Focus on Money: Is Debt Good or Bad? Richard Simon Answers this Question

In today's episode of #TheAmberStittShow, Richard returns to discuss the topic of debt and its role in financial planning.

We all have grown up with the common belief that debt is inherently bad, but is that always an accurate statement?

Richard Simon shares his perspective as a mortgage broker and how he helps clients utilize mortgage debt as a tool for financial planning.

He shares how we need to consider factors such as their intention to acquire other properties, retirement plans, and whether they are first-time homebuyers.

In this episode, we discuss:
- The perception of debt in society
- Debt during wars and economic crises
-How to leverage debt to one's advantage
-How to generate passive income and build wealth.

Richard mentions that his team takes a unique approach by incorporating financial planning into their mortgage consultations, regardless of whether it's for a home purchase or refinancing.

If you are truly interested in using your Mortgage as a solution to your Planning, make sure your mortgage broker walks you through all the options as some buyers' needs are different from others. It isn't just about the rates!

For more mortgage tips, please follow Richard and his team at  @AZ Lending Experts, LLC, and their profiles on Instagram and Facebook.

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Transcript

Opening Introduction with Music  00:11

Hello, and welcome to The Amber Stitt Show. I am your host, Amber Stitt, and I am obsessed with helping people get their financial and personal lives in order. Every week, my guests and I explore the fundamentals and practices that will help you stay on top of your game in business, but also at home. I believe we all have different pathways we have to take to reach our peak performance so that we can live up to our peak potential and this podcast is dedicated to helping you get there. I'm excited to share the insights and habits that my guests and I have cultivated throughout our lives, so we can help you on your journey towards a happy, successful, and fulfilling life. Let's jump right into today's show. 

Amber Stitt  01:00

Welcome to the Amber Stitt show. I am your host, Amber Stitt, and I welcome back Richard Simon today for another episode about getting money smart focusing on money goals your way. And we're gonna dive into the topic of, "Is debt good or bad when it comes to investing and just being part of our overall financial plan?" Before we begin, Richard, let's have you talk a little bit about yourself and your business so that the audience that hasn't met you, yet, can learn a little bit about what you do and then we'll dive into the topics for today.

Richard Simon  01:32

Sure, so I am owner of AZ Lending Experts. We're a mortgage broker out here in Arizona, we've had the company since 2011. Been in the mortgage industry since 2004. So, for the last eight years we've been voted the number one mortgage broker in Arizona by Ranking Arizona, which is a great achievement for us. And other than that, I'm just excited to be here and be talking about this subject today.

Amber Stitt  01:53

Well, I feel like you put a lot on line so that you can be helpful to people. So, I'll link up the YouTube channels and we'll talk about how people can find you at the end. But for the audience that's potentially listened to previous episodes, or maybe for those that haven't, we have talked about using mortgage as a tool for financial planning. We've talked about mortgage terms and the overall just market conditions and how to stay in front of that. And not to be fearful, but really, to utilize the tools and resources that are out there for us. But you and I've talked a little bit about...we're about the same age and so when we grow up thinking that debt is bad, and then there are some mediums out there that might say debt is always bad. But I always look at things case by case and looking at the situation and so when I do insurance planning as a broker, I am shopping and reading and looking at new products and I feel like you do the same. So, let's let you take the mic and talk a little bit about when you're working with clients, maybe where you start when they come in for a consultation, to learn about what their goals are and then we'll kind of segue into debt as part of that conversation. But let's start with almost like, where do you begin when you work with clients?

Richard Simon  03:07

When we start working with clients, the biggest thing is to get an idea, we need to have an idea of like, what is their overall financial goal. Right. So, what is the purpose of acquiring this property? You know, is their intention to acquire other properties? What's their retirement plan? Do they have one in place? Is that something that they're even thinking about at this point, or, you know, sometimes we deal with first-time home buyers that are coming in, they're just like, I just want to get home, I want to stop renting somewhere. So, you know, the conversations are obviously different for everybody, but it is important to us when we're putting together a mortgage because, again, a mortgage is such a large piece of debt that most people carry one of the largest debts most people carry in their lifetimes. So, it's important for us to know, you know, what their goals are, so that we can properly educate them on how they can utilize that. In most cases, yes. 

Amber Stitt  03:54

And so, I know that we'll talk more when we dive into episodes that deal with investments in real estate in the future. But so going back to what I said about debt, I don't know if it was my grandfather and the wars that they served in and what they saw with the Great Depression they had. It wasn't a wrong mantra, but there are ways to utilize debt and leverage our credit scores to our benefit for others, I guess, passive income is something we could talk about. So, after you learn the money goals for your clients, then what are some of the alternatives, the more sophisticated? Not saying you have to have a financial finance degree to do these things. What are the more sophisticated strategies once you know it's not just the primary mortgage, there's some more cash flow to play with? What are some of the things that people can start thinking about? I feel that your team is unique in that I don't know that I've met another, I mean, maybe that is out there, but you're literally talking about financial planning in your consultations, whether it's a purchase or a refi. That's what it sounds like. 

Richard Simon  05:01

Well, what we always tell people that, you know, what I do is I help people use mortgage debt to help fund their retirement, right? And it's just a way that it's a completely different frame of mind. I mean, like you, when I grew up my grandfather was like, "You do not have debt, if you own something, you own it free and clear." I mean, his thing was, you don't pay interest to the banks. That's how the banks get rich, you let people pay interest to yourself. And to me, that made so much sense. And I grew up and, you know, and listened and followed him. And he was very successful, he owned a lot of real estate actually, in the Phoenix market. So, I looked up to him and admired him, you know, and that was my mindset. You know, when I got into the industry, it took several years before I actually changed my mindset and looked at debt in a completely different way.

Amber Stitt  05:46

Did you see that changing for you as a business person, or just more experience in your industry, just knowing there are other products and seeing what can happen? 

Richard Simon  05:56

I think it changed for me as both a business person...I was always...I've always been very risk-averse, I don't like to take risks. I'm always more on the conservative side, I always have to have a plan when I get into something. And the more I learned about it, and, you know, there was...I was having conversations with my business partner, and we were just talking about debt, right? And I'll just give you a couple of quick examples. So, we talked about our financial goals and want to have, you know, passive income and fund our retirement through passive income with real estate and that was something big for us because we're in the market and we know it very well. So, we talked about, you know, buying. A goal was to buy a home, let's just say a $500,000 home. Own it free and clear. And I'm renting that home out and all of a sudden, I have $2,500 a month coming in on rent, right? So, I'm making $2,500 on that property. Now, the other side of it is that I'm bringing in $2,500. But that property is also going to appreciate over time. And even if you look at low numbers, we're gonna say okay, let's say that a price a property appreciates 4%, you know, year after year after year, now I'm growing 4% on that $500,000 home, right? Great situation to be in and it made sense to me. That's what my grandfather taught me it was. I was in. But then it was proposed to me in a different way. So, what if instead of owning one home at $500,000, free and clear, you took that $500,000, and you bought five properties, and put $100,000 down on each property, right? So, now you're mortgaging those properties, and you have $400,000 loans on all those properties. So, instead of clearing $2,500, because now I have to make a mortgage payment. Now, I'm only maybe making $500 in rent on each of those properties. But $500 at five still puts me at the same $2500 a month, right? So, I might have a little bit more risk because of vacancies and whatnot with five different properties. But I'm still essentially cash-flowing $2,500 a month. But now, instead of my interest or my equity growing at 4%, on $500,000, I actually have interest or equity growing at 4% on 2.5 million.

Amber Stitt  06:01

Right, five properties,

Richard Simon  07:03

Right, that's 2.5 million. So now, I mean, if you look at that 4% On 2.5 million versus 4%, on $500,000, that's a game changer, it's completely different, you know, it's a completely different level of earning income, or of, you know, growing your wealth.

Amber Stitt  08:23

That's very interesting. I do like that because that could be, I think a lot of personalities could...even conservative, like you're saying...could really dive into that opportunity and generate that path. So, let's talk about passive income. Can you explain what that means, technically, for the audience?

Richard Simon  08:41

So, passive income is just income that you're not having to continually work at, right? So, most people have their jobs and their job is where they go to work every day, and you're putting in your 40 hours a week, or whatever it might be, and you're earning a good income with your job. But what you want to do, what most wealthy people look to do is they look to ways they can earn passive income and that's income that's coming in without you actually having to work at it day in and day out.

Amber Stitt  09:04

So, that being said, are you finding that people are successful when they have multiple properties like this, utilizing a property management company as part of that process and that system to be managing the day-to-day?

Richard Simon  09:17

Yes, and no, it depends on the person, right? Property management companies are great, but some of them can also be terrifying. I mean, I had a terrible experience years ago with a property management company. (Laughter)

Amber Stitt  09:29

Well, HOAs can be bad, they were bad for you know, they can always...depending on who's managing the management company. Okay, keep going.

Richard Simon  09:37

So, it just depends on the person. So yeah, so I mean, I had a property manager that came in that we signed the paperwork with and it's something that people can look out for. So, he had us sign what we gave him...we would allow them up to $500 in expenses without needing a signature from us. So, he could if he had to spend $500 on something, if it was a repair, or if there was an emergency...we just thought it made sense. Like, I don't need to sign off on it. Well, after he was managing the properties for us for about six months, you know, we asked him for the books, and we were looking through the books. And I mean, there were all kinds of expenses that were coming out that were just under the $500, that we never knew about, because we never had to sign off on them. 

Amber Stitt  10:19

Oh no, they were small enough but they stack up.

Richard Simon  10:21

Exactly, so I mean, he was basically just taking money from us left and right, and it cost us a lot of money. Now, the flip side of that is, I have seen some really good property management companies do things the right way. And if you're truly looking for passive income, it is important to be able to have a property management company that you can trust and that you can count on. Because what you don't want to have to happen is, you know, be at your main job and all of a sudden, somebody calls you, "Hey, there's a pipe broken at the house and water's leaking everywhere. I need someone out here immediately, what do I do?" Well, for some people, you can't just say, okay, timeout, I'm gonna leave my regular job and go do my passive income job now. So, to have someone that can manage that for you is just, it's really such a relief, it makes owning real estate and renting real estate and using it as passive income a lot easier.

Amber Stitt  11:06

A little less stressful, because I assume, if you I mean, depends on if you do VRBO, or you have a long-term tenant in there but if you're buying properties, you might be strategic with the location, so maybe you can go up and visit those locations for yourself. So, if it's two hours away, and you don't have a property management company, to your point, there's a problem, there's plumbing, the AC went out, whatever it might be, you can't just drive up there anytime. If you have a family, or a job already, you know, you just can't do that. So, I would I could see where that property management team could be helpful. But yeah, to really vet it out. I don't know if there's like a way that you could technically vet them out without going through the experience. But I guess just certainly interviewing them to see what kind of portfolio of other clients they work with, I suppose. Any strategy there?

Richard Simon  12:00

Exactly. And things have changed a lot. I mean, back, you know, I mean, maybe it kind of ages us, but we didn't really have a…Google reviews weren't really a big thing back then, right? You would just look for somebody's name and call them. And nowadays, you can find enough, you know, information about people online, I mean, someone like that, their reviews online would be terrible, they wouldn't have it, you know. So, I really think just doing your research on a property management company and seeing what others are saying about them through social media. It's a pretty quick, easy way to find and get a really good idea of how someone operates.

Amber Stitt  12:31

I know that sometimes there are bad things that happen. They're not an opportunity...I wouldn't call it an opportunity, Richard, but hey, at least you can share with other people how to help them not be in that situation. Again, that's the little takeaway from some of the bad things that can happen. I know that you and I are going to have a little bit of a masterclass that's coming up that dives into VRBO and Commercials and how this can really be beneficial. Kind of the pros and cons, this versus that. So, I think that's a perfect place for us to stop today because we're going to iron out a lot more about investing in real estate in future episodes. So, I appreciate you being here again, as always, and so for the audience, we'll have more to come and I'm going to share Richard's information in the show notes and in the description boxes so you know how to find him. Anything else you want to share, Richard, before we wrap up?

Richard Simon  13:24

I think that covers it for today. As always appreciate you having me on. I enjoy these conversations and I look forward to doing the masterclass with you here soon.

Amber Stitt  13:32

Awesome. All right. We'll see you soon. 

Closing Outro  13:36

Thank you for joining us on today's episode of The Amber Stitt Show. For more information about podcasts, books, articles, and more, please visit me at AmberStitt.com. Until next week, enjoy your journey at home and at work. Thank you for listening!