Episode 1 Rick explains how he became a. millionaire by transacting real estate even without. money, finance or a mobile phone.

Transcription

1 Episode 1 Rick explains how he became a millionaire by transacting real estate even without money, finance or a mobile phone. The Complete Transcript 1

2 Rick Otton, welcome to creative real estate. Good morning. Now, I know itʼs too dark outside, and I've got you up extremely early for this podcast. Thatʼs OK. We got our torches out. Good. Well, we do have our torches out. Now look, we have a whole bunch of stuff to cover today. And one of the things that we're going to talk about firstly is this is our first podcast. We're going to talk about what creative real estate is. We're going to talk about why our economy needs creative real estate. We're also going to talk about a little bit about the GFC, the impacts its had on different countries around the world, because I know that youʼre on a bit of mission at the moment to really revolutionize the way we transact property, not only in Australia where we are, Rick, but also on the countries youʼve been to around the world. So once we've covered a few of those things, we're going to talk about why the current banking system actually needs this type, creative strategies, to move forward with transacting property. So firstly, Rick, I want you to tell us a little bit about who you are, what you've done. I know that six years ago that I met you and you have taught me to transact property without using a bank and itʼs really changed my life. But when you started, and you've been doing it for over a quarter of a century now, I'm sure things were a lot different to the, a lot of Well I was a lot younger as well. 2

3 You were a lot younger, of course! But I mean, I run around, and I have things like ipads and iphones and all this kind of equipment and you were probably running around with a notebook. Do you know whatʼs really quite funny when we're running around. We didnʼt even have mobile phones. Wow! Now thatʼs scary, isnʼt it? No, no, actually I affirmed that. Just come out, I'm like mobile telegraph poles. So you had a backpack with your mobile phone. Yes, you throw your mobile phone on the backseat. (laughs) Thatʼs it. So when you caught a bus that had fifty seats and twenty-five for people and Twenty five for phones (laughs). Thatʼs it. So now itʼs been a long time and we've seen a lot of changes, not just, you know, where I started in the United States, back there in Dallas, Texas. Thatʼs right, because you actually didnʼt start here in Australia, did you? 3

4 No, and it was really, really quite a fluke. You know, we started buying houses in Dallas, Texas, right back there in 1991, I remember October, 1991 and it was a case of buying these properties, Ben, because they were so cheap. There was no financing. There were no banks at the time. Property prices got exceptionally cheap. And as you can imagine, if you can buy houses with a 95% discount, you want to grab as many as you can so. So, Rick, for the benefit of the listeners, are you saying you had a whole bunch of cash, and youʼre just buying all these houses? Well no, Ben, we had no cash. Right. It was a case of, thereʼs a great opportunity, letʼs seize it. We got no money. How are we going to do it? When the banking system fell apart in the United States, in the Southern States, if you can imagine, I was looking at a little bit of a video that an agent shot 20 years ago and he was saying, Look, do you want to buy this property? It was $70,000, dropped to $30,000, dropped to $8,000, and I could buy a $70,000 property for $8,000. Yes, you start looking around for a way youʼre going to find the money. OK. And if you havenʼt got any youʼve just got to get really, really creative. And what you realize is there is no rule book, because there is no rule book on how to buy houses, when they drop 95% and you got no money. 4

5 So you kind of have to create one. Well, I think youʼve just probably appealed to about 99% of the market, Rick, because a lot of people don't have any money to get started with. Well, isnʼt that funny? Yes, you know, you start doing it this way, and you never really learned any other way and then later on you realized, everybody else has been doing it with money, which comes a bit of a shock. I see. And so I doubt a lot of people want to start buying houses without money, because as you know, over time, moneyʼs not easy to come buy any more and the banksʼ are not lending. And theyʼre probably, really wanting the benefits of the property rather than, you know, all the other things that come with it. You know, one of the things I always ask people is do you want the actual property or do you want the benefits that come from having the property? And people think it through. Actually what the benefits that come from the property, not necessarily the property. Thatʼs right, exactly. Well, thatʼs really interesting. Just moving back, so youʼre buying all these houses with no money at all. 5

6 So were you getting the money from friends or family, or were you actually just...? We used to do Negotiating into the deal? No, no, we used to do a number of different things. I couldn't borrow money for property. It was actually outlawed. You couldn't actually borrow money for property because the banking system was in such financial stress. But what I could do, I could go to shops and I could buy, say, musical instruments or items and the shop would give you the financing to buy their goods. OK. So I could borrow refrigerators, and I can get the refrigerator shop to give me the financing to buy the refrigerator. So itʼs like a Harvey Norman, Interest free job. And what I used to do was I used to sell the goods on the side of the road for half the price that I just bought them for. But the half the price that people gave me was the cash bit and the properties were so cheap they were 5 cents on the dollar 6

7 But then I'd run off to buy a few more houses with those. OK. Or what I used to be able to do, the government eventually was so concerned about how far prices were dropping. But they actually made a new rule that said, they wanted to make sure that everybody got a property. So they limited investors to one property each. So they wouldn't let the investors have more than one property, because they felt like the investors, when the propertiesʼ drop so cheap, the investors would double They just walk away. Yes, so what happened was now that I made everybody, even for a homeless person, youʼre could have a property. OK. So what I used to do was get all the homeless people together and get them all to buy a property. And then I just get in my case of beer, and theyʼd give me the property (laughs). Yes, right, or what we did was when they did got to the sellers, I did say to the sellers, Look, you want to get out. I want to get in. You want your money. I havenʼt got any money. Why donʼt we just make an arrangement where I'll just pay you some money over a period of time or so much each week or per month? So, OK, so thatʼs kind of like when you were going and getting these white goods on the payment plan, itʼs kind of like the house was the 7

8 white goods and the sellers providing the payment plan, that kind of thing. Exactly, exactly the same. Itʼs just the different widget. OK, now thatʼs interesting. Now, I used to also do two for ones. So when the house prices got so cheap, what I used to say to people over time was, I'll run around, and because I can get houses so cheap, I'll buy two instead of one. Right. OK, and the people would put the money up because they were so cheap. But they didnʼt have the time to do the running around. Now we all knew that the houses would come back up in value over a period of time. So I'd run around with their money, buying two for one. The two for one was every time I bought two, they got one and I got one. Very clever. Now, when the values went back up, OK, they got the money back that they lent from mine and they made a profit on theirs But I've got to keep the profit I made on mine. OK. 8

9 So I was getting profit out of one, out of every two I was buying, but I had nothing in it. They were funding it, because I'll buy these things so cheaply and I was doing all the running around. In fact, thatʼs interesting to say this. I had a gentleman who became my mentor and he was well into his 60s, and he was very, very, very wealthy. And I remember I went to him once and he said could I organize to sell a lot of his houses for him because no buyers could get any bank loans and he knew what I was doing. And I used to run around and I remember he had a massive big office in the middle of Dallas. And every time I wanted to go there, it didnʼt matter if he had secretary meetings or Boardroom meetings or Directors meetings, he'd clear his entire office and I walk in. And I remember I said to him once, I said, How come, I come in and talk about some stupid little scrubby $30,000 house and youʼre making billions of dollars doing here what you do? He said, Son, I get more fun with you coming in, telling me about all the mucking around you're doing with a $30,000 house than I ever get with all these big people in suits and stuff." Thatʼs amazing isnʼt it? Yes, so I always Shows where itʼs at, really. Shows where itʼs at. He said, Thereʼs more fun educating you, because he had learned a lot about real estate. And, you know, but this was the sort of guy who I remember once, he was up on the roof of the building. I went to see his wife and his wife said, you know, where is he? Heʼs up the roof of the building. And I got the roof of building, I said, What are you looking at? And he said, My house. And I said, 9

10 Where is it? He said, Well, they start from that pole there (laughs) and go across the horizon over there. Thatʼs funny. And you knew they got a real perception of what money some people had. Thatʼs right, yes. You know what I mean? Yes, thatʼs interesting. Well, look, backing up one step you mentioned when you got started housing pricing had gone like down as low as $8,000. Right, right. Now, we're seeing values and things like that fluctuate a bit across the globe at the moment, and some places are harder hit than others. Well, the average person is got a whole bunch of fear in that. And a lot of people are trying to jump out of the market, but you chose to jump in. Do you know what? I think fear can be replaced by knowledge. Where you have knowledge, you have no fear. So when I say people had fear, is because the knowledge they do have relates to a process that theyʼre realizing is no longer working. And the fear is the fact that, oh my god, I'm trying to use this process, trying to use this process, trying to use this process and itʼs not working. Therefore, thereʼs fear. There 10

11 is no fear if you have another process that you know it works and had knowledge around it. So I looked at that whole situation of markets around the world going up and down. And going, well thatʼs OK, we'll just employ this different process or this other process and this other process. A lot of people start getting familiar with these other processes that they can put in place... And I suppose backing up again, a little bit there, for somebody who has, you know, maybe listening to us for the first time and has no experience whatsoever with this kind of thing. When you first started, you probably didnʼt have the knowledge and the processes around there, but took a bit of a leap of faith, because you believed in something. Yes, and I didnʼt and so I didnʼt actually know how the old system works. I didnʼt know how much people are doing it. I just knew that I'm in the middle of nowhere, in the middle of the desert, you can buy these houses really, really cheaply thinking thereʼs an incredible opportunity there. And people still need to live somewhere. Yes, and got to find a way. So it was a case of, how do we find a way, don't know any other way, letʼs just put together what seems to be the most efficient, quickest, smartest way to do it and letʼs just see how, you know, run it up the flag pole and see how it goes. You know, look, as you go along, experience is what you get when you don't get what 11

12 you want. So you know, you make some mistakes, you start to shape things, you get a couple of other idea, you turn left here instead of turning right there. But it also just a case of what you said, thereʼs an opportunity. You knew that house prices were going to come back one day. How do you grab as much of the meat pie as you can when you only have a small spoon? Yes, and look, a historical data will tell us that we've had these dips and troughs regularly, but the property seems to recover. You know, over time. So because I think and the reason I brought that up is because probably from when you started, way back in Dallas, we're seeing similar types of things happening in our market right now and itʼs creating the same kind of opportunities. And I'm finding that thereʼs a lot of sellers just wanting to jump out, that nobody really coming in to replace them at the moment. Well, we got two things happening. We got a whole lot of sellers trying to get out, in actual fact, we've got a high percentage of sellers than we've ever had trying to get out. The interesting part about it is, the government is spending all sorts of money trying to stimulate people to get back in, who actually want to get back in, but the systems under which theyʼre trying to use are no longer working. So you do have people who want to get in, they just can't. Itʼs just the way it is so... I often laugh at some of the stimulus packages around the world for first-time buyers because with the entry cost they have with their properties, they kind of like give it to you but take it back, donʼt they. 12

13 Oh, you know, itʼs interesting. What you can't do is throw money at people and say, hereʼs a whole pack of the money going to buy a house, because all that does is artificially creates an artificial demand who pushes all the prices up. So the so-called amount of money youʼre given around and buy a house, even now that I'm going to buy a house which is suddenly jumped in price, a massive amount, because you have too many people. They were the same house, exactly. So And then youʼve only really got the bubble lasting for as long as that money lasts, havenʼt you? And then they cut back the stimulus and they watch the demand drops off and then the price of the houses comes back. And then a lot of people paid too much. Thatʼs right. Because they got it at stimulated house price. So they just brought forward the amount of buyers over there. They just actually brought them forward. That didnʼt actually create new buyers. They just brought tomorrowʼs buyers for today. Into the market today. And some of those buyers, I think I read Rams report, Rams home loans report down here in Australia that said, of all 13

14 those buyers that bought the super-sized stimulus packages, about 26% are all in default right now. They have been troubled, you know, and the banks had just reported that there default rating, you know, on home loans past 90 day defaults has increased by 11% and it will continue. And this is whatʼs interesting, if youʼll look at the default, neighborhoods that go into default, newly developed neighborhoods where the home loans are less than three years old is usually where your highest rate of default. Yes, and they usually high leverage home loans as well is what I'm finding out there at the moment. They usually start off with the landline and the construction line. And by the time itʼs completed there with mortgage insurance, theyʼre usually about 92% of the property value. So I bet we get strung right out there. And if they believe that old philosophy, that properties are going to double every eight or nine years, theyʼll justify it by saying, oh, I know we're going to struggle now, but within eight or nine years we would have made a fortune and the struggle will be all worthwhile. The only problem is we're looking at some situations there where we're starting to question these old systems and philosophies and principles to say, well, was that something that worked for the time or is that something thatʼs going to sort of come back and work in the future? Because, Rick, I think that we have got a situation in most parts of the world at the moment where most buyers do want to buy, but they just can't buy. 14

15 And I suppose I'd like to ask you the question a little bit about our banking system, if you want to give out our listeners a little bit of knowledge about our banking system and why we're actually at the situation that we're at right now. Well, I've got a couple of things. The Australian banking system borrows money internationally in order to fund the demand it gets from potential home buyers. So if you actually go to the bank and say can I borrow money for a house, 40% of the money that youʼre borrowing is not coming from the Australian bank. Theyʼre borrowing it overseas. The overseas banks have really run out of money, because we have a global financial crisis. So the little bit of money that theyʼve got left to lend, especially to Australian banks, theyʼve got to be very careful about it and they charge us more interest rates. Right. Now, thereʼs a couple of other issues that come into it. When they realized that the Australian banks arenʼt actually using the money to build infrastructure throughout the country, all theyʼre doing is lending it to people into a housing bubble. Right, OK. A lot of them is obviously, is basically, well, hang on Australia. All youʼre doing is lending this money to people who are pushing up the prices of houses, which now about three to four times earnings rates compared to the people of the other countries. 15

16 I was going to ask you about that. So two things had happened. We've got to a stage where now itʼs 10 years of salary to buy a house. In most countries, itʼs two and a half years, so we've hit a brick wall there. And the overseas banks are going, well, hang on Australia, these house prices have to come back. So two things are happening, theyʼre charging Australian banks more interest on the money, because they feel more secure about the lending. Right. And youʼve also got a situation like Moodyʼs, you know, the big rating agency has just downgraded the security of the Australian banks then will double A, because theyʼre concerned about the fact that we have so much money in our banking system being lent for the wrong reasons or the wrong purpose. Now something else is happening also, Ben. We have a very, very high default rate on home loans in Australia right now. The banks, if they do not default on these home loans and carry them although they are people not making the payments of their home loans they can show it on their books as assets, unrealized assets. Right. Right? Once they default on the house, suddenly, weʼll see what the banks are really worth. To give you an example, we were talking about one the other day, where the person goes on a default on a $5 million home loan. As long as the bank sits there and leaves it on the banks, 16

17 the banks can say theyʼve got an asset on the books of $3 million or $5 million. OK. But you and I both know that if they went and foreclosed the property, they get $3 million, OK. Which means that selling the bankʼs books looks different, so itʼs like... Yes, OK. So they manipulate their figures as well So they reserve bank reporting is it? Correct, correct. So we've got the banks showing a lot of debt on their books or theyʼre showing as assets, because they havenʼt tried to claw it back in yet. OK, so I suppose getting back to buyers who are wanting to get into a property and canʼt, because it sounds like with the extra interest rates that the offshore money is charging Australians, do you think theyʼre doing that for the purpose of pricing people who are just not fully serious about getting house out of the market? 17

18 Oh, you know, itʼs interesting. If we go back to 1982 then, when you borrow money from the Australian bank, you can only actually borrow four times what you had on deposit. That was it. If you had $10,000 in the bank, you don't actually get a $50,000 home loan. Now, what we did was in ʼ82, ʼ83, we opened up the banking system to all the foreign banks. Now, that formula went out the window. Now, we go forward, that no money there. We're just going back to that old formula again. OK. We're slowly going back to you can only borrow four times of what you got there on deposit. We're not there yet. But you got to remember, Australianʼs have only had it good for this short window of time, and itʼs whatʼs called an easy credit fueled movement. And we're just getting back to where credit back to where we were. Actually where we were. So that date in 1983 is actually quite significant in the Australian property market, really, because itʼs the time that It was when It was became easy, so to speak. 18

19 What Keating did at the time, he changed the whole banking system. And he said, Hey, from now on, letʼs bring in the International banks. Letʼs make more money available to the Australian people, which we did. And as a result, we become easy credit. And as you know, it was kind of like, you know, if you could fog a mirror, you could get a bank loan. Yes, itʼs something really interesting, which brings us up to the next point. You said that the Australian government made money really, really easy for people to buy properties right now, which is actually probably why itʼs brought us to a situation where thereʼs so much opportunity and there is so many home loans already in place on Australian properties which is probably creating a massive opportunity for people wanting to, you know, get into some creative real estate. Well, you know why, when you think about it, the old system is, you got one side of all these people who can't pay their home loans and therefore, they get defaulted on. The other people are struggling to get a home loan, but they cannot get one. When you really think about it in its most simplistic form, if you got a whole bunch of people who no longer want to pay their home loan, why don't we just give them to the people who want one and they can make the payments for them. That sounds so easy, doesnʼt it? 19

20 And that moves the people away who no longer want to make the payments. So that moves them away from the property and the payments and moves the people towards the property and making payments on loans that are already out there. When you really think about it, you got, thatʼs all incredibly simple. Yet, we do make it so incredibly difficult based on the old processes. Because when you - I mean, this is my whole problem with the old process is that because itʼs, you know, 10 times wages to go and buy a property, nobodyʼs got all the cash to buy a property. So theyʼre going to rely on some sort of bank financing to buy a property. So what youʼre actually doing is you always going to be replacing an old loan with a new loan, but if thereʼs no new loans coming in, thereʼs no old loans going out. I look at the theory that if you get a guy or I want to buy Mr. Smithʼs house. I buy his house. He puts his own loan, his old loan, back in the bucket. He says, OK, Iʼm finished with this old home loan. Puts it back in the bucket, which is the bank. I've got to go back to the bucket and pull that loan back up out of the bucket, right? With all these new bank forms or stuff. Well, heck, if heʼs going to give me the keys to the house, why doesnʼt he just give me the keys to that home loan? So instead of him putting it back in the bucket 20

21 Thatʼs right. Me going to get it back out of the bucket. Itʼs like passing the baton on the relay. Just pass me baton. And I'll keep running with the baton. You with me. Itʼs kind of like a relay. Letʼs pass the baton and letʼs keep running. Letʼs stop dropping the baton so that the next guy is at to pick it back up again. Thatʼs right. Now, Rick, I know that when we discussed this live when thereʼs an audience there, one of the questions is, OK, well, letʼs fine for someone to come and make payments on this loan for me. But what if the sellers actually got 50% cash in the property as well? Well, yes, absolutely. And thatʼs the case that the seller, and you brought a very important point, because it actually says to his people only sell a house for two reasons: either to move away from the home loan, because theyʼre allowing their wish to make the payments on the home loan; or they want to get their cash out. Thatʼs right. They are the only two reasons why people sell a house. Now, whatʼs interesting is, because they can't find any buyers the conventional way, people will keep discounting the house, discounting the house, discounting the house, so So theyʼre throwing away the cash bit. 21

22 Correct. Theyʼre not actually discounting the loan. Theyʼre just discounting the cash bit. Right. So the cash bit get so discounted that many cases they just get down to the loan bit. OK. So with every seller, itʼs a case of we know that they no longer want the bank loan. And we know that everybody loves the idea of the next guy paying their debt for them. So itʼs a case of, how much cash does the seller want? How fast does he need it? Does he have some flexibility at the time for anybody who receives it? Letʼs have a cup of tea, sit down and work a way that we can make payments or organize to get the sellerʼs cash bid. At the end of the day, most house transactions arenʼt actually about the house at all. Thatʼs right. Itʼs about the borrower and the seller sitting down and working on a plan or an arrangement on which they can receive the cash bit. 22

23 Letʼs back up one step. We've gone into explaining cash bit and debt bits without actually explaining to our audience. Rick, what is cash bit and what is debt bit? You know that would help, wouldnʼt it? That would help. You know most people think that in houses you've got like mortgages and equity. Now, I always like to keep my language pretty simple here. Mortgage is the debt, the home loan on the house. The home loan on the house is really a mortgage, which I consider the debt bit. No oneʼs in love with that. And the equity which is the Theyʼre all in love with the equity. Always in love with the equity, which you and I both know is the spending bit, the money bit, the cash bit. Yes, the spending bit. But I've also found, Rick, that a lot of people don't now what equity means in the property. So itʼs probably important to use it in the sense. Well, itʼs probably the equity, Ben, is the difference between the value of the property and what the debt is on the property. So for instance, if you have a house and you said to me itʼs worth $400,000. I would say, well, do you have a home loan, right? And you'd say, yes, I've got a home loan for $200,000. Well, remember, home loan is also the debt bit on the mortgage. 23

24 So, really, if you've got a home loan of $200,000, you just told me your house is worth $400,000. That means your equity or cash bit or the real value of it is the $200,000. So youʼre not really selling for $400,000. Youʼre selling to realize $200,000. Correct. Youʼre selling to realize your cash bit. Sure, youʼre selling a house. What I say to people is it your house youʼre trying to get rid of or is it just the $200,000 cash bit of the house that youʼre trying to get your hands on? And that really calls it pretty early on. Well, it really does, wasnʼt it? What type of arrangement you need to go into, isnʼt it, Rick? Correct. Yes, it does. Itʼs like whenever I say to somebody, are you selling this house because you want to move away from the debt bit and the payments are killing you, or youʼre selling this thing because you got a whole bunch of cash tied up in it, and youʼre trying to get your cash. Now, hereʼs whatʼs interesting. If we go back two or three years ago, a lot of sellers would say theyʼve got a lot of cash theyʼre trying to get out. Now, for many people, thereʼs not that much cash left. They just want to move away from the debt bit. 24

25 And thatʼs probably too, because people who had a lot of cash bit in the house, it was really easy to go and super-size home loans on the property, so they could actually realize the cash without selling the house. Well, thatʼs right, because in the old days, letʼs go back. Itʼs not that long ago, two or three years ago. You know, if you had a policy you can get a loan. And what people were doing was, you know what, I've got this cash bit in the house. I like the house. I like to live in the house. I don't want to sell the house. I want to get the cash bit out. So heʼs still in the house. It was very, very easy to go to a lender and say increase the amount of debt bit on the house. When they increase the debt bit, they can pull their cash out. Really, in the form of a loan, really against the property. And that would just increase the debt bit and people are paying higher home loans or higher mortgages. Really turned properties into a big ATM machine for a while, didnʼt it, Rick? Oh, let me tell you how big it is. Remember how I said here earlier in the conversation, people could only ever used to borrow four times what they had on deposit. 25

26 And that was it. ʼ82, ʼ83, they changed it, and then you could borrow whatever you wanted. Well, hereʼs whatʼs interesting. In ʼ82, ʼ83, the amount of household debt that the average man had, so for every dollar you earned, the amount of debt that the average person have on car debt, credit card debt, house debt was only 40%, you with me? I'm with you. So for every dollar you earned, you had 40% debt. Now, because we've gone through this time of easy debt, for every dollar you earn, the average person has $1.64 debt. OK Now this is very important. Theyʼve got a $1.64 debt for every dollar they earn. So in the old days, if you earned $100,000 a year, you had $40,000 in debt. Now, youʼre earning $100,000 a year, you have $164,000 in debt. And a lot of that debt is compounded, because theyʼve been using debt to service debt, isnʼt that right? Theyʼve been using debt, using debt. I mean now, youʼre watching people buy pizzas with their credit card. I mean, theyʼre actually eating themselves in debt. (laughs) Thatʼs it. 26

27 You know, and this is why this is so significant, because sometimes when you had, you know, when if youʼre going to get a little bit of debt, 40% debt on your dollar, interest rates can go up a little bit, and it doesnʼt hurt you too much. No. Now, when interest go up, thereʼs very small, little components, and youʼre wondering why everybodyʼs screaming and you know, because theyʼve got a quarter of 1%. Itʼs because the debt bits are 164 itʼs moving already on the Theyʼre already at the limit. Right. Theyʼre at the limit in this sense. So, you are right when you said earlier, when the money was easy to get, people would just get more debt bit, more debt bit Correct. More debt bit, more debt bit, and hereʼs youʼre the other bit Ben, everybody was believed that properties would double every eight or nine years over and over and over again. So it didnʼt matter if you increased your debt bit, the value of your house was going double in value. 27

28 Double in value, but thatʼs all stopped. The merry-go-round was kind of like, it used to like musical chairs. Musical chairs, itʼs all kind and you've been scrambling around to get one chair, you know what I'm saying? Yes, and they don't want to be left out. They almost get left out. Itʼs interesting. I actually found, Rick, when money was really easy to borrow from the banks. If you went in there and said, I want to buy this house and I want $300,000 loan. Right. Do this little calculation that youʼre servicing, and I'd say, Well, you know what, with that you earn, you can actually borrow $450,000. Correct. And then so everyone would go out and think, oh, well, I don't need to buy this house thatʼs this price anymore. Letʼs go and buy the one and borrow the $450,000. And what would happened then is, they actually have no room, if interest rates go up that quarter of a percent because theyʼre actually at their limit. Instead of borrowing and saying, OK, look, letʼs have a 2% buffer in this. So we know that if rates go up by a whole 2%, we're OK. People would automatically borrow their limits. 28

29 So that little quarter of a percent interest rate rise really took people over the edge. Now, and you know itʼs interesting, because you had known this because we've been working together for what, about six, six and a half years now. Thatʼs right. And youʼre out doing this full time. Thatʼs right, yes. So all day long, youʼre actually out there in the marketplace. In the trenches. Yes, there in the trenches, dealing with buyers and sellers who are coming to you. Sellers trying to get out, the buyers want to get in. In the last six years, being out there in the trenches everyday, what changes have you noticed in the marketplace? Oh, Rick, huge changes. Itʼs really funny. I really think I've probably seen two up cycles and two down cycles in such a small time. And I think thatʼs all centered around lending and around borrowing as well. And look, I find that I know that we all talk about how human beings are individuals and all these sort of stuff and we probably do have different character traits. But I think when it comes to finances and it comes to buying properties, we're all pretty much selling for the same reasons. Itʼs only the minority that says, hey, we're moving to get this profit to 29

30 move up in the world. And I don't find too many of those people left in the market now. Despite what they might tell you over the phone before you go and see a property or whatever it might be, I find that everybody thatʼs selling in some capacity is moving away from some debt at the moment. In actual fact. Itʼs funny you say that. Our savings right in Australia is the highest has been for 25 years. Australians are starting to save again. And they havenʼt been for years have been spending, spending, spending. Well, look, what I've found when I first met you, Rick, is that we had, I suppose, I have always worked in sales. And I found that really helped with my self in getting properties. And I suppose the style of things that we did was really a street-smart kind of way of doing things. And I actually found when I first started going to real estate agents, they'd really didnʼt take me that seriously. I probably looked like I was 10 years younger than I was and barely owned a razor. And so they didnʼt believe that I was credible enough to come and buy properties. So I started just going direct to sellers and find that it worked. I must admit. You did look younger, I thought you worked at McDonaldʼs. Well, thanks, Rick, maybe I (laughs) meet a lot of sellers at McDonaldʼs, but thatʼs about all. But yes, I found that I had to go direct to the sellers, and so I found all these street-smart strategies where it 30

31 was just one way that I could say well, Hey, what about if I show you another way that can still get you, you know, a good price for the property? Are you interested in doing it? And of course, if your sellers already tried the traditional way and the systems failed them, they're usually open for anything. And say, youʼre sitting there at McDonaldʼs across a thick shake saying, well, what about if we do this and what about if we do that, and youʼre just feeling the map to see whatʼs actually going to work for them. And what I find too, is sometimes you propose something that you think is going to work and they sort of say no, by the end of the conversation youʼre back to square one and theyʼll go, well, this really will work and You know itʼs interesting you said that. I was with a solicitor yesterday, and we were commenting on the fact that 10,000 real estate agents have left the industry over the last 12 months. In actual fact. One in six real estate agents has actually left the industry. And the solicitor made the observation and he said, Well, itʼs because theyʼve only got one tool. And their only tool to sell the house is to drop the price. Thatʼs right, exactly. And if you've only got one tool in your tool bag, itʼs kind of like being a plumber and you turn up with a hammer. And youʼre hoping like heck you can fix everything else with a hammer It was a nail. Everythingʼs a nail. Yes, and you have like heck, everythingʼs a nail but you only got one tool. 31

32 And he said, Itʼs crazy. A plumber would never turn up with one tool. The car mechanic will never turn up with one tool. Yet, a real estate agent to sell a house only has one tool. One tool is to drop the price. And it was just sort of and that and I think whatʼs happened is we're now seeing that the marketplace is realizing that relying on the strategy with a real estate agent has one tool is just, well, itʼs just not working. Thatʼs pretty frank, Rick. Want to drill down on that a little bit? Well, like for instance What do they study when theyʼre learning all these sort of stuff to be an agent? Well, itʼs quite interesting. Itʼs what they don't study. Itʼs they do two weeks, you know, if you want to be a real estate agent, you go to a two weeks real estate school. Now this is interesting. When you go to two weeks real estate school and you learned all about, you know, listing and selling houses for two weeks. Ben, what do you think is the one thing that is not taught in the two-week real estate school? I don't know, Rick. How to sell a house. Youʼre kidding me. They do not teach it at real estate school. 32

33 Really? They teach you how to fill in forms, government legislation. The one thing - now here's what makes you laugh, we've got 358,000 people today who have a house listed, where the real estate agents who were never taught how to sell a house. Rick, thatʼs really funny because what I remember when we first met and I was about to go out there and make a big mess and try and buy all these houses creatively Was we actually didnʼt sit down and you didnʼt run me through all these forms. You actually said go out with a ream of paper and create the deal, and thereʼll be some sort of form thatʼll support it later. So I had a ream of paper in the car and that was all blank and we sort of sit there and write up the deal with the seller and we'd get a little understanding together which would be the little signature on the bottom. And then all the paperwork would follow later. Correct, to support the transaction. To support it. So I didnʼt really know anything about the paperwork. And I supposed the difference is the real estate agents are probably being shown the whole paperwork system 33

34 But not the selling system, where we have kind of got a great selling system. System. Let somebody else take care of the paperwork system. Correct. Now hereʼs what even funnier. You've now got the real estate agent comes out of real estate school, OK? And he hasnʼt been taught how to sell a house. So where do you think he goes to learn how to sell a house? To the principal. Correct, who also Was never taught how to sell a house, OK. Correct, he also went to a real estate school. I knew this was going somewhere. And he also went to a real estate school, and he was never taught how to sell a house. So where, did the principal learn how to sell a house? So it goes all the way back to when Adam was a small boy, not one in the real estate system, all the way through has ever been taught how to sell a house, because itʼs actually not taught how to sell a house. 34

35 You know, Rick, I find thatʼs a similar thing with mortgage brokers as well, just why we're talking about training. You know, obviously, when finance is easy, you can walk in with the application form and it gets taken cared of. But one thing and I do the same with the real estate agents, I'll actually ask them mostly how long have you been doing it for? And if anyone says theyʼve been doing it for under three years, then I wonʼt actually do anything with them. Because I just find that they probably havenʼt experienced the, you know, the downtimes as well as the uptimes. And you just mentioned that 1 in 10 real estate agents were leaving the industry because the times are tough. Where I supposed, if they drill down and had some alternatives, they get these houses sold and would probably be seeing the opportunities that are out right now. And same with mortgage brokers, theyʼre all leaving the industry by the droves because the banks arenʼt lending any money. However, the really, really good mortgage brokers are still picking the right clients who they can get a loan for. Isnʼt that interesting? Well, but you know, if you are a really, really good mortgage broker, you wouldn't rely on a bank to be your only source of funds. Thatʼs right. You'd be tied up to pension funds. You'd be tied up to high-debt wealth people. 35

36 You'd have a whole bunch of other sources where you could get money for a particular type of client, for a particular type of loans. But a lot of the mortgage brokers go back to the bank. Thatʼs right. When the bank says no, their business falls over. And again, itʼs a little bit like, you know, youʼre hanging on your horse here on the one tool, you know. And that one tool is pulled out of the bag, youʼre gone. Well, letʼs just start drill down on tools for a second. What are some new tools that people could use to be creative and acquire some properties? Well, letʼs talk about that. First of all, everybody can come in and actually start making payments on somebodyʼs loan, whoʼs going out. And that can be done like same day. Same day, a couple of forms, a couple of pieces of paper. Now, a lot of people don't know this. But then, a lot of people havenʼt bothered to find out. Because in the old days, it was so easy just to get a home loan, why would anybody create any other system? And so... 36

37 What youʼre actually saying too is we've got this somebodyʼs invented this system where it says thereʼs 42 days of exchange or whatever it is. Right. So what actually happens in that 42 days is all these idle time, and about three days before that 42 days end, everybody jumps into action and shuffle all the papers around it happens. Well, that is. In an aspect, this is something that people wouldnʼt realize if theyʼre buying. If theyʼre buying house, you have a standard 42 day contract. And then quite often, to get a discount where the buyer was out on the seller, look, why not a 42-day contract, but weʼll settle early. OK. Now hereʼs what happens. When you actually say that you will settle early or buy the house early, the bank doesnʼt care because the bank doesnʼt really look at your contract until that the 40 th day. Right. So after 40 days, no one looks at it. Isnʼt that funny? And then the bank goes 37

38 To the intray. Goes to the intray. Now so therefore, rather than having or saying to a seller, you know, if you want to get a discount, then we'll settle early, no one will sell it early. But if itʼs a 42-day contract which is a standard contract, no one the bank wonʼt even look at it. Lawyers wonʼt look at it. It just sits in the intray. Hereʼs what you do. You actually decide we'll settle early you say itʼs a 14-day settlement contract with extensions. Oh, OK. Now, once you have the extensions, the bank says 14 days. Well, guess what? You go buy it now and then takes six minutes for them to talk up the document, ainʼt that right? Exactly right. Youʼre selling them the 14-day intro. And if I can't make it work, you got an extension. Well, Rick, thatʼs probably for someone that hasnʼt bought a house before but not been listening, thatʼs probably a real nugget of gold in there for their negotiating. But just to find a discount for them and just give them an idea on what type of discount you might ask if you were to do that. 38

39 OK, hereʼs are the various types of discounts. What a lot of people will do is when theyʼre buying a house, they'll go for a price discount. Now, theyʼre not going to get it sometimes. I'll tell you why. Sellers have egos. And you can imagine, sometimes the sellers have said, no, I've got to get $400,000 or $500,000 for the house. Now, the seller doesnʼt want to reduce the price of the house because heʼs ego come into play. Does it make sense? Thatʼs right. And he wants to go and tell his friends he got this $400,000 or $500,000. I would rather buy better terms in the way I purchase it, so that the sellers still get his $500,000 but I've got back some great terms. For instance, I might buy the house and pay the seller the $500,000 or $400,000 but he pays my stamp duty. He pays my legal expenses. He also pays I renovate the property before I've even paid for it and it comes out of his price used at settlement. So any repairs I'm doing actually comes off his selling disbursement sheet. Yes, OK. So on the surface, he can still say I've got my $500,000 or $400,000, but heʼs paying a lot of expenses out of that. But thatʼs much easier to get across the line than to discount the guy down to $400,000. And the other thing is too, Ben, if I can be in there renovating a house and I 39

40 have an extended settlement with the seller, and I say to the seller, I'll make your mortgage payments until I've settled. Right? Now, the sellers not out of pocket. But guess what, I'm renovating the house on the sellersʼ 10 cents not mine. Correct. I don't have to have any mortgage debt. I don't have to get a loan. Stamp duty. Now I've got none of these expenses, I can have that whole thing renovated and ready to go. So the day that I'm buying it, I'm actually selling it to the next person. Thatʼs a great discount. Yes, and Rick, letʼs drill down on terms. What I like about terms and I find while I'm running around out there in the market place is that Letʼs talk about what a term. When you say terms, define the word terms. Sorry. Letʼs talk about a terms discount. 40

41 Yes, but what is terms? Let's define the word terms. OK. Well, terms would be something that youʼre going to include in the conditions of buying a property. OK. So the sellers going to agree to and what I love about the terms style discount is that it doesnʼt cost you any money. Usually, youʼre conceding a little bit on the price, perhaps, for all these great terms which can actually make up huge profit on the property. And so I find that if you want a cash discount, sorry, a price discount, you need to have a lot of cash. If you want a terms discount, you don't need cash. No, terms, another word with terms would be the way and the which weʼre going to do it. Thatʼs right. Right? So it was all the way and the which we're going to do it, then usually you can just drop in the word terms. Which is another way of saying it. The way in which I'm going to do it. And I was believe, and I got you, Ben, thatʼs much more value will be obtained from the way and the which you do something rather than the price that you pay to do it. Thatʼs right. 41

42 And you keep the money in your pocket. Absolutely. And opportunity cost comes in to all that kind of thing of that as well. Yes, absolutely. And one of the one obvious a lot of times is I'll buy house from a seller and I think itʼs going to need some repairs and I want to do some renovations there. She say, look, the bank wonʼt leave me the money on it until I got the work done. So how about we do this? Weʼll agree to buy it. Letʼs get the work done prior to me actually paying for it. That way that keeps the bank happy. We'll have the contract amount of work. And I'll say to the contractor who does the work, heʼll actually get paid out of the sellerʼs proceeds from the sale. OK. At the time I settle of it. Thatʼs great terms. Thatʼs great terms. I'm not even paying the contractor. The contractorʼs being paid out of the sellerʼs proceeds. But guess whatʼs so good about that? I get to finance the whole package, Ben. OK. 42

43 So Iʼm even financing all the contracting and all renovation work as part of my home loan, you know, but thatʼs why I'm excited about this podcast, you know, creative real estate, street smart secrets to real estate wealth and the fact that youʼre here, a student of mine, and youʼre in the trenches. And yes, six and a half years, we've been working on this together everyday out there, putting it together, showing people a new way to buy and sell houses. And itʼs now the standard for us, Rick. Itʼs now the standard. In actual fact, I don't think I could go and do it any other way. I don't think we'd want to do it any other way, would we? Oh, let me ask you something. What else we got coming up there on the next podcast? OK. Well, I'm going to come around to you again, Rick, and wake you up really, really early. And I know that we're going to have our listeners on their way to be on the bus, jogging or driving their car to work and hopefully, we can give them some more value. What we're going to actually talk about, I think we've drilled down so many specific things and introducing what creative real estate is. How it can be applied in todayʼs market? I think what we've really got to drill down on for the listeners, is why would a seller want to sell this 43

44 way? And then why would a buyer want to buy this way? I think theyʼre probably the two things that people are going to go away from listening to us, getting the basic concepts down and all that kind of thing. But then, they're going to be thinking, well, where do I find these people who are going to want to buy this way or sell this way? And you know, and really, when we start laying in these new concepts and ideas, thatʼs the first question I'd be asking myself if I was one of the listeners today, which is why would someone sell this way? Why someone would buy this way? So, you know, we get the answers to that and I think a lot of this will come together for a lot of people. Thatʼs right. And I think people will be able to look at the benefits of being on the either side, whether youʼre a buyer or a seller. And then actually, relate that into your own life and how thatʼs going to benefit you to do so. All right, well, I tell you what, Ben. Looking forward to letʼs get together next time on the podcast. Rick, before we go We need to tell all our listeners that they can download a transcript of our discussion at Thatʼs if you'd like to download the transcripts. 44