“I think the superpower I was blessed with is the ability to take a beating and get back up. Because one thing that life has given me is a lot of beatings, especially in this industry”. Aaron Chapman is a veteran in the finance industry beginning 1997, exited Mining, Heavy Equipment Operation, Welding, and long haul truck driving. Since entering the finance industry his clientele has ranged from those purchasing their first home, building their dream home, or investing in multiple properties for long-term cash flow. His expertise is complicated. Presently ranked #14 in an industry of over 300,000 licensed loan originators for transactions closed annually; Aaron is that battle-worn partner every real estate entrepreneur needs to walk through the tough parts of building a real estate business. Aaron is a Published Author with 4 books released and dozens of magazine articles.
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Navigating Your Mortgage Needs For Investment Real Estate With Aaron Chapman
Brett:
I’m excited about our next guest. He’s a true professional. He is a veteran in the finance industry beginning in 1997. He exited mining heavy equipment operation welding and long haul truck driving. Since entering the finance industry, he has his clientele has ranged from those purchasing their first home, building a dream home or investing in multiple properties for long term cash flow is experienced in his expertise. In the complicated he thrives in that he’s present. He’s presently ranked number 14 in the industry of over 300,000 licensed loan originators for transactions close annually 723 closed units for real estate investors in 2019 707, in 2018, and 676, in 2017. He’s also a battle worn partner of every real estate investor, an entrepreneur, that’s really his passion, and he wants and helps people to walk through the tough parts of building a real estate business. With that, please welcome to the show, Aaron Chapman. Hey, Aaron, how are you doing?
Aaron:
Very well. Brett, how about yourself, brother?
Brett:
Hey, better than I deserve. Glad to have you on the show and excited to dive in. Would you give our listeners a little bit about your background and your current focus?
Aaron:
So background, you hit on a little bit there with the whole mining and heavy equipment operating and all that kind of stuff. And what’s really interesting is that it propelled me into that kind of weird how that propels you into a career, like finance. It really just got to a point actually, as I was at it is that a meeting where somebody talked about before the crash, they were the loan originator, and they said you don’t have become a loan originator because you can’t find a job in anything else. And I had to crack up because I was one of two loan originators that entire crowd. And I think backs like that’s the truth because when I left the mines in New Mexico, the shut down the project, I’d go hunt for something that I could feed my family with that a great resume right cattle ranch in high school. The oil fields in Wyoming right out of high school run heavy equipment to drive in trucks 1000s of hours on different pieces of equipment. And then working in the mines. I thought I could get a job anywhere. And I couldn’t literally to the point where I was willing to take a $10 an hour truck driving job to haul landscape rock. And they turned me down because I was overqualified. I kept hearing this damn word overqualified. Well, I was at that point, I was broken. I mean, I had zero money left. In fact, I had a coupon in my possession to go get diapers, because I didn’t have the capability to afford them. And on my way out of there, leaving you know trying to drive the tears up because I was that beaten down, a gas light comes on in my truck. So I go to the grocery store, I first pull up to the gas pumps, put my debit card in pray that it would work and I got that decline because I was overdrawn rifled through my truck to find enough change to at least find something to pay for gas and I had to wander the parking lot because only time to cool your coins in the truck. After about two hours of wandering that parking lot. I picked up enough to get two gallons of gas, got my gas went into the grocery store found those diapers that corresponded with the coupon got those and as I’m walking out I go face to face with a guy who is doing the used to do all the dispatch work and the scheduling work for a company I dug swimming pools for years before he asked me how things were and explained what was happening. And he said let me take you to dinner. So he took me and my wife to dinner the following night at Red Lobster here in Mesa, Arizona. And he presented me with a business card for the branch manager of a mortgage broker shop. And so when I got that card, I had no idea what a mortgage was. All I remember was that there’s this old man, this old lady on TV losing the farm from this thing called the mortgage. So it’s very, very negative in my mind. But I called the guy up. He gave me an opportunity to come in to meet with them. And I saw I cut a foot off my hair. I shaved my mom bought me some professional looking clothes so I could kind of look the part of what I thought a lender would look like. And they started me that weekend as a telemarketer. And let me tell you, there’s very few things in life as miserable as telemarketing, especially from a guy who was doing the background that I had to go into to start doing that. So they gave me these lists that they got from title companies. And I would call these lists and then call those lists after a couple of weeks. I developed enough leads for I convinced them to let me work some of them. So the training started with hey, here’s another loan officer. He will help you guys will share in the deals and that’s where it started, you know, this went back to driving a truck over the road, I got a job driving to Sacramento and back and then Vegas and back once a week, go the office three days try and build a business that wasn’t working. So I got out of that went back to digging swimming pools, you know, get up at 3am, then the yard by four, get home by noon or one get to the office to work till 10pm, sleep four hours a night for a year, and then the interest rates went below 8%. And after that, I was able to start getting my feet underneath me and start building up my business to where I was able to replace my income about 50 grand a year, my first full time year in the industry. And that was where it started. And that was the hell that got going. It didn’t stop there, it was continuous beating all the way through to the point of really getting your feet underneath and building a really good business.
Brett:
That’s amazing. And what a story of perseverance and what my someone might not think is connected, but the hard work that perseverance, and an industry and then a down point for you financially and then be able to to be entrepreneur, and persevere. Before we go into some of the numbers in some of the ways, the ways in which you help your clients create and preserve more wealth, with real estate investing as it pertains to mortgages and loans. I’m curious, Aaron, who are you growing up and more? So what was the one gift that you were given? And how does that gift help how you help people today?
Aaron:
Well, there’s two different things growing up, I was a very, very, very shy kid. I was the one hiding in the background, I didn’t want to be the one out in front. In fact, you know, when I was playing baseball in the little leagues and stuff like that, I was blessed to be able to hit home runs all the time. And I really the only bad part about it was the celebration at the end, I didn’t like all the high fives and stuff like that, just let me go sit down, right I like hitting it, I like running, I just want to sit, I really did not like to be the center of any kind of attention. And now to go to a world where you have to be out there consistently is really an interesting switch that to find in high school to be able to step out there and put myself out there a little bit more. And it’s become a lot easier as I get older. Secondly, I think the superpower I was blessed with is the ability to take a beating and get back up. Because one thing that life has given me is a lot of beatings, especially in this industry, we’ve got, you know, one just getting started in it too. You’ve got to deal with people in the real estate industry, they’re not easy to deal with, you know, those folks, as far as a real realtor side of it, they are not very, very few of them will be your friends, right. And then you’ve got just the crashes in the market in the swings. And I had my own personal accident, the same kind of crash happened in 2008, I had to come back from he’ll be put in a wheelchair had memory loss where my memory over the last three minutes and all those things and retrain my brain and come back from massive financial devastation into an industry that was devastated. And then to rebuild. At the same time the turnkey investor started working their way into Arizona. And that was where I had to really dig deep and start figuring out how to work with them. And that’s where doing that got me to a position where I was able to help many people on the real estate investment side to start building a potential future for themselves, because we know retirements not going to just for folks, that coupled with the ability to put myself out there, take those beatings and keep moving forward built me into a business now where it’s I’m working in 26 states, and I’ve got a team of 26 people on should have 28 staff members by the end of next month and things are just things are amazing.
Brett:
Love it, what a story and what to come back and what a success. So let’s dive in a little bit to how you help your clients, you know more than just get alone right? You’re truly a part of their you know, like to call like a dream team, right? You want someone like Aaron who’s been battle tested, who’s persevered not only personally but also financially. But second, who’s done so many transactions over the year is one of the top in the industry. He’s seen everything. So walk us through how you know Aaron crates help people create and preserve more wealth with their real estate investing?
Aaron:
Well, the onset is the mind is getting the mindset right. So when I have that first conversation, what I’ve noticed is my contemporaries like to say, hey, when they have somebody referred over to them, they should have an application, say fill out the application, we’ll look at your credit, and then we’ll talk I like to have a conversation upfront because I don’t want my team putting any time and energy into something is just not going to work or we’re not a good fit. Right. So I’ll take the time upfront to have a scheduled conversation. My assistant Samantha, I heard somebody just to read my email, and just to schedule my calendar. That’s it. So she has me set up every 30 minutes of my life to talk with somebody new about how they perceive real estate investing. The mindset is the most important factor. In my opinion. Many times I’ve seen people step into this, like a consumer spending money and going into debt because they’ve been trained on how to consume. they’ve not been trained on how to run a business because the majority of people are working for someone else. They’re pulling a W two. They’ve been taught how to work in an environment. But now you have to switch your mind into a CEO of a real investment firm, that’s not easy. So we take that first half hour conversation, I want to break that other part down, set that consumer over on the shelf in this talk about you as a business owner. So when we start talking about them as a business owner, it is imperative that they start to think of this, as you know, wherever they’re going to purchase monotypes, they’re doing turnkey, they’re going to buy in a specific market, they’re going to work as somebody who’s going to source, acquire rehab, manage maintain their business, they literally get an Operations Division out in that particular market for free. Now, too often, they think it’s not really free, cuz I’m paying full market value for the property. And then, you know, I’ve got to pay a property manager to manage it. So how is it free? Like, well, let’s think about the transaction, if you went about it by yourself, you start just driving neighborhoods looking for signs, you got your normal job, then you got to find time to drive neighborhoods looking for sale signs, well, then you find that for sale sign, you call the realtor, right realtor is going to be representing both sides are you going to pretty much get it for market value, especially in today’s market are people driving prices up? Yeah, you’re gonna pay fair market value more than that realtor has a fiduciary duty to get the maximum price they can for their seller, and get the highest potential commission for themselves. So you’re going to pay fair market value more than likely, then you got to find a property manager, then you could possibly go through two or three property managers to figure out one who actually is one you can work with, that’s going to work in a way that you feel does best for you. And if you have any maintenance, that’s got to get done. You got to find crews to do that a lot that you have to do now falls on you to do all these parts. So and after the deals closed, where’s the realtor in that deal? pro Do you think that perspective is closed?
Brett:
It’s probably gone, he’s fine on the next deal. Next dealer.
Aaron:
Exactly, they’re going to market the next house the most. This is just my experience, the most response you’re gonna get. And this is not every realtor but it’s a lot of them come Christmas time you’re going to get a card with a picture of them and their damn cat and some ugly sweater at Christmas, if you want to buy yourself call me right. That’s it, that’s all you get from them. When you’re talking about these turnkey guys out there are these people working in these real estate investment environments. You know, their job is to not only do all those things, but maintain the property for you stay in contact with you on the regular, they have experience in this that you’re that you would have to get on your own loose line get there, there’s this old saying I’ve heard and I say a lot good judgment comes from experience and experience comes from bad judgment, they’ve already exercised the bad judgment, all that you’re still going to get fair market value either direction, right, you’re still going to have property management either direction, but all the other things that you’re going to miss the failures that you don’t have to take on yourself, when you use somebody else’s experience, all that experience is free. All those people in your process are free, because you’re going to pay the same, but there’ll be a property manager from the or pay a realtor or buy through a realtor, you’re going to the way all the other parts free Operations Division, then on the other side of that I put myself as not just any lender, you know, the large banks have proven you can take get out of a cage, get training, it will close loans, that part isn’t hard, we’ve got that down. But it is the mindset piece that we want to get into about what we offer more so than just the closed loan. So when we’re talking about experience you’d mentioned in the first interview about where I stand in my industry, the average person in the industry 300 plus 1000 people employed to do what I do, does between three and four transactions per month. That’s the average person. So there’s a lot of people doing one per month. There’s a lot of people doing one every other month. So you can do 10 to 48 transactions per year is the experience they draw from to walk an investor through the process of finance in the conventional world. Well, those other most loan originators in my industry, they’re focused on anything they’re diagnostic, they don’t care if it’s a first time homebuyer, a cash out refi a FHA, VA, they don’t care, right, just whoever they just want to do the clothes, right, they got to break their table, I made a conscious decision to focus on real fast years back in 2003, I really dug deep into the real estate investing in 2009. And when we’re closing in excess of 100 transactions a month, just for real estate investors, it makes us pretty close to experts in object, you give you a given statistics of over 700 transactions a year. I’m approaching 800 transactions so far just this year 2020. I’m anticipating to break 1200 transactions for this year, and most 990 9% of it’s real. We get to see what other people decide about their business. We get to see where they succeed and where they fail. So when that experience piece comes, and a real estate investor reaches out to me say hey, I’m facing this decision. I’ve got this particular question that’s coming up. I gotta get answered. I can give them practical data. I’ve seen hundreds of other people decide, and who succeeded and who failed and why. And they can make a decision based on practical data not speculation or theory.
Navigating Your Mortgage Needs For Investment Real Estate With Aaron Chapman – “Ninety percent of all millionaires become so through owning real estate.” – Andrew Carnegie
Brett:
Love it? Absolutely. So you’re truly an advisor, and truly a dream team member. And you can find Aaron, by the way at aaronbchapman.com
Aaron:
Sometimes that particular site acts up. So AaronBChapman.com will also work. So one usually either one will work at one at a different time. So try AaronChapman.com and go for AaronBChapman.com. If you see a redneck sitting on a porch or at the right spot.
Brett:
Excellent. So let’s let’s talk a little bit about capital gains tax and some of the mistakes you mentioned. People make and or some of the things about overpaying you mentioned, you know, there’s times where people are paying fair market value. Where do you think values are at right now? And how does the 1031 exchange, oftentimes, you know, I know for me and my clients has been a frustration because you’re selling high and buying higher. I’m curious, if you sent you’ve seen the same things recently in the last year or two
Aaron:
The difficulty right now is selling high and buying higher or even buying equivalent is trying to find transactions that will fit within the window of time that you’re given. Right. And especially when people are selling large homes, like in California got a large chunk of capital to deploy, that becomes very, very difficult, especially when you’re talking about trying to fit, you know, several $100,000 into say, five or six transactions, and one falls out. Now you have a major problem on your hands, right. So now you have to identify as much as you can, but you have to play this game. It’s not an easy thing. You know, the other thing is, it is trying to process that many transactions at once. That’s tough. It’s real tough for us as a lender, we’re very good. I’ve gotten a phenomenal team. And this team has every battle worn. In fact, my average person on my processing size has over 20 years experience. But when you’re handing them nine transactions to close it the exact same time, any variant in any single one of those can impact the other eight. So sometimes they gotta process trial files, 234 times, there’s this misnomer out there that people will believe what I’m doing. I do nine at a time, it should be easier. Oh no, it’s 10 times more complicated. So every time you touch one file, you have to touch the other eight. And you have to make that change within the other eight because one, every transaction has data about the others within it. So it’s really a very, very complicated process. And I have a lot of those going on right now like that. And if you have an appraisal issue and inspection issue, and you have to peel that one out and put another one back in, is it going to work within the timeframe of the 1031? There’s way too many different things going all at once.
Brett:
Yeah, we agree. And that’s part of why we started our company to help people escape feeling trapped by capital gains tax and also have a backup plan for failed 1031 exchange, we just say to fail 1031 and a 128 unit apartment complex passes 45 identification period, and he moved into the deferred sales trust. And it’s a common story, right? And unfortunately, also the baby boomers and things. What’s happening right now is baby boomers are looking to retire from a lot of this right? They’ve made their wealth for the last 20, 30, 40 years of investing in real estate. And they’re looking to be done with the toilets, the trash, the liability and or just sitting on the sidelines and waiting for a while until the market makes a little more sense. I mean, there’s a little more inventory. And we think we’re kind of at a crest. I don’t know where you think where the markets are right now we’re probably about as high of the peak as we can be for values and we think the big corrections are coming. You know, 1015 could be 20%. And that’s kind of the market cycles we’ve seen, it might take five to seven years to get back up again, to the normal levels or levels that we’re at right now. So I’m curious, where do you think we are with values? And what do you foresee with, you know, the future of the economy, the election? COVID-19 I mean, so many moving parts? What is your take also on interest rate? There’s a lot of questions there, but I’m gonna open it up to you there.
Aaron:
So when it comes to Cresta values that is a very interesting question. I think are some of our coastal markets, definitely the ones that are going to see the greatest impact with respect to those are the ones that take the biggest swings anyway. But when you consider what’s going on out there, a lot of them there’s a lot of people leaving certain areas, you’ve got a lot of I’m afraid that those particular areas a higher price areas, the ones are the ones that are going to be experiencing that crest, you know, when you’re talking about the majority, the markets, I spend a lot of my time in a lot of the, you know, South and the Midwest, you know, those particular areas, you’re not seeing a ton of fluctuation as far as values are concerned. So you’re seeing that slow climb as far as appreciation. So that being the situation I’m, I’m more than 10. I tend to think that those particular markets might see more stability than something like a California or New York or a King County somewhere watching all those areas I think might have a little bit higher risk. For overvaluation at least valuations without us being impacted but only time will tell. I mean, you can easily see, we can see go the other direction. But I think the COVID thing might actually play into values, having that stability in some of those markets. And the reason I say that is we think about what’s going on to people’s employment, right, we’ve got employment issues, we have the fact that people are having we’ve changed human dynamics, human behavior has changed, they’re not going out and getting around each other as often, you also have a situation where they’re trying to distance themselves even more so from their neighbors, right. So if you’re talking about apartment complexes, and I know that is, this is a subject for a lot of people kind of worried, folks are not really, they’re having a hard time staying in two bedroom, one bath apartments, or they’re trying to work from home, and they’ve got two kids in there. And the kids are having to do a lot of schooling from home. And then you’ve got a neighbor who just lost his job, who’s drinking during the day and beaten his kid, you know, that’s a shared while you want to get away from and we have to think about what’s going on here with humans. So what do they want to do they want to get out of that. Now, do they have the financial wherewithal to purchase right now, there’s a good solid chance they don’t, because things are changing within the dynamics of lending. And what you can lend on and what you can’t even though rates are low, qualifying continues to tighten up, especially in the owner occupied world. So when you consider that there I would believe would be more apt to one a single family residence, they want to be able to rent some place where they can have a yard, they can have a gap between the neighbors, and be able to continue to work from home and a little more comfortable environment. So because of that, I’m thinking more of your middle America, my continuous state statement is more stable than your out outlying areas, because of those facts, because they’re going to be you know, rentals, they’re going to have places that people are going to continue to have to occupy and you’re a real estate investor is going to keep that market alive. Real Estate Investors right now are having, you know, they haven’t won the best at times in history, as far as acquisitions of real estate, and getting cash flowing real estate, because the demand for rentals right now in the single family market is amazing. And hearing from all kinds of folks across the country that they’ve got a line setting is set up right there to rent these single families that it didn’t have before that people paying their bills on time. Now, is there a worry about what the stimulus going away? Sure, there’s those worries, but I have not seen anything so far that has landed on my desk to indicate that we would be seeing a serious drop in rents being collected?
Brett:
Yeah, so we’ll say let’s have a good context there. And yeah, I tend to agree with the basically everything you’re saying there, and it all makes sense. And so that being said, if you’re a real estate investor right now, or maybe put it to air like what, what when are you looking to buy? Or are you buying? Or what is your basic, you know, thought on, on acquisitions at this time, and door selling at this time? curious what you personally are doing?
Aaron:
I sell an acquire as it makes sense, right? So if I see something that I believe in, is it Well, right now, I haven’t really sold anything I’ve just acquired. And so when I’m talking about the acquisition piece, does the deal make sense? Or does it not? So I encourage every investor to have their baselines, you need to have a reasonable eastney to reasonably believe that property will stay rented for the time that you own it. Because if you can’t get it rented, I don’t care what any other metric is. if nobody’s going to occupy that space, it doesn’t matter what the performance says, what the pretend cash on cash return is there is so called cap rates, all that doesn’t matter if nobody is going to occupy the property. So number one, is that property, one that people reasonably want to rent. If that is the case, you’re already ahead of the game. So what I have everybody doing, we’re going to do a little bit of math together, so I can kind of help you to illustrate my point here. So let’s say we’re doing a $100,000 purchase on a single family residence, we’re gonna put 20% down, we’re gonna go for a 1% rent to value ratio with $200 a month in cash flow. Does that sound like an anomaly to you? Or that sounds like a pretty common deal?
Brett:
Seems reasonable?
Aaron:
Very, very reasonable fact. Some people tell me I’d never buy that’s only $200 a month in cash flow and like, work with me here. We’re just doing numbers for the moment, right? Yeah. So what was my cash on cash return? It’s cash on cash returns out the window. I mean, in fact, cash on cash and, and the pro forma metrics, all those is made up, that’s just somebody else’s math to try and figure out, you know, this is what you basically believe they’re trying to give you some sort of tool to break it down where it’s going to go with simplicity. So if you’ve got $100,000 property, you’re putting 20% down, what is the dollar amount of that? 20%. So you said at 20% for $100,000 down $100,000. Purchase 20% debt. Right? So 20,000 or 30,000. Yeah, So yeah, I know I’m thinking I’m gonna throw some major algorithms out of chip but know that you’re putting on your major thinking cap. So 20,000, right. So that means you’re financing what dollar amount? 80,000. Right. So if you are keeping somebody in that property for let’s say, you get a 30 year fixed, you kept it those entire 30 years, and you keep it reasonably rented for the entire time you own it. Who paid off the loan? Your renters, the tenant, are correct. You just got to be the pass through, right. So the tenant paid off that 80,000. So let’s take 80,000 will be divided by 30, because it’s going to take your tenant 30 years to pay it off. Now, I realize there’s an amortization table. I’m not going to get into that we’re going to stick simple this time. So 80,000 divided by 30, what dollar amount you get there. It’s $2,666.66. Right? And the 60 keeps going. So $2,666.66, you divide that into the 20,000? Because that was your money. That was your investment into the deal, right? What’s that percentage?
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Brett:
It’s coming. It’s coming. 7.4 is 7.4 times it goes into what you want me to do the other way? It’s 13%.
Aaron:
Yep. So 13.33% is what that actually is, because your calculator is not putting the decimal point the right point, but ultimately 14.33%. So if the people want to take the quick math on that double check the $2,666.66 divided to 20,000 is 13.33% of 20,000. That means every year your initial investment 20,000 is growing by 13.33% of that original 20,000 provided you keep a person in there before any cash flow or anything else you’re getting that game because eventually they’re paying off the 180,000. Right? Correct. What right there outperforms most other instruments by itself. Now, let’s get into the fact that we live in an inflationary environment, what do you believe the rate of inflation to be today?
Brett:
Probably at least three, you know, could be you could say you could argue four or five, but at least.
Aaron:
So when you get into the inflation piece, I like to go to John Williams Shadow Stats, I also like to go to the Chaplet Index, and people can go there while we’re listening, who’s type in shadow stats calm, and you can go into the alternate data across the top of the page, you’ll see alternate data, scroll down to inflation. And you can see he’s got two different charts there, or the chart towards the bottom will show a blue line and a red line. So one of them is the lower line, I believe that’s the red line is what the Fed tracks the CPI, the consumer, the consumer price index. The Fed also likes to quote from the personal consumption expenditures index. Well, when you look at both of those, you start figuring, okay, what this leads us to believe that the Fed is looking at everything, we’re spending money on consumer price index, personal consumption expenditures index, and then you peel back the layers and see what’s really baked into that, you start to find out that those are the most mislabeled damn things in the world, because they don’t factor in food costs, and energy costs. And they don’t factor in parts of housing. And I think air is the only other thing that humans need to survive, right? food, water, shelter, air. Well, California is the only state in the world that has figured out how to tax air, you got to pay more to live in, in great air right? Outside of that, you start looking at the rest of the world, and they have food costs going through the roof. In fact, I think it’s the meat index, last I saw has an 18% increase year over year. Right, then you get into energy as far as water, you know, water is not going backwards in price. In fact, if you look at your water bill, you start to see that what you’re paying per gallon used under the water bill continues to go up. Same with your power bill. So we’re not seeing energy going down. And housing, we just talked about it going through the roof. So when you factor these things in, the actual rate of inflation is bridging close to 8%, according to what John Williams is showing here. In fact, if you actually pay for their subscriptions, like a year, you go, and you can do a calculator for $100 worth over 30 years ago, staggering. You need, like I think, if I remember correctly, for me to equal the buying power of $100 went out in 1990. When I was in high school, I would need 11 $100 today to match that. I am going off a memory here. So I’m gonna have to go in there and make that calculation but that’s insane. So how I can show that same thing here is I’m gonna share with you guys where some real values come in this. So let’s talk about because when we get to raise rents, right, then the average last I read for apartments was 3.6%. Well, if you can raise apartments 3.6% It seems reasonable to be able to raise the rents on a single family residence by 3%. Right. So he said the rent to value ratio on this was 1%. That’s $1,000 a month. Correct. What is 3% 1000
Brett:
What is 3%? of $1,000? Is $300?
Aaron:
Are you Sure?
Brett:
It’s Yeah. 3% of $1,000. It’s $30. Sorry, it’s $30.
Aaron:
You know, there’s a lot of people that come with that exact same thing that just pops in your mind, right? But then you get really disappointed you figure it’s only 30 bucks, I only went up 30 bucks, crap. Well, let’s talk about how awesome the 30 bucks is. We talked about $200 a month in a cash book. Well, it’s reasonably the first year as cash flows to 30, they practically jumped your taxes real fast, unless you’re buying certain areas you shouldn’t. And the insurance premium should be close to the same. So let’s say the next year you raise it by 30 bucks, now you get $200 a month in cash flow. How much should your cash flow jump up by?
Brett:
5% percent
Aaron:
How sexy is that? We already found that you get just by them paying off your mortgage, your initial investment goes up by 13.33% original investment. Now your cash flow can go up by 15%, just by raising the rents 3%. And that’s a compound growth. The first one’s not compound, the second one’s compound every time you raise it compounds, right. But the more the lender doesn’t get to raise the payment on the loan to pace inflation, right? They got to accept the exact same dollar amount for 30 years. So here’s a chart that I want to be able to share with you. Yes, we’re showing a 30 year loan at a $100,000 acquisition price of $80,000 loan, just like we talked about before, we’re going to go off the 7% inflation because you know, real estate investors are gonna be a little bit more discerning with where they put their money at. We’re gonna just type in 4.5% rate. Rates are actually unlocking significantly lower right now. But I’m going to do this just for the sake of the transaction, we’re going to talk about this now, here, we’re showing the payment, the principal and interest payment. And it actually, I can scroll all the way up to day one and go all the way down $405.35 per month, then you couple the interest of $65,925 being charged right here. You add that to the principal that you’re paying back of 80,000, a person is going to pay over 30 years, you’re going to filter from your tenant through you to the bank $145,925.37. Many times people think man, that’s a lot of money. That’s nearly double what I borrowed, I want to pay it off faster, I’m explaining things don’t. The longer you take the pay, the less you actually pay. And here we get to show with the 7% inflation, you can recalculate every dollar as it leaves your hands, right to make a payment. And how the value of the dollar is declining, its buying power is declining over the 30 years, you’re not paying back the 80,000 principle, you’re not paying the one the 65,000 interest, right here shows after you really factor what inflation does to the dollar you only paying back $60,926.91. As you raise rents to hit a compound growth because of inflation, you’re paying back a compound decline, because the instrument you’re paying back with is losing its buying power. Look at this, this is another interesting fact here $405.35 30 years from now, it will be equivalent to what $49.94 is today. That will be the cost of a latte 30 years from now. So that, to me, shows where the most powerful part of real estate investing is it’s leveraging high, leveraging long and paying off slow. Don’t just leverage like crazy just to start off right, you leverage in the place where somebody else pays it back for you and you get the capability to continue to increase your income off of it as they’re paying back that leverage. Somebody who’s willing to put up $80,000 for your business basically buying 80% of your for you that pays me back later, not only pay me back, the back is going to lose extreme value over the time that it takes you to pay. Why would we ever put more money down by down an interest rate or pay off any faster than the time from that they gave us? Right then this is not my numbers. This actually comes from the professor of accounting at Kennesaw State University. He heard me on a podcast call that said you need to introduce students. None of that went to his students in November 2007. I think it was 18, maybe 19. I can’t remember it’s amazing how fast it goes. I think it was last year 2019. Then he also created this tool for me to be able to illustrate exactly how powerful that is. And I have an app being built right now there right now working on the pretty parts of it so that we can release to people who are. They can calculate this on their own and see where the real value of real estate investing is. It’s not the cash flow, it’s not the cap rate is not the cash on cash return, it’s the loan.
Brett:
Absolutely love it. Now, I want to apply that to the capital gains tax, because this is what we say, Hey, don’t pay that back to the government defer it all, and the government gives you an interest free loan, essentially, to invest it into wherever you want, as long as it’s investment or business related, and you can live off the interest that it produces. So the recent deal we just closed, this was a 5000 acres in Texas, and we helped them for hundreds of 1000s of dollars, he did a partial 1031 and then a partial deferred sales trust. But essentially, they’re deferring all of this money at zero interest, and they’re able to invest in and live off the cash flow. So I think if I’m connecting correctly, Aaron, not only are they getting the best of both worlds, right, they’re at they’re, they’re able to loan the government’s money for as long as they want. And we like to say that most of our clients like to pay that loan back the second day to never, right, and they’re just going to keep it producing cash flow and other instruments. And so I wonder if your calculator, maybe we should get together after this and, and power on using that and connecting the calculator we use now, because I think that’s powerful.
Aaron:
That would be actually very, very awesome. Because one of the things it goes back to what I was talking about with the clients is keep your team together. Number one, right, the right people out there boots on the ground, getting the right lender who understands because lenders can still loan, but it’s helping you to understand what it is you’re doing. As far as the dynamics of housing, finance and benefits, you get a lot of bad information out there from folks saying to buy down your rate or put more money down or all those things. And then a couple of what you guys have the opportunity to give people that just it’s super powering tools and people’s businesses, their real estate investment businesses and getting options for the future. And what I hear some people might say, well, when it comes to the tax thing, no, well, if you’re avoiding tax, and whatever, it’s that you need to be doing your fair share, I have no problem with my fair share, I pay my fair share, and then some. But if I have the capability to use those funds, to create freedom, what I mean by freedom here is I have the freedom to be able to build more business to help more people to get more housing and other folks to decide what I’m gonna do with my tax dollars, not some pitch up there in an office someplace has no idea what the street’s doing no clue what people really need. They’re doing more in the sense of just squandering capital on somebody’s great idea. That’s not even a good idea. Instead of us helping our own social structure and building our own infrastructure, and creating jobs and creating housing, that’s where the real freedom comes in and we are able to use those funds for better reasons.
Navigating Your Mortgage Needs For Investment Real Estate With Aaron Chapman – “Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.” – Winston Churchill
Brett:
You got it? Yeah. And it’s one of the most common misconceptions is that this is some, you know, the avoidance versus just deferral or this is somehow the IRS, you know, frowns upon it, they actually incentivize it, they put these in place, so that government actually, you know, is out of the way and then in the tax dollars can flow which creates more jobs, which actually creates more tax revenue, which is the study of macroeconomics. But we digress and don’t by the way, for those who are listening on the podcast, just you know, video, we have this all on YouTube, you can go to our capital gains tax solutions, YouTube channel, and you can watch Aaron and I, and he does a little Excel profile video going on there on a screen share. So in case you’re wondering about that last thing, with that being said, Aaron, are you ready for the lightning round?
Aaron:
All right away? All right, knowing what answers will be even discernible, but I’ll take it.
Brett:
I’m sure it’ll be great. Knowing what you know. Now, if you go back to your 25 year old self, Aaron, what’s the one Golden Nugget, you would make sure, you would tell yourself
Aaron:
Not listening to a lot of the people that were telling me what I should do with my money? Because it turned out that there’s a lot of folks out there that you know, humans are the apex predator, except when it comes to other humans, and I had a lot of people preying upon what I had, because I was doing very well in my early 20s in this industry. And so I was listening to the wrong people.
Brett:
Got it. Thank you. What is the one book you’ve recommended or given the most in the past year?
Aaron:
It would be well there’s my books. So I’ve been peddling those like crazy. But so that is book number one is the Point Your Head and Heart, Your Ass Will Follow. Number two is Gratitude. A practical application number three is quit jerking off. Number four is steel running as a steel chainsaw. And so it is I wrote one big book and I take each chapter and I just wrap it and I send it off. It’s still an individual book, no longer than 30 pages, but the one that I push, more so than the ones that I wrote is by Charles Haanel The Master Key System. It is not just a book, it is an actual it’s an education process on how to work, how to actually run your mind and how to control it instead of a lot instead of being controlled. And instead don’t just read it. Take every chapter every day for a week and do the exercise associated with it and you’d be amazed what happens to you 
Brett:
I love it.
Aaron:
Charles Haanel master sorry one more time Master Key System. Oh, I think something like that. Okay, listen to Napoleon Hill, he References The Master Key. That’s this, he took a correspondence course in 1910.
Brett:
Excellent love it. Give me a mobile or digital resource you recommend for your business?
Aaron:
Text that has actually done a lot for me the ability to my voicemail fills up so fast I just tell people to text me. And then I have my assistant, take the text and run with it there. To me, that’s the greatest resource there is because I can be handling so many things when people are communicating with me. I can pass that off and she can take care of us. Yeah, text is the best resource for me
Brett:
Love it. Do you use a certain application for that to manage the text? Are you just good?
Aaron:
I don’t all I have is just what was embedded on the phone. So I just poured the text while I’m on the phone with somebody else. I don’t even read it just for a fair enough. You’re doing 800 to 1200 transactions a year. That’s all you need.
Brett:
Favorite leadership quote, Aaron, or theme that you try to live by?
Aaron:
Hmm, solid question there, I would say favorite quote and you got me there in all of that right there. Because the thing that I tend to lead by is like that, I just need to go forth and just do it. You know if it as far as leadership is concerned, a person that I think the definition of it all itself is leading being in front. And so how I live my business is I can’t ask anything of my staff. And I’m not willing to do more if I have very, very high expectations from them. But I have extremely high expectations for myself. And quite frankly, I don’t even have a goal. My goal is so unattainable. I never achieve it. Because I don’t believe that a person who sets a goal to actually stop is going to end up receding backwards. So I never even I don’t have them. I don’t have achievable goals. I’ll just keep returning them till I die.
Brett:
Love it. What are you curious about right now?
Aaron:
I’m really curious of what’s really going on in the background when you’re looking at the markets and what’s driving them and the fact that we have over $4 billion a day being invested into just a mortgage backed securities markets by the Fed, what they’re putting into the treasuries and the fact they’re buying corporate bonds. I’m curious about the endgame. I’m curious about what that employee is because that’s a lot of money being pushed out there. And what is really going to happen as a result of all this
Brett:
Yeah, well said last question then remind listeners where they can find you and this is I think one of my favorite questions because it helps me to an audience to connect with you here so after all your success Aaron after your story of perseverance have become a top in your industry, helping countless individuals create and preserve more wealth. How do you Aaron stay centered in your values? And how do you stay encouraged to reach for, for new heights?
Aaron:
It’s all about somebody else that has nothing to do with me. So the more I focus on how I can be sure that others get what they want out of life, my life is just kicking ass. You know, I’m blessed to have 26 employees working on just the deals that come in through me. And to kind of illustrate how I see that is, you know, I absolutely must create opportunity. I need to take whatever resources come through me and be able to distribute those in ways other people have the opportunity to the extent that one morning I was up and I was late for a phone call. I was trying to finish a workout, get in there, cook breakfast and get some food in me so I can go about my day because my days are heavy duty. And then I realized I was so behind by walking into my daughter’s room she was recently looking at working at a bakery now walking in said are you working early? Because no, I don’t know if they’re going to the bakery backup. So come in here and sit down. So what did they pay you? And she explained what her pay was? I wrote a check out of my checkbook for $200 more. I slid it to her. She goes What is this for? I said, I will never cook for myself again. I put her on payroll, I gave her an opportunity to continue to work. But I also created more opportunities for myself. So now I can take the time I used to put into that and continue to grow my business. And when I started doing those things, I added two more people after that, you know, so the more I can focus where I am best suited, the more I can allow other people to focus where they’re best suited and recreating a greater economy as a result.
Brett:
Absolutely love it. And for those listeners who want to get in touch with you, what’s the best way for them to connect with you?
Aaron:
Let’s go to AaronBChapman.com. That’s the absolute best way. You’ll see me sitting on my porch. It’s in my office in Missouri. They also if they want to check me out and make sure my licensing, they can go to the nmls website nationwide mortgage licensing system or service 122. And they just go to the consumer page consumer access, type in either my name, or my nmls ID which is 267844. You can see all the licenses that I have and whether or not there’s any complaints against me. If you went out there, call me first.
Brett:
Yeah, sounds good. Love it. Aaron. Well, thank you so much for sharing your wisdom, sharing your story and showing and sharing with us so much about how to create and preserve more wealth. Really appreciate you and we encourage you to keep using the gifts you’ve been given to bless other people and help them create and preserve more wealth with their finances.
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About Aaron Chapman
Aaron a veteran in the finance industry beginning 1997, exited Mining, Heavy Equipment Operation, Welding and long haul truck driving. Since entering the finance industry his clientele has ranged from those purchasing their first home, building their dream home or investing in multiple properties for long term cash flow. His expertise is in the complicated. Presently ranked #14 in an industry of over 300,000 licensed loan originators for transactions closed annually (723 closed units for real estate investors in 2019, 707 in 2018 and 676 in 2017); Aaron is that battle-worn partner every real estate entrepreneur needs to walk thru the tough parts of building a real estate business.
In addition to a career in real estate finance Aaron is a Published Author with 4 books released and dozens of magazine articles. Very happily married to his wife since 1996 with 4 children. Aaron and his wife both take great pride in watching their children mature and make calculated decisions about their lives with their parents coaching. The hindsight education is openly discussed and both parent and child benefit from such conversation which has led to the creation of a family business where each member (even the 12-year-old) has a say in the family investments and growth of the family assets.
Aaron and his wife recently retired from 9 years of service with the Pinal County Sheriff’s office volunteer Rescue Unit. Both retired as team leaders. Aaron’s specific role within the Unit with designations as EMT (his wife is a Paramedic) was to lead the Technical Rescue unit as well as the Off-road and as well as the Air Rescue Unit’s. During those years the team experienced in excess of 50 rescues each year. In many cases, the missions completed received international media attention with lives preserved in extreme circumstances.
