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Real Estate & Retirement: Smart Strategy or Costly Mistake? · The Jon Sanchez Show

• Jon G. Sanchez, CEO: Good Thursday afternoon to you. Welcome to the Jon Sanchez show on Newstalk 780 K, which it's a pleasure to be with you and a pleasure to be with my co-host guys. I almost said happy Friday, but you're number one. You're here and it's not Friday. It's Thursday, but it is a Friday for me because the markets are closed tomorrow, so I'm all mentally screwed up more than positive, more than normal. ⁓ I am so eager for this week to end. I love, love, love what I do for a living. Aaron Clark, but Dwight Millard: Right. Aaron Clark, Edge Realty: also eager for the week to end. I know you are. ⁓ Jon G. Sanchez, CEO: Yeah, I am ready for a three day break. I tell you, I really am. This has been a long haul for this last, you know, five weeks, you as far as the market is concerned. So yes, looking forward to some great time with family, hopefully. All Well, that was Aaron Clark of Israelity. How you doing today, big A? First of all, good. Glad to hear it. Absolutely. It's going to be a great one. You betcha. Dwight Millard Q Home Loans. How are you, my friend? Aaron Clark, Edge Realty: Doing great, doing great. Looking forward to the show tonight, or today, this afternoon. Dwight Millard: I'm doing fantastic, Jon. Just ready for the weekend. One more day to dodge. One more day to play dodge ball, right? Well, I asked you before the show started. I mean, they've got the big employment numbers coming out tomorrow and everybody's close. I don't get it, you know? Jon G. Sanchez, CEO: Good, ⁓ Amen. That's good way to look at it. Yeah, that's a really good way to look at it. Yeah. Yeah. Yeah. They've I remember years past. It's funny you bring that up. I was thinking this morning. I remember years ago. I mean, this was like, I remember I just bought the ranch. It was like 2010, 2011. And we're, you know, off on good Friday, of course. And OPEC had a major, major meeting and I can still, I mean, I can't remember what I had for dinner last night, but I can remember sitting at the kitchen table for breakfast. And the OPEC news came out and yeah, oil went crazy then. So yeah, how funny is it now we're still worried about oil, but that was a different different scenario. But you're right, Dwight. We do get the ever so important non-farm payroll numbers tomorrow. Markets will be closed, but you know, obviously we'll we'll deal with it on Monday, right? It'll still be here. We'll deal with it on Monday. Dwight Millard: You know, Jon, and I know you probably will cover it, I mean, according to Trump, we've got more oil than I mean, you know, we've got lots of oil and you would have thought oil prices would have just. Jon G. Sanchez, CEO: Yeah, yeah, they should be but they his his his his words were they should be buying from us, you know, forget about the Strait of Hormuz buy from us, which, you know, we've all said that we're, a net exporter, we're not a net importer. And yeah, so you again, you kind of question this whole scenario there. But now you're Dwight. And what a day it was. First, folks, let me tell you what we have lined up for you after I go through today's wild wild ride on Wall Street. So much of attributed to the president's speech last night's when all the fun started. ⁓ Dwight Millard: Yeah. Jon G. Sanchez, CEO: But know, real estate has long been called one of the best ways to build wealth. We all know that, we all believe in it, we all do it, so on and so forth. But here's the question I want you to be thinking about. Is it really the best way, or I should say the best strategy for retirement income? You see, I get clients all the time that, you know, and sometimes we will recommend, we're one of the few financial advisory firms that actually recommend to our clients many times to put real estate in the portfolio. Most advisors won't do that because... that takes the assets away from them. Well, we don't care about that. We're in it to do the right thing for the client. we deal with the situation a lot, hence why I brought up this topic, which is, ⁓ it really the best way to, I won't say exclusively provide your retirement income, but a portion of it? And the answer is yes, it really is. But like anything else, before you jump into it, you've got to understand how you're doing it because it's different, right Aaron Clark? It's different when you're looking at investment real estate. to be a supplemental source of income to you, whether it's retirement income or some other source, it's different than the guy or gal that says, I wanna buy this property in the hopes that it's gonna appreciate, right? It's a completely different animal. And so what we're gonna do today is we're gonna kind of go over the about how you do this, how you purchase the rental to supplement the retirement income. ⁓ We're talk about the importance of the cashflow. Aaron's gonna talk about how he and Corey crunched the numbers to create cashflow and ⁓ really, And we're not just talking cash flow, folks. We're really talking getting down to the brass tacks, getting down to the actual net number because it's easy and we all know we have friends or maybe you do this yourselves. ⁓ yeah, I'm making whatever. Twenty five hundred dollars a month on my rental property. Right. is laughing. ⁓ twenty five hundred dollars a month of my rental property. And then you get someone that knows what they're doing. You're saying, no, really, what is your true cash flow? What are you netting? you know, I'm up, you know, four hundred dollars a month by the time everything is paid. Like, OK, it wasn't as good as you thought it was. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: So we'll go through that. We'll talk about the taxes. We'll talk about really some of the mistakes that we see a lot of people make when it comes to utilizing real estate for retirement income. ⁓ you're counting on real estate to fund your retirement, again, we're big advocates as anything of being a diversified portfolio, that it's one of your sources of retirement income. ⁓ it can do a lot of things that the stock market can't, right? But bottom line is you have to understand the rules because think one of the most important things that and Corey always try to emphasize, and I want to just make this before I move on to the stock market side, which is you to understand your reason or your intention buying real estate. So many people will just out and say, I want to have a rental. I want to become a landlord. I've seen people get rich with real estate, but they don't have that goal. don't have that specific intention. And what ends up happening is they waver, right? It's like a drunk driver going down the road. They're going to the left side or the right side. They don't really know what they're doing instead of saying, all right, I need to go from point A to point B. That's my reason for owning the real estate. Aaron Clark, Edge Realty: Exactly. I mean, I'll give you two quick little example snippets. Sometimes I have people that are looking at it strictly for cash flow and they want that immediate return right away. But then I have people that are very strategic where they know they've got a couple kids that are going to grow up. They're going to go to college out here. They know what it costs to pay for a dorm. And so they go, you know what? It's better if I buy a house now. I may not be making a big chunk of money monthly on it, but my goal in that is to save money as opposed to make money. Jon G. Sanchez, CEO: Please. Aaron Clark, Edge Realty: So you got to take into consideration what those goals are and then customize whatever opportunity there is around it. Jon G. Sanchez, CEO: Yep, yeah, absolutely. real quickly, how do you get into as the lender, do you into really finding out what the goals are of that person? Like to Aaron's and my example, does that really ⁓ matter to you as a lender? Dwight Millard: Well, I mean it does, you know, I think the more thorough you are, you know when they call you, hey, I'm looking for my primary or investment. You can tell when you have it, when somebody's got four five, six, seven properties, you know, you can dig pretty deep into that and kind of strategize. I mean, I've got one right now that listens to the show, a client that is looking to maybe leverage a couple rental properties to buy another primary. So I mean, yeah, it's, you know, one of the things I think the biggest Jon G. Sanchez, CEO: Okay. Dwight Millard: Probably the problem, the pitfall on this is listening somebody else rental story, right, Aaron? I mean, it's ⁓ from dentist your mechanic, it doesn't matter. got a gleaming story because they can't have a failure story. ⁓ Yeah, yeah, so that's the biggest pitfall, I think, to your point is, ⁓ I'm making 25, three a month, you know, my payments. And, you know, it's just. Jon G. Sanchez, CEO: Good point. Aaron Clark, Edge Realty: yeah. Jon G. Sanchez, CEO: ⁓ Just like their stock market returns. Dwight Millard: Not that way in every case, so. Jon G. Sanchez, CEO: Right, right, absolutely, absolutely. All right, well, as Aaron said at beginning of show, this is going to be a great topic, and it is. We're really looking forward to sharing this with you. But first, let's get down to the stock market side of things. And again, we need to go back, what, 23 hours ago? Because the president's speech was at, 6 PM our time last night. So no one really knew what was going to happen in this speech, right? As I shared on the show yesterday, it kind of bled out through some of the sources. He was going to talk about winding down the war. two to three weeks, right? We've been hearing that all this week. So we thought that was going to be the situation. We knew he was going to bash NATO, bash members for not helping, ⁓ you come in and help out the Strait of Hormuz, those type of things. But what we did not expect were some of the comments that he made earlier in the day, which is basically blow Iran to oblivion and send them back to the Stone Age. Well, he said it on national TV, right? Let me say TV because we know the rest of the world watches the speech. And soon as he got done saying that, guys, I was watching the futures very closely. They began to dip and oil prices began to go up and go up and go up. And when I got up at three o'clock this morning and I was always a sick individual, I checked the futures and I looked and see what oil is doing. And I just about fell out of my chair. They were down. Dow futures were down, I don't know, 230, 250, somewhere like that. When I went to bed at about eight, nine o'clock, I guess it was last night. And then when I saw it this morning, down 400. down 500, down 600, and right before they open, down 700 on the down features. Oil was not up a dollar or a couple dollars. Oil was up, you know, $8 and $9 and $10. And before we knew it, I think when I did my first update at 523 this morning, we were up, matter of fact, I'm go back to my notes here. No, pardon me, it right before they opened. We were up $13, right at the open actually. We're up $13.06 a barrel to $113.18. Dwight Millard: Mm-hmm. Jon G. Sanchez, CEO: Think about that, Think about that for just a second. When I started my first report, we were at $110.21 a barrel, $10.11. So from $5.23 this morning to $6.30, we went from $10.11 a barrel to $13.06 in an hour. That's how fast oil prices were rising based upon the president's speech last night, and then how fast the stock market was falling. Dwight Millard: Mm-hmm. Jon G. Sanchez, CEO: So we open up and as usual, it's usually, you the pre-market many times will not be as worse as what the opening is gonna be. And that was kind of the case. We, you know, we went from that 700 point loss. We were down, I don't know, 600 and some change. Still obviously very severe. And then things began to stabilize. And I'm not kidding you guys, within two hours, within two hours of the open, so right around 738 o'clock, right around there, the Dow went positive. And oil prices didn't come down that much. that's kind of the way the whole day ended up finishing out. We just had very small losses across the board. ⁓ though oil finished up $11.34 to $111.48 a barrel. figure that. It's an absolute head scratcher. mean, you at and you go, I mean, we're freaking out when we'd have a day when the oil would go up a dollar or a couple of dollars. And to go up $11 plus you know and then and then we get out of the day with a with a like I said a very very small loss 61 point loss on the Dow ⁓ 38 on the Nasdaq and up seven on the s &p 500 so two out of the three major averages made money today you it just it's crazy I'm telling ⁓ yeah exactly the yeah yeah ⁓ Dwight Millard: It's your Good Friday gift. It's your Good Friday gift. It's gotta be. mean, yeah, cause you're right, Jon. I was you're making, that sickness is coming over to me. It has been, but ⁓ you I'm looking at it first thing going, no, you know, here goes Bonn, you know, the whole thing, Bonn survived the damage today So yeah. Jon G. Sanchez, CEO: Yeah, I'm sorry, man. I'm sorry. Yeah, yeah, yeah. The bond survived too. Yep, absolutely. right, we'll come back, talk a little bit more about the market, then get ready for our topic, real estate and retirement, smart strategies, or can they be costly mistakes? With Aaron and Dwight. Let's turn it over to Kristen Snow. Right now, Traffic Center. Hello, Kristen. Welcome back to the Jon Sanchez Show on Newstalk 780K OH with Dwight Millard of OnCue Home Loans and of course, Aaron Clark of Edge Realty. Aaron, I just want to say we've enjoyed having you on the show so much. Last month or so, you're so much fun to have on. All right, once again, we finished down 61 on the Dow to a close of 46,504. NASDAQ up 38, closing at 21,879. And the S &P 500 for the day, just a small gain of 6,580, or close at 6,582, a small gain of seven. Aaron Clark, Edge Realty: Thanks! Jon G. Sanchez, CEO: Now I forgot to mention another catalyst today that took us from that 700 point loss earlier to again, just a 61 point decline. Um, and again, call me crazy. Tell me if I, you know, tell me if I'm off my rocker guys, but driving force was, uh, Iranian news agency came out, um, and this again was when things turned around. Iranian news agency came out and said that Iran and Oman are looking to sign a joint agreement to. basically control the straight of Hormuz. Now, tell me what's so good about that. But the market went up on it. know, when I started to see the news break out, and I'm like, ⁓ wait a minute here. And the details were very scratchy, but ⁓ now you got two countries involved with controlling 20 % of the global oil trade going through there. ⁓ thrown up my hands trying to make sense of it, and what I love though, Aaron Clark, Edge Realty: Yeah. you Dwight Millard: This is bad. Aaron Clark, Edge Realty: You Jon G. Sanchez, CEO: is there's a lot of people, heck of a lot smarter than me, big massive money managers, and they're all saying the same thing. This, whole thing makes absolutely no sense the way that it's performing, right? And again, today was a prime example. Just joined us, $11.34 gain on oil, $111.48. We're up, like I said, up over $13 early this morning before that Iran story broke. Gold for the day down $133.20, 4,679.20 an ounce. And pretty quiet to wait on your world. Down one basis point on the 10 year, down 13 basis points. Yeah, you heard me right. Down 13 basis points on this holiday shortened week. Let's talk to the mortgage side, my friend. Dwight Millard: Yeah. Yeah, so I mean, keep it easy. We're down about 25 basis points from the run up to 6.6, 6.7. We're at 6.41 today, according to Mortgage News Daily. know, again, your government's FHA and VA 5.88 and 5.9. I mean, it's slow. As we always talk, it's slower to come down than go up. All right. And so it's just it's a little bit at a time. but it was a I mean, Jon, I think it's been a great week for. Jon G. Sanchez, CEO: Pretty severe. Yeah, boy, is that the truth. Dwight Millard: for bonds as you were talking about 13, you know, and, know, we've got a little relief, but I think it's anywhere near what people are hoping and wanting that when we were, you know, four and a half weeks out. Jon G. Sanchez, CEO: Do you guys feel like I do that we're just one Trump comment, one news headline, one hitting the wrong oil just one something from whole thing unraveling and it ⁓ getting severely worse it already is? feel the ⁓ same way? Dwight Millard: Yeah, mean, Jon, yeah, I do. think we're living on that type of news flash. But hitting like a mine or something, can you that? Yeah. Jon G. Sanchez, CEO: It's like, yeah. Yeah, yeah, yeah. Aaron, you feel this that way? Aaron Clark, Edge Realty: I laugh because it reminds me of the times in the the old days before Trump when you could check things out like once a week or once a month and there was very little change and now You could wake up in the morning and check anything and anything is just changed completely, ⁓ you ⁓ Or times in a day Yeah, ⁓ yeah, ⁓ I I guess for people that are in a position where they just constantly need action Jon G. Sanchez, CEO: Aaron heck with waking up in the morning, brother. I'm talking hour by hour. Yeah. Yeah. Yeah. Yeah. Aaron Clark, Edge Realty: It's great. But for people that are sitting back on, just like the ⁓ ride. Yeah. ⁓ Jon G. Sanchez, CEO: Yes. ⁓ yeah. ⁓ absolutely. if you're, yeah, yeah. No, if you're, if you're a trader right now and you can figure this thing out, yeah, you've probably made a lot of money or the downside as I've read many stories, there's a lot of hedge funds that are now out of business because I don't care how smart you are or how sophisticated algorithms you have. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: this has been an extremely difficult market because exactly as you said Aaron, it's headline driven and no one knows what that next headline is gonna be. No one knows that. Dwight Millard: Yeah, but Jon, Jon, in the first term of Trump, you said that way back then that it's good for radio, know, so that that for your portfolio, perhaps it's a. Jon G. Sanchez, CEO: Yep. Yeah. yeah. And I warned the same thing when he got elected. I said, it will not be boring. There'll be plenty to talk about on the radio show for the next four years. You're absolutely right. let's get our first point going. Once we're talking about real estate and retirement from a cash flow perspective. Is it the right thing to add to your retirement portfolio or retirement income? So Aaron, get this out of the way before we go to break. Dwight Millard: Here we are again. Jon G. Sanchez, CEO: I'll let you and I talk for just a second why retirees ⁓ real estate, but at the same time, it can also be dangerous. Aaron Clark, Edge Realty: Absolutely. I think that the big thing people that love it ⁓ that it feels safe because they can see it, it's tangible, ⁓ can drive by it. You know, they can kind of control it, you know, a perspective of like, you know, if they don't want the tenants that are in there, if they don't want the prices they're getting, they can adjust whatever they want to adjust. And there's some power and comfortability in that. ⁓ Yeah. Jon G. Sanchez, CEO: Tangible. That's a good point. That's a good point. What about the old saying mailbox money, right? That rent check should be coming in every month. Aaron Clark, Edge Realty: Yeah. comes in every month when you have your that are tied up in your world, right? People just, they gotta log into an account to kind of see it or ask you or whatever. They have that tangible check. And so I think for some people, it feels from that perspective, but the question is, that safety real? And just because you that money coming in doesn't mean that's the best And that's a lot of what we're talking about in the topic. Cause I get lot of people instantly, instinctually run to, Jon G. Sanchez, CEO: Mmm. I hope that Aaron Clark, Edge Realty: estate and I sit there and crunch the numbers with them and I go you're gonna make $50 and but it's cost you $200,000 to make $50 you could stick that in a savings account and make more money than that with zero risk so understanding it Jon G. Sanchez, CEO: Exactly. That's right, that's right, that's And make more, yep, you're right. you've alluded too many times that that's becoming, or it is very common now because of the elevated prices of houses, elevated mortgage rates, right? Yeah. Dwight Millard: Yeah, yeah, yeah, yeah. Aaron Clark, Edge Realty: Absolutely, yeah. mean, right now, you've got to be in a good position for it to be good investment. Dwight Millard: Yeah. Jon G. Sanchez, CEO: Well, and again, unless you're very sharp or hopefully your team is very sharp, which they should be, what a lot of people also forget about is the cost of money, right, Dwight? I mean, that loan's not coming for free. You have that interest cost. You have the expenses. You have all these different things. But also, you have the opportunity cost of money. mean, if you put, let's just pick a figure, you put $100,000 down on a house as far as the down payment. To your point, Aaron, that money could be working for you in a lot of different areas and people don't... Dwight Millard: Great, right. Yep. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: Don't calculate that as they should, right? You should have, I remember, Corey years ago showed us this beautiful spreadsheet you guys use that really, really breaks down when you're analyzing a deal for a client, it really breaks down everything to get to that true bottom line net-net, here's what you're gonna make assuming is your rent number. Aaron Clark, Edge Realty: Absolutely. Yep. Dwight Millard: Yeah, Jon, had a commercial, I had a commercial landlord real quick that he wanted to pick up his check. So I had corporate mail it to every month he'd come in, but he would just do his rounds, make sure the property looked good. And I'm sure he did it, you know, with all his other little properties, you know, I called him a goo, but he came every, I mean, like on the second every month, but he was nicest guy and he'd just do his little, make sure everything was good. So, yeah, yeah, yeah, but he loved it. Jon G. Sanchez, CEO: No kidding. Yeah, yeah, yeah, yeah, yeah. Isn't that something? Aaron Clark, Edge Realty: Ha ha. Jon G. Sanchez, CEO: Yeah. Was he an older guy? Yeah, yeah, old school. Yeah. Yep, yep. Hey, that to me is a great thing to do, to go pick up a check. know, that's nothing wrong with that. All right, when we come back, Aaron's gonna dive into our second point of utilizing real estate as part of the rental income, or excuse me, the retirement income scenario, and that is he's gonna take us behind the scenes with the real math. What you really need to look at to see if this deal, Dwight Millard: He loved it, Yeah, yeah, yeah, yeah. Aaron Clark, Edge Realty: you Jon G. Sanchez, CEO: makes sense for you, right? It's not just, I'm collecting $2,300 gross month, you know, per month. No, no, no, no. Wait till you hear what he has to say about that. Let's turn it over to Jack Saban. He's got news, and weather. Hello, Jack. Welcome back to the Jon Sanchez Show on New Stock 780K, which with Aaron Clark of Edge Realty and Dwight Mallard of OnCue Home Loans. Once again, we only lost 61 on the Dow after being down 700 in the pre-market session. Nasdaq rose 38, the S &P higher by seven. Once again, the big talk of the day, the oil prices. Remarkable market on the stock market side when you see these oil prices up $11.34, $111.48 close. Just absolutely incredible. And once again, another reminder. The market is closed tomorrow. You'll be getting a best of me tomorrow. right, we just started our discussion, real estate and retirement strategies, right? Looking at real estate as a supplemental source of retirement income, as a ⁓ source of your retirement portfolio. All Aaron, it is a financial show, so that means we've got to talk the numbers, brother. We got to talk the numbers. Let's talk about getting in without getting too deep into the weeds, but let's really start moving into ⁓ the behind the rental. to see if there's real income, to see if this really makes sense. to us about some of the things you're looking at there to come up with that number to say good or a bad deal. Aaron Clark, Edge Realty: Yeah, so, you know, typically when people are looking at rental properties, they're looking at, okay, what's it going to cost me? What's the payment going to be? And then how much money am I going to get from the tenant? And don't think about any of the additional things that you have to include in that. So when and sit down with somebody, I mean, we end up talking more people out of these transactions than doing them because the numbers just don't make sense. And we're going to be honest with people about it. So, you you have to take into consideration what your maintenance fees are going to be if... Jon G. Sanchez, CEO: I know you do. Aaron Clark, Edge Realty: You know, you're going to hire a property management company to do all the upkeep on and background checks and applications and that kind of stuff. You to do a consideration for vacancy because you want to be in a position where, let's say, if you have vacancy for a or two months or three months, I mean, I've had clients where they had really bad tenants and then they ended kicking them out because of not paying. ⁓ So now they've got vacancy ⁓ of a month or from them not paying because for two months they were trying to to get them to pay instead of just getting rid of them. then when ⁓ got them out, then the amount of maintenance costs to get that place back up ⁓ they just put new floors, new this, new that, and now they're redoing all of it again. mean, you be in like the $10,000 range ⁓ easily a situation like that. Jon G. Sanchez, CEO: Right? Yes, the repairs, I was going to bring that up. Easy, easy, easy. Yep. Aaron Clark, Edge Realty: Yes, so you have to take into consideration your vacancy well as the obvious ones taxes insurance If a property is in an HOA, we have lot of places that are condos and townhomes and things like that They have HOAs we have to consider those costs and Lawn maintenance a lot people don't want the tenants doing lawn maintenance because they ⁓ don't do it So hire somebody to do that So when you start adding all of these numbers together and you start comparing Jon G. Sanchez, CEO: Mm-hmm. Aaron Clark, Edge Realty: computing those into or calculating those towards what the actual amount of gross rental income you're getting, you start looking at the numbers and I said, in my example, you're looking at 20 bucks ⁓ you go, ⁓ I spent $300,000 to ⁓ this $20. Yeah, ⁓ a lot of people, their pushback on that is, okay, yeah, but 20 years from now, it's gonna be worth $10 million. And they've got that whole dream. Jon G. Sanchez, CEO: Yeah, right. To make $20 a month. Yeah. Dwight Millard: Hmm. Jon G. Sanchez, CEO: It's gonna go up in value. Dwight Millard: Mm. Jon G. Sanchez, CEO: Right, right. I'm glad you brought that up. Aaron Clark, Edge Realty: You never buy investment property a standpoint ⁓ appreciation, ever. ⁓ Jon G. Sanchez, CEO: Thank you. Thank you. That was what I was going to ask you. I think that's an excellent, excellent point. Yeah, because see that over and over again. I'm buying it for the cash flow. Excuse me, I'm buying it for the future appreciation of it. That's what I did on my personal residence, right? And it turned out great and everything else. I'm going to use that same philosophy ⁓ with rental and it's going to supplement my retirement and everything is just going to be great. But quickly, why do you advise that? Why do you say don't look at the appreciation when you're buying rental properties? Aaron Clark, Edge Realty: Well, because you don't know which way it's gonna go. You don't know if the market's gonna crash, if it's gonna go up, if it's gonna go in any way, shape, or form. And then on top of it, when you go to sell that property, even though you might have all the depreciation, we talked about this on Tuesday, you're gonna have the depreciation you've written off every year when you did your taxes you're gonna owe back. ⁓ and you're gonna have your capital gains. It's a business, so you don't just. Jon G. Sanchez, CEO: Appreciate your recapture, Tex. It is. Aaron Clark, Edge Realty: cash, you know, just pull the lever and then the money comes back to you. There's a whole lot of expenses to go in that. So you can actually go in a negative direction on that. You want to count the cash flow. Jon G. Sanchez, CEO: Yep. And as basic as this sounds, I still get this question a lot, so I'm going to bring it up. People still think that that $500,000 tax-free exclusion you get on your primary home if you're married, that that applies to rentals. It does not, as Aaron just said. Yep. Every dollar that you have as far as the capital gains, and I'm talking a net capital gain, obviously you have your purchase price, and then you can reduce that purchase price, or excuse me, increase that purchase price on paper by all the repairs you've made, et cetera. Aaron Clark, Edge Realty: negatory. Jon G. Sanchez, CEO: But when it's all said and done, that capital gains tax, you know, get independent upon what bracket you're in and, know, it go from 0 % all the way up to 23.2 or 23.3, excuse me, percent. That's on top of right, Dwight, being in a state like California where they have their own state capital gains tax. I was just talking the federal side. So easily you can see 25, 26, 27 % if you, you know, in a high enough bracket. Then you, Dwight Millard: Yeah, Mm-hmm, yeah. Yep. Jon G. Sanchez, CEO: Come back to, like Aaron said on Tuesday's show, if you missed it, please pick up the podcast or the YouTube on it, because this is the tax. I swear, guys, I see this all the time. I'm sure you probably do too. Accountants fail to, not all, but some accountants fail to tell their clients about it. Because we always send a client to their accountant. If they come to us and say, hey, we're thinking about selling this rental and investing the money with you. First thing, go to your accountant, run the tax numbers. But the 25 % depreciation recapture. So again, if you depreciated $100,000 of this property, You're going to owe roughly $25,000 tax on that. That's a big surprise. That's why I call it the gotcha tax. So there's a lot of different things there. But Aaron, the other point too is I think people a lot of times, to your point, they're looking at gross rent numbers. They're not looking at the net income rent numbers. Dwight Millard: Mm-hmm. Mm-hmm. Aaron Clark, Edge Realty: mean cash flow isn't what you collect, it's what you keep, right? So gross numbers don't really mean much when you start putting them against the expenses that it takes to own that property. Dwight Millard: You know, Jon, I want to add in this scenario in the cash flow analysis that we have, there's a reason why mortgage companies use 25 % rental vacancy factor. I mean, it's probably a little high, a little more conservative, but to Aaron's point, that covers those three months, the four months, the fixing. So maybe it is on the high side, the 25%. We're never getting away from it, as long as I've been in this business. Jon G. Sanchez, CEO: Do I, let's bring you into the, yeah, go ahead. Dwight Millard: Aaron's point, mean, you can calculate seven and half, eight, nine, 10. I think you might be a little bit there on that, right, Aaron? I don't know, but 25's a little steep, but I single digits is too light. Jon G. Sanchez, CEO: Yep. Cool. Aaron Clark, Edge Realty: Yeah, I mean, we've been in a market where it's single digits, but that could turn in any minute. You never know. You gotta be safe. Jon G. Sanchez, CEO: Yeah, absolutely. Now guys, let's get into the liquidity issue. This is another, I won't say it's a downside, but it's just something everyone needs to be aware of. ⁓ they come to us, they've got a stock market portfolio. care if it's an IRA or taxable account, it's liquid. It can be sold. Sometimes there's taxes due, sometimes there are penalties and taxes. Sometimes there isn't. But Aaron, real estate is not a quote liquid investment. If a retiree is using that real estate to fund their retirement or a portion of their retirement, happens if you need cash fast? What happens if the market slows down? What happens again? Big vacancies. What happens if the property doesn't sell? No one ever thinks about that. Aaron Clark, Edge Realty: Yeah, I mean in a hot market, sure, you could turn that thing and probably get cash in your pocket in 30 days. that's not a typical market. Our typical market, you're need that cash fast. you could go, Dwight can speak on this, but you could get an equity line or something like that ⁓ to some of that cash out. ⁓ But lot of people don't even understand how those work. And the fact is on those, if you don't understand them, you end up paying an interest only payment on them. ⁓ They get paid off. They keep increasing in balance and they end up hurting you in the future. Jon G. Sanchez, CEO: Mm-hmm. Always advisable. Aaron Clark, Edge Realty: you have to talk to somebody like Dwight who can explain it ⁓ even then you're still waiting for the time to process and now you're taking away from that net proceeds because you've just added another expense to that as opposed to just Selling and being done and collecting that cash and making it liquid Dwight Millard: Mm-hmm. Yeah, was gonna say that just clobbers your cash flow analysis, right? And it takes everything that you tried to start off to do. It kind now is counterproductive, counterintuitive. You know, if you've got to go borrow from it because you weren't planning on, you know, fixing up or water heater. I mean, it's like a car sometimes, Jon, know, just about when you think you're in a good spot, your transmission goes out, right? ⁓ Same with houses, you ⁓ Yeah, yeah, yeah, ⁓ ⁓ Jon G. Sanchez, CEO: Mm-hmm. Yeah, right. Two more payments left. There goes the transmission. Now I got to trade it in and start it all over again. right. When we come back, we're going to wrap things up on our real estate in the income portfolio calculation with Cory. I'm sorry with Aaron and Dwight. Let's drop it up with Kristen Snow. She's in the Right Now Traffic Center. Hello, Kristen. Welcome back to the Jon Sanchez show on Newstalk 780 KWH with Aaron and Dwight. Aaron, your phone number, please. Aaron Clark, Edge Realty: 673 6700 Jon G. Sanchez, CEO: Thank you, Mallard. Dwight Millard: Yes, 240-2022. Jon G. Sanchez, CEO: Beautiful. right, we've been talking about again, real estate utilized in a retirement portfolio specifically to produce income. Whole different animal. We talked about the side of things. We could ⁓ make an entire show that. But Aaron, let's wrap things up with this. What do you think for the person out there right now is advice? Meaning, is one property Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: one to five enough, 10 of them. We're just kind of the sweet spot or is there even such a thing? Aaron Clark, Edge Realty: You mean like for diversification? So I mean I think it's good for at least to have a little bit of real estate holdings. ⁓ think that it would be good. Jon G. Sanchez, CEO: Yeah, yeah, exactly. Okay. Aaron Clark, Edge Realty: for somebody to try to get their feet wet and get in on one as soon as possible. And then from that point, yeah, feel it out because it's definitely, like I said, it's a different animal. It's something I have people that have done it. They bought five, 10, 15, whatever. They thought they were gonna love it. And then a few years later, they're like, get me out of this. I hate it. I don't wanna do it. This is the worst thing I've ever done in my life. And then I have people that are the opposite. They get in on one and they, I mean, they literally become addicted. They form their own corporates. Jon G. Sanchez, CEO: see if they like it and so on and so forth. Yes. Yes. Aaron Clark, Edge Realty: Corporation they get multiple of their buddies involved and they start being moguls So I always say, know, it's good to start on one one is good too Because like I have a lot of people they go what should my first one be and I go well Are you gonna live in that same house when you retire and they're like, I'm gonna get it want to get a smaller little condo blah blah blah That should be your first one then get a small little condo because then you can transfer into that when you get older and and It's paid off now and now rent out your primary if you had to that's a whole nother topic, but Jon G. Sanchez, CEO: Yes. Dwight Millard: Mm-hmm. Jon G. Sanchez, CEO: Mm-hmm. Mm-hmm. And that's that's talking about. Yeah, talking about there. And that's a very formidable strategy that we look at and advise on. A lot of times ⁓ doing exactly that. You're you're buying that. ⁓ Dwight, right? You've this a lot like on the on the vacation side, right? So let's say let's say you live out of there and you like Lake Tahoe is my dream. That's where I want to move to. So you buy that home, you rent it out, so on and so forth. And then ⁓ 20 go by 10 years, whatever it is, you're like, OK, I'm going to move into it. Dwight Millard: You're right. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez, CEO: Well, guess what? All that depreciation recapture, all that capital gains we were talking about. Yeah, no, you're going to move into it. And then the goal is, is you want to stay there at least two out of the next five years because then you can sell it. And again, if you're married, make that half a million dollar profit. I've had clients that have done that year after year or not year after year, but five or 10 years they will start to do that. And man, ⁓ man, they just absolutely love it. And it's great way to ⁓ kind dodge the tax bullet and let else kind of. Dwight Millard: Yeah. Aaron Clark, Edge Realty: Every, yeah. Dwight Millard: Yeah. Jon G. Sanchez, CEO: pay off that home so maybe it is paid for by the time you hit retirement. I don't know. Boy does it ever, does it ever. Dwight Millard: And it goes faster than you think, Jon. It goes faster. know, people do your exact thing. had clients, I've had clients. That's what they've done and they're that, you know, they're in that space now. So, yeah. Jon G. Sanchez, CEO: Yes, yes, absolutely, absolutely. So we're going to kind of wrap this up with saying this, like we started the show with, real estate is a great asset diversifier versus the stock market. You can get the check in the mail, even though we can kind of do the same thing on the stock market side. But once again, it's all about diversification. I don't care if it's the real estate, the stock market, a small business, whatever it is, have a little bit of everything. And that way, your eggs are not all in one basket. You can weather the various economic storms. rising interest rates, falling interest rates, you name it. Good diversified portfolio, most important have the team behind it. And you should have a great retirement, that's the goal. That's why we do this each and every day, to make sure all of you do that. Mr. Clark, Mr. Millardo, wish both of you a great Easter and to all of you, I hope you have a safe, wonderful Easter. I'll be back with you on Monday. Happy Easter, boys. Hope the bunny's good to you. All right, God bless. See you everybody, take care. Aaron Clark, Edge Realty: absolutely Dwight Millard: as well.