So recently, there's been a lot of trending talk on and other than a Twitter about the 40-year mortgage and basically people are starting to circulate this conversation over oh my gosh, people are going to get 10-year car loans and then they're going to get 40-year mortgages. What's next? 100 year mortgages, 20-year car loans? Heck, you know what? Let's take the logical fallacy of the slippery slope argument and say we're going to have a 30-year fixed rate mortgage on a car. And that car which is a Toyota Camry is now going to cost you two hundred thousand dollars. Well folks, generally I despise Twitter that it has nothing to do with Elon Musk Obviously, you know I'm an Elon Musk fan.

It has to do with the fact that generally generally the highest quality information on social media folds to the bottom, whereas the most invigorating and emotionally creative byline is what gets everybody's attention. It's it's the same thing on YouTube I Mean, you should know this by now. the headlines have to be Jazzy and snazzy. Otherwise, people aren't interested.

If you don't have a snazzy headline, nobody clicks and then nobody can get the perspective that actually matters. For example, yesterday and then we're going to talk about this 40-year mortgage. For example, yesterday I suited up and I went on mainstream television I hopped on none other than everyone's favorite channel on the left and everyone's hated channel on the right Newsmax Okay, obviously I purposefully flipped that but yeah, I went on newsbanks I talked to Sean Spicer He's talking to me about the following of the dollar because that's more clickbait that's going on right now and I'm like, dude, if you're buying assets, it doesn't matter and they're like, wait, we didn't even think about that. You're saying we could just buy real estate to stocks, bonds, or gold, or whatever, some kind of asset and then not even have to worry about what our asset is denominated in.

Yes, but you don't generally find that headline or that body line because it's not sexy. So anyway, as much drama as there is going on around this 40-year mortgage, the 40-year mortgage for a real estate perspective would actually be a godsend for Real Estate Investors Specifically not for big corporate landlords, because big corporate landlords are not going to get access to these 40-year mortgages specifically for you. So let's take a piece out of the Playbook of the uh, you know, zero to millionaire? uh, course on building your wealth, right? Why do I have a course on building your wealth? The zero to millionaire? Well, I Do. There's a coupon code linked down below you can now use buy now, pay later for because I Truly believe that every one of you can become a millionaire through real estate.

You have to buy property and hold property now. Generally what people do is they go to a mortgage calculator and they say well. But Kevin if I take a 40-year mortgage, I'm going to pay a lot more interest over time and that is true. Let's go ahead and do a little calculation and uh, see how much more interest you would be paying.

and then let's talk about maybe why this just isn't what it seems. So let's uh, grab the uh, a share screen here specifically on uh, this, uh, this mortgage calculator and what we're going to do is we're going to calculate first the difference in payment uh, between what we would expect for a 30-year mortgage, but then also what we would expect for a 40-year mortgage. and we're going to compare total interest paid and then what we're going to do is uh, we're going to ask. Okay, well, why would we ever want to pay more? Why would we do that? We would want to pay less, right? Isn't the goal to minimize the amount of interest that we're paying and the answer to that is not necessarily.

It depends on what we are doing with our currency, otherwise, with our cash. So let's go through some of the numbers here. So first some of the numbers. let's look at a 350 000 purchase price.

You know what? Let's bump that to 450 000. Let's get with a more normalized uh house Here let's go with a more normal interest rate today. Obviously, we're probably looking at about a six and a half percent interest rate I Generally don't advise buying right now and I Don't think anybody actually expects we're going to see a six and a half percent interest rate for the long term. So let's go ahead with what I dealt with a lot in 2000 or so a lot in 2009 and 10.

when I started in the real estate business, bottom of the market basically and the market was still falling when I got in as we were trending towards the bottom four and a half percent. Let's assume that you're not going to buy until rates are four and a half percent or your average is going to be four and a half percent if you buy now and refinance later. And let's do a typical 15-year mortgage. To go extreme here: your payment in this scenario with 10 percent down on a 450 000 house four and a half percent rate is about three thousand one hundred dollars.

Now that is not your total payment for this property because remember, your total payment is actually going to be made up of something known as P I T I So that is going to be principal interest taxes, insurance and then you have you have the pleasure of also having HOA dues you can, uh, you could throw those down. So let's just put PI right here. and usually we I separate p and I but just to make things a little easier, right now, we'll just grab the total right here and then we're going to go get our taxes. and unless you live in the state of Texas, you're probably going to be sitting somewhere around 1.2 percent on an annualized basis.

So we're going to divide that figure by 12.. There we go. and let's make sure we have our parentheses in the correct places. There we go.

Now here's the magic of this little: Fun Hack Your property taxes on a monthly basis are usually just the purchase price minus three digits. Yeah, mind-blowing hack there. eh? uh. I I Love little hacks in real estate I Teach endless hacks in the real estate zero to millionaire course linked down below.

Okay then Insurance let's go with about 75 Now obviously this is going to get adjusted if you're and let's say you have no HOA because everybody hates HOAs Let's say you are, um, not. You know, in a flood zone where your insurance could be 275 dollars and let's say you're not in Texas where your property taxes could be doubled if this is, your payment for this property is now 3623. Now this is actually a little bit problematic because if we want your front end ratio, don't worry, you don't have to know what that means. If we want your front end ratio for this property to be 30, uh, you know what? I'll be generous I'll go with 35.

Well, then your monthly income before we even consider any of your other debts in your debt. To income, your your monthly income is going to have to be somewhere around ten thousand, Three hundred dollars to afford this property. Or one hundred Twenty Four thousand dollars. Uh, and this also assumes that you have saved up about forty five thousand dollars plus closing costs.

So you're probably gonna be sitting somewhere around fifty thousand dollars now. Okay, Well, uh, that's going to be a little bit of an oof, eh, Because not a lot of people make a hundred twenty four thousand dollars. Uh, but your total, uh, interest paid over the life of the loan in this scenario would be uh, let's go over here: 180. That's your 15 year, your total interest paid would be 152.6 and your total principal payment would be 405..

So let's add a 405 plus one five, two point six. Your total paid for this home would be sitting at 557.6 if you held it. Uh, to the to the 15 in 15 years, right? So that is how much you've actually paid for the property if you held this loan to maturity. Fine.

Okay, now let's change these numbers a little bit. Let's go with a 30-year fixed rate mortgage and now we're going to leave most of the other numbers the same. Uh, However, look at your ability, your the necessity of qualifying how that just changed. Let's actually write it down and you need let's write down.

Need 124 000 of income 4K income to qualify? All right now. let's change this again to your typical 30-year fixed rate mortgage at four and a half percent. And in this case you need 88.3 or 88.3 thousand dollars to qualify for this 450 000 home. Now, if you keep this to maturity, you're going to be paying somewhere around 738 000 for this house.

738 000 in 30 years is how much you're going to be paying for this house over that lifetime. Okay, now let's go with a 40-year mortgage. So 40-year mortgage. Oh, and your payment dropped too.

What was it? Your payment was two thousand Fifty two dollars. So in this case you had a 25.57 payment. So you'd have a payment would be here. The payment would be 33.6 K Here the payment would be about a 2.6 K payment and then now your payment would be about 20 52.

Oh no, it would be a little higher. Hold on the 2.6 is with the yeah, that's with the 30 year. Okay, let's drop this to 40. there we go.

1821 brings you to about 2.3 Okay, 2.3 K payment. You would only need 80.4 K to qualify. So about 10 percent less income to qualify and your total over that period of time paid for the property would actually be 800 And about seventy Four thousand dollars. Eight hundred and seventy Four thousand dollars.

So now we look at this. And when we first see when we look at this, the first thing we do is we say oh my gosh, in order to qualify with lower income. Uh, needing just 80 000 of income. So basically a third less from 124 over here.

Oh, what we're doing is, we're making housing more affordable. This is true, you're making housing more affordable, but in order to make that housing more affordable, you're actually raising how much money people are paying over time, right? Not necessarily. And so from a real estate investor point of view, the real estate investor is almost always going to choose the 40-year mortgage if they have that option. Wait a minute.

Kevin Why would an investor pay more money? That doesn't make sense. Investors usually want less money out. All right. Well, not necessarily.

Uh, not necessarily. Because what you're doing over here to an investor is you're changing the cash flow and the leveraged appreciation factor for the property, right? And so take a look at this. If this property rents for three thousand dollars a month, that's the rent. Well, then and then we add in.

Property Management Expenses. Well over here you would be sitting at a negative cash flow. On the 15-year mortgage, you'd be having a negative cash flow of somewhere around uh, three, four, six hundred dollars. So you'd be negative six hundred dollars per month, On the 30 year, you'd be positive 200 a month.

and on the 40-year mortgage, your cash flow uh, would end up factoring in about this 200 in Property Management Expenses would be around 450 so you'd have higher cash flow. Which actually, because this is a fixed rate loan, means you would have more risk with the 15-year loan. But on top of that, you have leveraged appreciation, right? So consider now that you're paying this, uh, this property down, uh, with less of an outlay every single year on an annual basis, you're putting into the property with the 40-year mortgage you're putting in 23.45 times 12.. you're putting in about 28 000 or going into this property on the 30-year mortgage.

Uh, rough math here. You're putting in about thirty one thousand two hundred dollars in the property and on the 15-year mortgage you're putting in about forty three thousand Two hundred dollars. Okay, but now if you had appreciation long run appreciation of let's say, three percent, you could even do the math with two percent if you want. But if you had depreciation of three percent, let's just say given that this is leveraged appreciation as well, it's quite fantastic.

But anyway, we'll talk about that leverage in a moment. Well, anyway, um, four hundred, fifty thousand dollars, 450 000 times appreciation of three percent gives you about Thirteen thousand Five hundred dollars, right? So you've got about thirteen thousand, Five hundred dollars of of, uh, appreciation here. But now consider what you've actually put into the property. the total you've put into the property, Where you put in about 50 to buy it, right? So you put 50 in to buy it.

Uh, let's boost this to here. You put in 50 to buy it your actual cost of the property since your your cash flow offsets how much you're really putting into it right here. right? Uh, your your cash flow here. So how much are you actually putting in 600 times? 12 Net net your net into this property 7 200 offset by your appreciation 13 500 plus 7200 Not even considering principal Pay down, right? Not even considering principal Pay down.

Here your net worth is up 6 300 bucks on the property just considering cash flow leveraged appreciation. Uh, and that folks is on fifty thousand dollars. So if we divide this number here by fifty thousand dollars, we're looking at a 12.6 Irr. Okay, but let's do that over here.

Well, now we have 200 of cash flow plus the appreciation. So 200 a monthly cash flow that gives us twenty Four hundred dollars a year plus Thirteen Five hundred of appreciation on the property. Fifteen Nine. Now we've actually gained our net worth by Fifteen Nine.

We're trying to leverage depreciation. Point of view is actually now 31.8 percent on Ten Percent down. It gets ridiculous when you only put 10 down, but it shows you how remarkable that leverage appreciation can be. And it does get that ridiculous.

This is why buying your home is so phenomenal. Uh, and leveraging for as long as possible with a fixed rate loan is so incredible. But now let's go ridiculous here. And let's take a 450 and this assumes you live there for the first year and rent it out there after, right? Five thousand Four hundred dollars plus leverage depreciation of Thirteen thousand Five hundred dollars.

Eighteen thousand Nine hundred dollars into Fifty thousand dollars is a 37.8 rate of return. Uh, that's your Irr for the first few years Right Now that Irr goes down as you then reapply that to your next year of the net worth that you're into the property, Right? Because for the second year that you're into the property, now, you're into the property. Fifty thousand Dollars plus that eighteen thousand, Nine hundred dollars of wealth that you've created. But you can also be ridiculous here.

And you could offset this by principal pay down every month you're paying down another 300 bucks in principle on the 40-year mortgage. So you could be even more ridiculous over here. The point is, what if when you're leveraging real estate, you tend to have a much higher internal rate of return than your interest rate And so when we look at the time value of money and this is where I'm going to sort of summarize this. Uh, and make this a little bit more clear because I know sometimes it could be a little confusing.

Well, we look at the time value of money. If your internal rate of return exceeds the interest rate that you're paying, you should always make that choice because your Net Present Value which is just a finance way of saying uh, it is a good decision. Your net present value is positive. When your net present value is positive, you win and you want to do more of that.

Think about that if you're paying a fixed interest rate of four percent, but you're actually earning five percent on your money. Well, that generally gives you a net positive of half a percent. That might not be worth it, right? But if you have an internal rate of return of 12 because you continue reinvesting into real estate, you continue buying rental property. Which you can do.

An internal rate of return of 12 is pretty realistic in real estate. No company can guarantee that to you, but it's pretty realistic because what you do over time to repeat the process is you continue to refinance as you have sort of longer term leverage appreciation. You refinance, You buy another rental property. How can you add fuel to this fire and potentially look at a 15, 16, 17 or more rate of return? You buy wedge deals.

You buy a wedge deal, You finance properties for the long term, You get leveraged appreciation and a wedge deal over the long term. Your interests, your your net present value is substantially higher than the interest you're paying on the loan. So anybody who simplistically tells you that, oh well, you're actually paying more for the property Kevin Why are you paying more for the property Well, it's because the government is trying to screw you. They're trying to get you to pay more to the banks.

First of all, that's a lie. You don't pay this interest to the banks like people need to wake up and realize this money doesn't go to the banks. This interest you're paying goes to mortgage-backed security holders, not the banks. Now yes, a lot of banks hold mortgage-backed Securities but guess who holds most mortgage-backed securities? Individuals: Pension Funds other individuals big Banks Right now, the biggest banks Chase JP Morgan Chase Bank of America they hold like seven percent of their balance sheet and Commercial mortgage-backed Securities it's nominal.

Most mortgage-backed Securities are held, uh, not by large institutions, but the interest you're paying is in the bank. It's the mortgage-backed security holder that's important to remember. But beyond that, it doesn't really matter whom you're trying to stick it to by paying lower interest. This is the flawed number to look at.

Looking at your total interest paid is the wrong Financial metric for evaluating whether what you're doing is a good decision or a bad decision. Uh, and unfortunately, that's because in America and widely around the world, most people have not been taught true financial analysis. and uh, anybody who and I want you to think about this web, anybody who says oh my gosh, you're going to be paying X dollars over the life of that loan for an appreciating asset like real estate is missing the point of how wonderful real estate is. They don't understand real estate investing, so when I see that drama on Twitter I Just laugh And it helps me realize we are going to be able to create a multi-billion dollar company because people just don't realize uh, we have simple and easy real estate is Now That's different for a car, of course.

Should cars have a 10-year mortgage? No, you should buy a used car and pay it off in cash. It's totally different. Very, very very different. Now, some people are like deeps here in the chat is questioning, uh, appreciation versus uh inflation.

Generally, real estate appreciates at a higher rate than the rate of inflation, but at bare minimum you're protected uh, from inflation with owning real estate. Generally not this hyperinflation that we've seen in this last cycle, but generally long-term average inflation. We tend to be protected by owning assets uh, and uh. And then of course you know when people say oh, what about the maintenance of a property well I Just that's purposefully.

why. I Built in an additional 200 uh, per month for uh, maintenance and management? Uh, especially if you manage the properties yourself I Mean, think about it. Twenty four hundred dollars buys you a new furnace every year. At twenty four hundred dollars for four years buys you a new roof.

Twenty four hundred dollars buys you five new stoves for just one year. It buys you two new water heaters. You see what I'm saying like you can maintain a property on a twenty four hundred dollar budget per month. So that's not terribly unrealistic.

I Already built that in. So the beautiful thing now, uh, what you can do is, you could use buy now, pay later to join the programs on building your wealth. A link down below: Use that coupon code before April 12th when the coupon code will be expiring. So one positive dude says: a 20 a 40-year mortgage will take you 25 years to pay more principal and interest.

Who cares? That does not matter. In fact, most sophisticated investment investors don't pay any principal on their real estate. They actually take an interest-only Loan In other words, by taking an interest-only loan, you're not actually doing a 30-year mortgage or 15-year mortgage. Or a 40-year mortgage.

Guess what you're signing up for? You're signing up for an infinite mortgage. Why do you think investors do interest-only loans? Because they don't want to pay off the debt? Paying off principal is not the best use of capital. It increases your safety net. The paying off principle is not the best use of capital if you're putting your hat on actually telling yourself that you're going to hold a loan for more than three to five years.

You're somebody who's either facing retirement or not financially literate in real estate. And that's okay. That's not designed to be offensive. it's just designed to be Be realistic.

Most people refinance after three to five years and they reset the amortization schedule anyway. Somebody who says they're going to hold a 30-year mortgage for 15 years so they can finally start paying off more principal and interest actually? I Think that flip point is somewhere around Year 11. they're lying to themselves. They're not.

They're going to refinance now. Hopefully they don't refinance and buy garbage like a boxable or an RV which is basically the same thing. Or or spend money on a vacation. Uh which? I'm a big fan of spending money on vacations.

just don't think you should refinance your house to do that. Uh, you know that's that's financially illiterate. So nobody ever holds a loan to the full term. That's stupid.

It's stupid to do that unless you're retired. If you were going into retirement, you are a different. You're in a different situation. If you're growing your wealth, you don't hold your loan to term.

If you are going into retirement, you should pay off your debts. You should pay off everything. Get a 15-year mortgage, Make an extra payment, make an extra two payments a year. Pay that sucker off as much as possible.

Because you want to go into retirement. You want dividend stocks and pay off your loans. But if you're trying to build your wealth, you don't build your wealth with a 15-year loan and making extra payments. That's nonsense.

So rant over. Thank you so very much for being here! I Appreciate you all I Will be leaving now. Goodbye and enjoy your Good Friday Good.