RE: Real Estate Podcast

Clint C. Galliano (00:05.08)
That is going

Clint C. Galliano (00:09.858)
Do that.

Clint C. Galliano (00:16.95)
Mark one. How am I sounding on your end? I feel like I'm sounding low.

Ben Harang (00:22.53)
You ha you're loud, but I can I can turn you down. You sounding good.

Clint C. Galliano (00:26.806)
Okay. Cool. We'll start with that.

Clint C. Galliano (00:33.428)
Mark one dot.

Clint C. Galliano (00:41.516)
A two hundred and fifty thousand dollar home. Twenty years. If you rented that house, you paid the landlord close to a half million dollars, and you're walking away with nothing. If you owned it, five separate engines of wealth were running on the same asset the whole time. And most owners can't name three of them. Today we name all five. This is built to own.

Clint C. Galliano (01:14.21)
How was that?

Ben Harang (01:14.552)
All right. That's good. You hit two Ts in there.

Clint C. Galliano (01:19.342)
Said it the same way.

Ben Harang (01:19.994)
No you didn't. If you'd have recorded the first one you'd have heard you could hear it different. But anyway, that was good. All right. ready to get into it?

Clint C. Galliano (01:33.654)
That's rock and roll.

Ben Harang (01:36.792)
All right, here we go. Mark one.

Hello everybody and welcome to another episode of the RE Real Estate Podcast. My name is Ben Harang, and with me today, as usual, is my co host, Clint Galliano. How you doing today, Clint?

Clint C. Galliano (01:56.631)
I'm doing wonderful, Ben. How you doing?

Ben Harang (01:59.822)
Clint, I'm doing terrific. we might get through the day without without the rain coming down and beating on these metal buildings we're in. but if you hear if you hear anything, you'll know why. because it's supposed to rain while we while we're doing this, so I guess time will tell. all right. So what we're talking about today, Clint.

Clint C. Galliano (02:22.83)
All right, so we're continuing with our built to own, built to own series. And we opened up act two last week with questions on how to get in. And last episode was the whole of Act Two. Today we're moving into Act Three. And it opens the questions of what happens next.

How ownership actually pays off over time. It's not your house appreciates. That's just one of the that's just one engine of five.

That's just one engine of five. Today, the five engines of property wealth: cash flow, loan pay down, appreciation, tax benefits, and leverage. Every one of them runs on the same asset the day you close, and they run simultaneously across the full holding period. For structure, we're going to frame why ownership compounds and renting don't. Then walk through each engine individually.

and show what all five look like in motion on concrete twenty year story. On a concrete twenty year story.

It's not investment advice. It's not tax advice. Real estate is one path to wealth, not the only path. Every action item routes you to a CPA or a financial planner for your specific situation. And to reiterate that, it's disclaimer time. Before we go further, nothing in this episode is tax, legal, or financial advice. Every number we walk through is illustrative.

Clint C. Galliano (04:15.224)
Tax rules change. Individual situations vary. Real estate is one investment vehicle. It's not the right vehicle for every listener at every stage of life. Before you act on anything you hear today, consult a CPA for tax specific questions and a financial planner for personalized investment strategy. Both are third parties to this show.

All right, Ben, take it away.

Ben Harang (04:43.168)
All right. why ownership compounds? The core insight is that ownership isn't a savings account. It's a compound interest machine with multiple engines running at once. Every month of ownership does five different things simultaneously, not sequentially.

Clint C. Galliano (05:06.926)
So compared to renting, a renter's monthly payment does exactly one thing. It pays for shelter. When the month ends, that money is gone. There's no engines still running the next morning.

Ben Harang (05:22.552)
Compared to a savings account, saving five hundred dollars a month at four percent interest for twenty years yields about one hundred and eighty-three thousand dollars. That's one engine running on that money. Ownership runs five engines on the same asset for the same period.

Clint C. Galliano (05:41.068)
The magic is in the simultaneity. The engines aren't sequential. You don't get appreciation first, then cash flow, then tax benefits. They all run at the same time on the same asset from the day you close.

Ben Harang (05:57.004)
And this is why the wealth gap between owners and r renters widen over time. Same income, same city, same job market, wildly different net net worth outcomes over 20 years. The gap isn't about income, it's about compounding.

Clint C. Galliano (06:18.904)
So here's some stuff that renters miss. There's nothing wrong with renting. Flexibility matters and there are life stages where renting is the right call. Short-term jobs, life transitions, first year in a new city. But renting is not building wealth. It's paying for shelter month by month, indefinitely.

Ben Harang (06:40.374)
The average American renter over twenty years pays somewhere between three hundred and sixty thousand and six hundred thousand dollars to the landlord, depending on the market. That's someone else's compounded wealth.

Clint C. Galliano (06:56.61)
The renter's common self-explanation is, I'm investing the difference in the stock market. That almost never happens in practice at the scale that would close that gap. And even when it does, the leverage of the real estate typically outperforms unleveraged stock investing for working families over long holding periods.

Ben Harang (07:18.264)
And the five engines only exist for own for owners. Every one of them requires ownership as a precondition. That's the setup for the rest of today's episode. Let's walk through them one by one.

Clint C. Galliano (07:35.019)
All right, five engines. First engine is cash flow. For an owner-occupant, cash flow is the rent you're not paying to someone else. Every month you own instead of renting is money that stays in your pocket. It's not necessarily a check that comes in, or at least in the the most basic common situation, but it could be. But it's a check that doesn't go out. Gives you the same result.

Ben Harang (07:58.414)
Mm.

Clint C. Galliano (08:04.502)
It's just a different framing.

Ben Harang (08:08.076)
for an investor with a rental property, cash flow is the actual net income after mortgage, insurance, taxes, and maintenance. Typical target in this market, two to five hundred dollars per month. Modest per property, powerful when it compounds across multiple properties over time.

Clint C. Galliano (08:29.24)
Cash flow is the only engine that shows up as monthly dollars. The other four engines bill wealth silently without a monthly check, which is why they're easier to overlook and harder to explain. There's the reason why so many people underestimate ownership.

Ben Harang (08:48.6)
All right. The second engine is the loan pay down. Every mortgage payment has two components, interest and principal.

Ben Harang (09:01.24)
The principal portion is loan pay down. It's not an expense. It's a transfer. You're moving money from your checking account into the equity of your home.

Clint C. Galliano (09:13.27)
On a 30-year mortgage, principal is small in year one, maybe $200 a month out of a $1,500 payment. By year 15, roughly half the payment is principal. By year 25, most of the payment is principal. Loan paydown accelerates over the holding period.

Ben Harang (09:33.196)
It does. The loan pay down is often described as forced savings. A working family that never manages to voluntarily save five hundred dollars a month can nevertheless end up with hundreds of thousands of dollars in equity through mortgage amortization alone. That's the engine doing work.

Clint C. Galliano (09:56.013)
Next engine. Engine number three, appreciation. Property appreciation is the increase in market value over time. Long-term US average is home values appreciate roughly three to four percent per year. Louisiana specifically tracks slightly below the national average, but the long-term trend is positive.

Ben Harang (10:22.626)
And compounding matters, a $250,000 home appreciating at 3.5% per year across 20 years grows to roughly $497,000. That's $247,000 of wealth from appreciation alone, without any effort from the owner beyond making the mortgage payment and keeping the house up.

Clint C. Galliano (10:48.418)
Now there's two caveats to that. Appreciation is not guaranteed and it's not linear. Some years are flat, some years are down, some years are way up. It varies by market, by neighborhood, and by property type. What's realistic in HOMA is different from what's realistic in Austin. Talk to a real estate professional about your specific market.

Ben Harang (11:14.624)
All right. The fourth engine is the tax benefits. For owner occupants, the mortgage interest rate deduction, subject to standard deduction thresholds, the property tax deduction, and the capital gains exclusions when you sell two hundred fifty thousand dollars for singles, five hundred thousand for married couples on a private on a primary residence.

Clint C. Galliano (11:43.631)
For real estate investors, more powerful benefits, depreciation of the rental property, deduction of the operating expenses, if you're using a 1031 exchange to defer capital gains, cost segregation, cost segregation for accelerated depreciation. This is where a good CPA becomes essential. The code is complicated and the difference in outcomes is real.

Ben Harang (12:12.44)
The tax code for policy reasons going back decades deliberately favors real estate over most other investments. Working families who tap into these benefits keep meaningfully more of what they earn. This is where the no tax advice disclaimer really lands. For your specific situation, talk to a CPA.

Clint C. Galliano (12:37.418)
Indeed. All right, engine five, leverage. Leverage is the ability to control a large asset with a small down payment. Put $10,000 down on a $200,000 home, and you can control the full $200,000 asset. When that asset appreciates 5%, that's $10,000 of gain on your $10,000 investment, 100% return on the cash you put into it.

Ben Harang (13:08.576)
No other everyday investment offers leverage this powerful. Stocks generally require full cash purchase or expensive margin loans. Small businesses require significant startup capital. Real estate is uniquely leverage friendly for the working family. And the loan programs from episode six are what make that leverage accessible.

Clint C. Galliano (13:35.822)
So here's a real trade-off. Leverage amplifies losses too. If the property drops 10%, you've technically lost 100% of your down payment on paper. This is why holding period matters. Real estate leverage works best for people who can hold through cycles, which for most owner occupants happens naturally because you live there.

Ben Harang (14:02.252)
All right, here's a 20-year story. We have a hypothetical $250,000 starter home in HOMA purchased in 2005, owner-occupied, 30-year FHA mortgage, 3.5% down. That's $8,750 down at the closing, 6% interest rate, typical for the time. Standard homeowners insurance, standard property tax.

Clint C. Galliano (14:32.418)
The owners live in it. They don't rent it out. They don't do a strategic refinance. Just a regular family living a regular life in their home for twenty years, making the mortgage payment every month.

Ben Harang (14:46.084)
Then they sell in twenty twenty five, which is when we run the numbers. Let's look at all five engines produced across these two decades on this specific asset.

Clint C. Galliano (14:59.924)
All right, we're going to go over the five engines in motion. Engine one, cash flow. Renting the same house across 20 years would have cost the family somewhere around $432,000 using an eighteen hundred dollar a month starting rent for per month with typical rent inflation. Owning avoided most of that outflow. Net effect, hundreds of thousands of dollars stayed in the family's pocket instead of the landlord's.

Ben Harang (15:31.286)
Engine number two is the loan pay down. After 20 years of a 30-year mortgage at that starting balance and rate, roughly $95,000 to $110,000 of principal has been paid down. That's now equity in the home, essentially converting from monthly cash flow into net worth without the owner ever consciously saving anything.

Clint C. Galliano (15:57.205)
Engine three, appreciation. two hundred fifty thousand dollars at three and a half percent annual appreciation across twenty years equals roughly four hundred ninety seven thousand dollars. That's two hundred forty seven thousand dollars of appreciation, essentially wealth the asset produced in its life while the family was busy living life.

Ben Harang (16:21.898)
Engine number four is the tax benefits. Mortgage interest deductions across twenty years are itemized, plus property tax deductions, plus the capital gains exclusion when they sell. Realistically, thirty to sixty thousand dollars of taxes saved across the full period. Not the biggest engine, but real money.

Clint C. Galliano (16:45.632)
And engine five, leverage. The initial eighty seven hundred fifty dollar down payment controlled an asset that ultimately grew to four hundred and ninety-seven thousand dollars in value with one hundred and ten thousand dollars of equity from the pay down. The return on that original cash investment is enormous, hundreds of times over. That's what leverage does across a long period.

Ben Harang (17:12.378)
So I added up conservatively. Rent avoided plus appreciation plus forced savings from loan down payment plus the tax benefits, all leveraged from an $8,750 down payment. The family's net worth from that single asset is roughly $400,000 to $600,000 after 20 years. Five engines running simultaneously produce that result.

Clint C. Galliano (17:43.297)
A renter family with the same income across twenty years, even one who diligently invested the difference, quote unquote, rarely comes close to that outcome. The compounding do just does not happen the same way outside of ownership of a property. The engines aren't available to you.

Ben Harang (18:05.42)
And that's the point of today's episode. Ownership isn't just shelter. It's a compound interest machine with five engines. And it's available to more working families than currently take advantage of it. That framework matters as much as any single number we talked about today.

Clint C. Galliano (18:27.104)
All right. It's homework time.

Ben Harang (18:31.744)
No, I'm not doing it, Clint. I'm not doing it.

Clint C. Galliano (18:37.066)
All right, we got we got a two-part homework today. Homework is it depends on where you are. So first, if you already own your home, do the rent avoided calculation. Take a reasonable estimate of what rent would be on your house today.

Clint C. Galliano (18:58.466)
Multiply by twelve for the year. Multiply by however many years you've owned it. That's roughly how much of your money didn't go to a landlord. Look at that number. Feel it. That's engine one across your ownership period. Second, if you don't own yet, run the calculation on a hypothetical. Pick a $200,000 or $250,000 house that you might actually buy. Estimate what rent would be on it.

Then imagine yourself twenty years from now, renter or owner, which version of you has more? The point isn't precision. It's to see whether renting is a decision you're making with your your eyes open. In both cases, for specific taxes.

In both cases, for the tax specific version of this math, talk to a CPA. For a full personal finance strategy that includes real estate as one piece, talk to a financial planner. This isn't investment advice, it's a framework for seeing what's actually happening.

Ben Harang (20:08.57)
Okay, so that's episode seven of Built to Own. Five engines of property wealth, cash flow, loan pay down, appreciation, tax benefits, and leverage. Next week we take the natural next step. How do homeowners transition into owning more than one property? Episode eight, building the portfolio. If you've already run through today's framework and are wondering what comes next, that's the one.

Clint C. Galliano (20:41.206)
All right. Share this episode with an owner in your life who's never seen the compound math on their own house. That rent avoided number lands differently when you see it written down. The framework has been sitting in front of for years. It just hasn't been named. And I just want to remind everybody to subscribe wherever you get your podcast so next week's episode will land automatically.

Ben Harang (21:07.762)
And every episode is at oriestate podcast.com. Whether you want the audio version or the video version, you can see them all right there. share it with your mama and them. Subscribe, comment, like. it helps everything grow for us. and we just keep coming back to share info on how to get into a house.

Clint C. Galliano (21:36.756)
All right, Ben. That's another one in the can.

Ben Harang (21:39.642)
That's what it that's what it looks like, Clint. It didn't it and it didn't rain as much as it promised to, it didn't rain.

Clint C. Galliano (21:45.526)
I only heard a little bit of thunder.

Ben Harang (21:47.534)
Yeah. All right. Have a good one.

Clint C. Galliano (21:50.798)
All right, you too, Ben.