Ninth Edition - Harsh Reality Newsletter

Today is the ninth edition of the "Harsh Reality" newsletter! If you're new here, welcome to the fight. If you want to see previous editions of the newsletter they'll be available at the link below. And if you want to join us on our social media platforms click on those links as well. Our intent is to always provide more value than we extract so thank you for being here and enjoy the show.

Weekly Dose of "Harsh Reality"

It is believed that more millionaires have been created through real estate investing than any other asset class. Up until the Revenue Act of 1978, which established the 401(k), it wasn't even close.

To the most conservative investors, it's as simple as buying a home for yourself, and using the loan pay-down as an indirect savings account over 30 years. By the time the home is paid off you're close to retirement and a lot, if not most of your net worth is tied into your home's value.

Harsh Reality - Your personal home is not an asset, it's a liability.. But it doesn't have to be.

Today we're going to discuss house hacking. This is one of the ways you can transition your personal home from a liability into an asset. For the younger readers, this is how you can become a millionaire in your 20s, so jot this shit down.

Overall, house hacking is a simple concept. Buy a personal residence with more bedrooms than you need; live in one while you rent the others out, covering your housing costs entirely. I prefer the idea of buying a duplex-quadplex and renting out the additional units because I generally don't play well with others, but you do you. This is simple and effective; but like most things, the details really set the opportunity apart.

First, and one of the most important aspects of this play, is the lending mechanism. Most of us think about the 20% down payment required for investment properties and are instantly overwhelmed by the idea of saving that amount of money. Given that the average home price in the U.S. is $428k, the down payment would be $85.6k. **Party's Over, lets go watch Netflix**

However, when you purchase the home as a primary residence, the down payment can be as low as 0 - 3.5%, depending on the loan product. That's right.. If you purchase a home as a primary residence, it's possible to pay 0% down, and move in with two or three roommates who completely cover the payment for you. This also applies to multifamily homes as long as you don't go over four units.

With that one small piece of information, the whole idea becomes possible. Even better, fast forward 30 years.. Your home has been completely paid for by someone else, and you still own the asset. You have effectively been paid to own a piece of real estate that has appreciated in value for 30 years.. That is how you turn a liability into an asset.

Now let's turn it up a bit.. There is one flaw with the plan outlined above. There is a zero percent chance that I'm living with roommates for 30 years.. I'm not even keen on living in a duplex or quadplex for that long.. Well.. What if I told you that you could move out of that home, and do this more than once..? Even better, what if I told you that you could do this every year..?

That's right kids. Federally guarantied mortgages, such as those meeting the requirements of Fannie Mae and Freddie Mac, allow you to purchase a new home as an owner occupant every twelve months. In reality, it would probably be more like every year and a half because of the buying process; but close enough. So here's the path to wealth for all you younger readers:

• Set a target purchase price for a home and save 3.5% of that purchase price.

• Purchase a home as an owner occupant with a 0%-3.5% down payment.

• Sublease the additional bedrooms to cover the payment in its entirety.

• Allow the loan to "season" for a year while saving an additional 3.5% down payment.

• Find your next home to purchase and identify a renter for your current bedroom.

• Purchase your next home, place the final renter in your last home, and move out. (You're now making a profit on your first home)

• Rinse and repeat.

If you started this process at age 20, you could own five homes by the age of 25. You will have paid almost nothing for them; and they will be paying you every month. They also appreciate in value as time goes on and the loan gets paid down.

This real estate play is insanely valuable even when you don't account for your exit, or how taxes and interest rates play into the deals. That's all just sprinkles on top of the sunday when you know what you're doing.

Remember this quote☝️ from last week? Think it's pretty short sighted given what you know now?

** A quick comment on risk regarding house hacking **

Nothing is foolproof. You need to build a safety net into your infrastructure to deal with capital expenditures, unoccupancy, etc. If you plan for all of these events and set money aside to mitigate them, this can be as safe an investment as any other. If you're interested in more information on house hacking be sure to respond to the poll below.

Shit That Matters

Finland Cleared To Join NATO - The Turkish government has ratified Finland's accession into NATO. This was the last hurdle that Finland had to overcome before joining the organization.

Harsh Reality - This is not helping to deescalate the potential of the Ukraine conflict from spreading into NATO countries.

Russia has said, on many occasions, that NATO expanding into former USSR countries (Warsaw Pact Countries) is a red line for them. As you can see on the map above, loads of former USSR countries have joined NATO since 1990. Some would say, "well that's their prerogative!" I would agree with you had the U.S. and NATO not agreed to not expand into those countries back in February of 1990 when James Baker (U.S. Secretary of State) met with Mikhail Gorbachev in Moscow. Of course, James Baker and NATO has since been dismissive of that discussion, even saying it never occurred. They fall back on what was actually written in the treaty and not the verbal negotiation that led to it. As usual, the lawyers f*ck everything up and now we're flirting with World War III.

The actual treaty can be read here.

Russo-Ukrainian War - Posturing Continues.. Russia is continuing its campaign for Bakhmut; while the Ukrainians have started to receive equipment/ammunition from NATO allies.

Harsh Reality - Some equipment and ammunition from NATO is arriving in Ukraine; but that may not be a good thing.. At some point, if Russia intends to be successful in this campaign, they will have to start interdicting the equipment shipments coming in from NATO. Given that the main supply routes run through Poland & Romania, this makes the potential escalation of the conflict all the more dangerous.

While NATO has been busy transporting equipment to Ukraine, Russia has been in talks with North Korea. It is rumored that Kim Jong-Un could provide up to 50,000 personnel, along with weapons and ammo to support Russia. Most of the "personnel" will be North Korean slaves "leased" to Russia of course. Such an awesome world we live in..

Nashville School Shooting - Six people were killed in a shooting at a Nashville Christian school this week; three of them were 9 year old children. The assailant, a mentally disturbed transvestite, was killed at the scene.

Harsh Reality - Cowards doing what cowards do. You never see idiots like this storming police stations; it's always some school where they know everyone is unarmed. We here at Harsh Reality will not give any publicity to the mentally disturbed coward who killed these people. If you would like to see the video of her getting shot in the face it can be found here.

Below are the two heroes who acted decisively and put rounds on target limiting the damage this person did. May we all have the bravery to follow their example.

Harsh Reality 2 - In response to this incident, our national embarrassment of a "leader" announced an international day of visibility for trans people and blamed everything on "MAGA extremists" and the 2nd Amendment.

Honorable Mentions -

Nine Service Members Killed In Helicopter Crash - Two helicopters from the 101st Airborne Division collided while on a training mission Wednesday night. Nine soldiers were killed in the crash.

QAnon Shaman Released - Jake Angeli, also known as the "QAnon Shaman" was released from jail this week. Video withheld from his trial by liberal prosecutors clearly showed that the charges against him were absurd. The fact that it took a news leak to get an innocent victim out of jail shows the horrible situation of our legal system. More discussion from Joe Rogan can be found here. Mr. Angeli will no doubt be pursuing damages for wrongful prosecution after the year he spent in jail.

Andrew and Tristan Tate Released - The two brothers were released from jail in Romania and placed on house arrest. No charges had been filed, yet they were held for over 90 days without access to their attorney. The story can be found here.

Weekly Market Recap

Shit That Doesn't Matter

Trump Indicted - The former President was indicted by a Manhattan grand jury this week.

Harsh Reality - The legitimacy of the U.S. legal system continues to erode.. A local district attorney, who literally campaigned on a promise to target Donald Trump, is making a mockery of our justice system. In summary, a local attorney is trying to prosecute a federal case, outside his purview and outside of the statute of limitations, due to political aspirations. If someone can do this to a President of the United States, imagine what they could do to a private citizen. We are of the opinion that nothing will come of this other than a PR play.

French Riots Continue - Riots continue in France over pension regulations unilaterally imposed by Emmanuel Macron.

Harsh Reality - Unfortunately for the French people, the news cycle has moved on. It's not clear whether this is due to people losing interest in the situation, or if it's a psychological warfare technique being used by the French government to shut down the riots. Regardless, if the news will not/cannot cover it, it's a dead issue. My recommendation.. Start sharpening the guillotines..

That's A Wrap!

Thank you for taking the time to read this edition of "Harsh Reality." Each edition will only get better going forward so if you got value from this content please consider inviting your friends and family to subscribe using the link below. Once we make it to 10,000 subscribers this will transition from a weekly to a daily newsletter and we need your help to get there! Also, hit us on our Facebook page, Twitter, YouTube channel or Discord server to keep the conversation going! We welcome your feedback and discussion!