well, I mean, great, because look, this is an example, this woman who sold those properties for 420, about 18 months later, they were worth 75,000 each. So the property she sold to the person who bought them for 420,000 lost a million bucks, just by not thinking smart. You know, those properties didn’t make sense anyway. So, you know, people just get this belief that things are gonna be good forever. And it’s just not the way it is, things go up, things go down. You should be in investments that it doesn’t matter, right? So one of the things we’re doing, we know there’s massive job growth in Reno. Okay, so we follow job growth, we follow population growth, and the kind of jobs that are gonna be here in the future, not the Barnes and Nobles that exceeds the past.
Kathy: Yeah, so we know that Reno’s jobs of the future, it’s the battery company, it’s Tesla, it’s Google, Amazon. I mean, you know, massive data storage and, you know, these are jobs that are not going away when you’ve got Tesla building, you know, a $5 billion facility. It’s probably there to stay awhile. So we knew that there’s a massive demand for housing, just incredible. I think 7,000 homes needed every year and they’re only able to build about 4,000, they’re way behind.
Michelle: Oh, wow, it’s big shortage, yeah.
Kathy: Yeah, a big shortage. So we bought land there for a good price. We found someone who is in a distressed situation, so we bought the land. We’re building houses there.
Michelle: Yay. So you don’t only operate in already real estate that has improvements, but you actually work on development from the ground up because I heard the word land, and I’m like, “We do land too.” And I’m like “Yay, another investor doing land from the ground up.” Okay, how were you able to acquire that land? Was it land that you were able to acquire at a discount or market value because you’re knowing that based on population growth, that is an area that once you build those houses, things will work out financially. How did you decide that you’re gonna go for land and start building?
Kathy: Well, we work with different developers, and we syndicate, we raise the capital. So this particular partner of ours had been negotiating on this piece of land for a while. He knew that the people who owned it had a hard money loan and that the entitlement process was taking longer than they expected. So any time you get a good deal, it’s usually because there’s some kind of distress. Yeah, and in this case, they had a loan, they wanna lose the whole thing, right? So we kept making offers and they kept refusing, but at some point, you know, they had to accept it. So land, I mean, people need to understand, and I’m sure you talk about it that land can be very, very risky. You’re dealing with politicians that change their mind a lot, and it’s hard to get the entitlement sometimes. And even in a place like Nevada, where it’s easier than California, it was still difficult for these people. So we were able to get the land for the price they paid for it when, you know, raw land, but we got it very close to entitlement. So we just…
Michelle: Now, for example, with your…I’m sorry, with your developer, tell me a little bit what goes behind the scenes in terms of you deciding that that is someone that you would partner with. What are you looking for in partnerships?
Kathy: People with a track record, people that have been through the highs and the lows, maybe have a little gray hair, you know.
Michelle: Some stretch marks.
Kathy: Yeah, stretch marks. Like how have they dealt with problems in the past because you will have them, there will be challenges, and how have these people been able to get through them? Are they honest? Obviously, background checks and all that because we’re swimming with sharks in this business for sure. You’ve got to do your research on the operator, on anyone that you’re investing with, or partnering with, or teaming up with. I mean, you have got to do your research on the people because even if the project or the land or the building is good, the wrong people can, you know, burn that to the ground.
Michelle: Yeah, they can make it go south very quick, yeah.
Kathy: Yeah, yeah, so I knew that this developer had 40-year track record. He just knows his stuff. He knows how to work with the cities and would never put our investors at risk. In other words, we knew that the cities wanted this, they’re desperate for housing, they were going to approve everything that we were going to do, and that it was right off the freeway, easy access to jobs. We’d done a lot of work in bringing in the utilities, it was just, you know, already very close to other areas of development. So, you know, it was flat. So a lot of land in Reno is on hillsides, around mountainsides, and there’s a whole bunch of work that has to go in with retaining walls and so forth. And we could save a tremendous amount of money not having to do that.
So a lot of reasons, but the way that we protect our investors now is we’ll acquire the land, paying all cash, and then we will raise enough to do the horizontal development, you know, basically bringing in the roads and the utilities, and then we raised just enough to build the first phase and sell those homes and use that cash for the next purchase. So we avoid getting a bank loan on some of our land development projects to really reduce the risk because the builders got in big, big trouble in 2008 when suddenly the bank loans were gone and they had no money to finish their projects.
Michelle: Yeah, yeah, that happened here in Arizona for sure. Now, as far as when you say they’re gonna build the first homes, how many homes in total as a project?
Kathy: We have 171 in one phase and then another 100 in there. Not one phase, but we have two developments, one’s higher-end and one’s more affordable homes. So about 280 homes altogether, which is just peanuts. You know, when you think that the area needs 7,000 new homes, and we’re just bringing in 280, it’s barely enough for demand. So, you know, these homes are selling very quickly.
Michelle: And what does a typical home sell for?
Kathy: Well, that’s the thing, is they’re not really cheap by any means unless you’re in California. They start at around 600, but the average home is more like a million, but these are very big, really nice, beautiful homes. So people in California are so happy because you can’t get much, believe it or not, for $1 billion.
Michelle: Okay, so then people that want to invest with you then basically they become investors in your fund, or is it only specifically for this project in Nevada or is the fund a general fund where depending on where projects pop up is where you’re gonna go ahead and park the money and grow the money for them?
Kathy: Right, we do syndications. So we’ll have one project where maybe an investor will put in $50,000 and then we’ll do another syndication in a different part of the country and they could diversify that way. But we also are starting an opportunity zone fund where there will be multiple assets in that one fund. But normally, it’s we syndicate different projects.
Michelle: And what types of returns can someone, say, investing 50,000 with you can expect.
Kathy: Well, that’s kind of where I think you said you have a female audience for the most part. So for me, you know, I would walk into these board rooms and I would be the only woman, there would be the general contractor and the attorney and the CPA’s, and there was all men and me. And so it was a very interesting place to be, but because I’m a woman, I’m really not afraid to ask questions.
Michelle: Exactly, exactly.
Kathy: So I would ask questions like, you know, why are you offering 8% preferred return on this build project when it’s risky for the investor, they’re putting up most of the capital, but you’re getting most of the profits? So I would just kinda ask the room like, “How is that fair?” And it would just be silent. You know, I was able to successfully negotiate on behalf of investors that, you know, if they’re putting the money up, they should get their money back out first at a preferred return. I mean that, you know, if people are new to investing, it’s basically called a preferred return, which means that once the profits are there, the investors get what they were expecting first, and then the profits are split after that. In that way, we can, you know, just again make sure that the project doesn’t take too long. If it takes longer than expected, that comes out of the developer’s profit and not out of the investor’s expectation.
So we go kind of high mainly because in the beginning, we were getting land for so cheap. In 2010 and 2011, during the recession, we were buying land for 10 cents on the dollar. We bought 4,200 lots in Florida for 16 million. It had been 160 million in escrow just a few years earlier. So we were able to really give the investors a big preferred return starting at 15%, and then a large portion of the profits. But since then, you know, land has gotten more expensive and materials costs have gone up and labor costs have gone up, so, you know, sometimes the preferred return will be more like 12%. And we’ve even gone as low as 10%, but that’s if really all the entitlements are in place and we’re just ready to break ground because, you know, a lot of the risk is then taken out when those entitlements are in place.
Michelle: Got It. Now, Kathy, if someone comes and says, “This is my very first time going in investing in real estate. I’m very conservative, and I have always invested only in the stock market. This is what my financial planner has recommended.” How do you explain to them how actually real estate is, in fact, the most conservative approach if you’re buying in the right time in the market cycle, if you’re working with the right partnerships, with the right operators, and how hands-off a passive investment it can be, the level of control that you have because the operator is able to optimize cash flow and therefore returns and future value of the asset, the huge depreciation benefits that come with it? But basically, what would you say to them based on a market cycle, and how does the stock market compare to real estate? Like if someone is starting out and they’ve never touched real estate, they’ve always been invested in the stock market, how would you basically open their mind to this new world of opportunities and possibilities out there?
Kathy: Sure. Well, you know, if you are a busy person, if you have a job and children and you’re trying to exercise to do all these things, and you have no free time, then passive investing is really the best choice for you versus going out and trying to find a foreclosure and fix it up and, you know, do the whole HGTV thing. That’s what people think it looks so romantic and glamorous to do a fix and flip, but it takes a lot of dirty work and a lot of energy and time. So just take that one off your list if you’re busy. But, you know, it really comes down to the person’s desire. If you just want something that kind of feels like the stock market, where you don’t have to do much than syndications, or investing in somebody’s fund, or REIT is a good idea, the thing, at least for me, that the reason I love real estate is that it is tangible. There is something physical that your money is tied to.
You know, not always, it just depends on the way the deal is structured. But if you are, let’s say, lending, if you’re a private lender at a low LTV, low loan to value on land, that’s probably one of the most secure ways to invest. And so that’s something I would put my mother or grandmother in a private note in first lien position on a low LTV against a, you know, real property, either ideally a cash flowing property. So investing in a note or in someone else’s note fund, as long as that fund is audited by a professional auditor, I think that’s how you can really jump into real estate and with the lowest risk. But you should always run the documents by your CPA and by your real estate attorney. If you don’t have one, you should get one because the documents, you have a private placement memorandum, or if you’re investing in a note, you’ve got a whole lot of documents that a normal person will never be able to understand. You know, it’s just too much. So we highly recommend you just…
Michelle: It is. And then they’re designed to scare you away because it’ll spell out all the potential risks that come with such an investment. And from there, you definitely do need to, like you mentioned, have your CPA or legal counsel help you identify if the way that has been structured, number one is legal, fair. And if it’s helping you accomplish what you wanna accomplish, what your goals are, you know, in terms of having your money work for you, for sure. What do you wish you would’ve known at the beginning of your journey that you know now?
Kathy: Well, my journey was one where we were building our wealth because at that time, you know, we were just starting our family, we were busy, we had young children, a big house. We didn’t have a bunch of money to invest. We were in the creation stage. What I guess I didn’t know it then, so I guess what I would tell people starting out is you’re gonna be able to build wealth using leverage when you’re young, but the leverage has to be right. So, in other words, you can buy 1 to 4-unit buildings and get up to 10 regular conventional loans at these low-interest rates today and lock it in for 30 years. So, you know, take advantage of your ability to borrow low debt, you know, low cost, that’s 5% or whatever locked in for 30 years.
So, you know, take advantage of that. Get into markets where there’s lots of growth, population growth. Diversify, don’t put all your eggs in one basket like so many people do in California, they buy one property, a million-dollar property. I had a lady come up to me and tell me she bought a fourplex in California for $2 million, and I said, “Oh my gosh, how much is the cash flow?” And she’s like, “What’s that?” You know, she didn’t understand it all, yet she had just put down $2 million on a property that’s right on top of a fault line. So just, I guess, I would say take the time to learn enough, even if it just means reading one book about the topic, like, let’s say, you want to invest in notes, read a book on notes so that you really understand the language. There’s plenty of books out there. If you’re interested in working on, you know, rental properties, I wrote a book called “Retire Rich with Rentals,” it really outlines what you need to know. If you’re choosing multifamily, there’s plenty of good books out there, right? So just take the time to understand what you’re investing in. It’s different than the stock market, and you do need to know the basics, you need to understand the language.
Michelle: Absolutely, that is important. Otherwise, it’s like trying to speak Spanish without knowing the basic verbs and pronouns and yeah, absolutely. You definitely need to know the language and each of those asset classes will have similar things, but for example, in terms of valuation of a property, if you’re looking at single-family, comparables are going to be the way that you value that asset. But if you’re talking multifamily, you know, it’s gonna be based on the actual income that the property produces and so on and so forth. So that’s something to get familiar. You’re right in terms of the differences in the language and a book is a great starting point. Kathy, now, you’ve mentioned you’ve dealt in your personal life with illness, with all the work that comes with raising a family and having to be out there working and being in charge of the finances of your home, how have you incorporated faith and spirituality into your life to help you not just get inflows of cash, but also inflows of ease and inflows of grace in your life?
Kathy: I am a firm believer that what we speak is what we create, and what we think about is what we draw to us. So, you know, like I said with my husband, I refuse to believe that a freckle would take him down. He’s like a big extreme sports guy. And so, you know, I kept the faith, 100% faith that he would be healed. It’s the same with, you know, investments, like, you’ve got to speak as if you already are there because your words are powerful. And women, in particular, love to, I think humans, in general, love to point out everything that’s wrong, you know, in life and will often sit around and gossip or, you know, passionately talk about things that frustrate us, that will bring us more of what frustrates us. So we’ve got to passionately speak together about what we desire, and what we’re creating, and what we’re excited about, and that’s a game-changer. It takes a lot of self-discipline, though, because we’re naturally prone to talking about what isn’t working
Michelle: Beautiful. Yeah, you’re right. It’s like what you are putting out there and not just in thought, but in word is then turning into something real. It’s almost like you’re calling it in, right? And it takes the same effort to call in worry and anxiety and just negativity. So why not use the effort and calling in opportunity, possibility, optimism, enthusiasm, you know, just good things, you know, coming into our life? Absolutely. Now, what is the best way, Kathy, for people to reach you if they wanted to find out more about what you do in helping people and families create passive cash flow, where can they go, and how can they connect with you?
Kathy: Sure. Well, our website is realwealthnetwork.com. And we give just an enormous amount of education for free webinars every single week that it’s been my mission to make this stuff more interesting and fun and easy to understand. So, you know, I make sure that our webinars are in normal speak so that, you know, that’s fun. And, well, what we’ll do is track where the growth is and we have a network of people across the country that can help you invest in real estate growing markets. That’s realwealthnetwork.com. And all that education is free, you can speak with an investment counselor. And then I wrote the book “Retire Rich with Rentals” that you can get on Amazon, and that’s a step-by-step process investing in one to four-unit buildings. And then my show, Real Wealth Show and Real Estate News for Investors are on iTunes and Stitcher.
Michelle: Yes, and I have tuned in to the Real Wealth Show, and I have to say, yes, you have to if you are not following Kathy, you have to follow her. And right now, as you were speaking, I was putting your book in my Amazon shopping cart so I can read this as well.
Kathy: Oh, thank you.
Michelle: Thank you so much, Kathy, for a wonderful time together, and I love your insights around what to look for in terms of evaluating whether a fund is good for you, who are people that should be on your team to help you evaluate an investment, or making sure that the fund is an audited fund that is something that is so incredibly important, and so very few people actually talk about that. It’s like something that happens that is not being said, you know, kind of like in the sideline. So I’m glad that you brought that up, and just explaining, you know, how it is possible to basically roll over profits from a market where you’ve reached the peak and rolled those over into a market that is growing and seeing your equity grow and your cash flow grow and taking advantage of depreciation, that benefits that come from real estate. Really, it’s an asset class that, in my opinion, has the whole package, and you beautifully described it as well. So thank you, thank you very much for spending time with us, and I hope to have you in a future episode.
Kathy: Thank you so much.
Michelle: I hope this episode left you feeling inspired and ready to get inflows of cash, inflows of light, and inflows of faith in your life. I welcome your reviews on iTunes. Please leave me a review and help me create an amazing community of women inflow. Thank you, as always, for sharing your voice by going to michellebosch.com and joining the conversation about this show. And while you’re there, grab a copy of my “Ten Commandments to Living a Life Inflow.” You can also follow me on Facebook at Michelle Bosch and on Instagram @michelleboschofficial. Thank you very much. And until the next one.
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