Your Low Interest Rate Is Costing You More Than You Think

Most military investors are holding onto properties right now thinking a low rate means they're winning.

They're not.

A 2.7% rate attached to a bad strategy is still a bad strategy. And if you're PCS'ing every 2–3 years, dealing with compressed timelines, and trying to build real wealth before you take off the uniform — emotional attachment to one variable can cost you years.

In this episode, I break down:

• Why low-rate attachment is a liability disguised as discipline
• The 3 silent mistakes military investors make (and don't see coming)
• The PCS Stress Test — 4 questions to run before you buy, hold, or sell
• How to think about your VA loan as a tool, not a trophy
• What separates military investors who build wealth from those who quietly drift

Cash flow is oxygen. Flexibility beats pride. And the market does not care about your PCS orders.

If you have 5–10 years left in service, your next mission is ownership — not survival.

Most military investors don’t struggle because they lack information.

They struggle because they’re doing it alone.

The Military Multifamily Academy (MMA) is a 14-week program designed to help service members learn commercial real estate by actually working real deals with a team.

No theory.

No guesswork.

Just execution.

If you’re ready to stop watching and start building, learn more here:

activedutypassiveincome.com/mma

Transcript

Speaker 2 0:00

Hey, ADPI. In this episode, I'm planning on potentially ripping apart your idea and understanding of interest rates. I want to approach it in a completely different way. I want to teach you what I have learned through my own personal experiences, and I also want to squash some of the other ways people are doing math with interest rates that are honestly kind of annoying and frustrating the crap out of me. So let's, without further ado, let's get into it. Now, I'm not a financial advisor. I am just a practitioner, okay? I don't have, like, some economics degree, but guess what I do have? I have practical experience. So the first thing I want to talk about is the fact that a lot of people still have very low interest rates. I can't remember what the statistic is, but it's some, like, ridiculous amount of people have interest rates that they captured during the very low interest rate market from, like, four or five years ago, where, you know, everybody took advantage of that, and now a lot of people have interest rates that are sub four percent. My home here that I bought in twenty twenty-two was actually right on the cusp of, like, it starting the upslope, and so I caught it at four and a half. I wanted it under four, but I caught it at four and a half, and that's still doing very well for me. But, um, right now, you know, it's still in the sixes or whatnot. And so it's, it-- the interest rate environment right now is people are kind of accepting where it is. But I think that if you are somebody, this is the first thing I'm just gonna say out loud, if you are somebody that has a home with, like, a two point seven or a three percent interest rate, you are winning, okay? You are winning because the inf-inflation out there is greater than your interest rate. Now let's talk about why that matters. And then I'm gonna talk about what, you know, really matters on a month-to-month basis more, but let's just talk about interest rates and inflation. What is inflation? Inflation basically means that the dollar is losing its value. I'm not gonna get into... Again, I'm not macro, microeconomics, all that crazy stuff. But a dollar bill is essentially an asset. It is a thing. Just like a house is an asset. It is a thing that you can buy and sell. You can buy and sell a dollar for other currency, right? It doesn't matter. Or for gold or whatever. And so when you look at-- This is why, this is why real estate is, like, awesome because it's insulated from inflation to a certain degree, is that people don't realize that there's, like, this little magical mechanism that happens is when, when inflation is happening, when it is, and especially when it's at a certain level, it actually boosts your, the price of your real estate. Almost baked in. As long as all other variables are consistent and equal, it actually increases the price of your real estate. But notice I didn't say the word value. I said price, and here's why. So let's pretend you have a dollar bill and you have a house. You're gonna need, at any, in any market, you're gonna need a certain amount of dollar bills to buy the house, right? Makes sense. And vice versa. If you want to sell your house, you're gonna need a certain amount of houses For whatever amount of dollar bills you want, right? It-- You can trade them, if you will. Now, the on-- I don't care what anybody says. This is where, even though I don't have an economics degree, I will die on this hill. Uh, something is only worth as much as somebody will pay for it, and typically, what determines that is supply and demand. Supply and demand is what determines how valuable, there's the V word, okay, valuable something is. Not its price, but its value relative to everything else. Something is-- anything is valued based off of its supply and demand. How many people want the thing versus how much of the thing is out there, right? Because then it creates buying and selling pressure based off of that ratio. So if there's very few houses of a particular type, but a lot of people want it, guess what? The house, house value goes up. Now, what sometimes happens is that as a function of the value, the price can go up as well, but it depends on what you're comparing it to. And this is where we come to the dollar bill and the house analogy. If the only thing you can trade to buy a house, to-- for a house is dollar bills, right, and the house increases in value, right, because either its supply goes down or the demand goes up or whatever the case may be in that ratio that makes its value go up, but the dollar's value stays exactly the same. The same amount of people want it, and the same amount, uh, you know, is remaining in the supply, right? So let's just pretend that there's this weird example where the dollar is just fixed, but the house value goes up. What happens in that instance is that you're gonna have to get more dollars to buy the house, right?'Cause if the value's going up, you're gonna need more dollar bills to now trade for that house. But what does that look like in, in practice? What does that look like in reality is that the price is going up. So do you see, do you see the correlation here? Value and price is not exactly... It is not the same thing, but it does ha-- but it is related in this, like, math equation. I-And the math equation is two values s-side by side. Now let's think about it a different way. Let's say the house doesn't change at all, right, in value. It does not go up. It does not go down. Supply and demand is fixed. But the value of the dollar goes down. Guess what happens now? You're gonna need more dollars, again, to buy the house, right? And that is what inflation is doing. It looks like-- So but since the dollar's losing its value, its supply and demand is making it worse or less valuable. You're gonna need to trade more of these for the house that's not changing in value. It looks like on paper, oh, the price went up. But what you're not taking into account is the thing that, that, that price, the dollar bills that you're trading for the house, it might be the exact same value. You're still paying the same value for the house, but it's just you need more dollar bills or a higher price Because the value of the thing you're trading for the house, the dollars, is losing value. Does that make sense? Comment below if-- I don't know, if it doesn't, if you want me to re-explain in another video, um, or if you're on a podcast, shoot us an email at support@activedutypassiveincome.com. But anyway, uh, or just follow us on socials and DM me somewhere. Okay. Now, let's go back to the two point seven, three percent, whatever crazy interest rate you might have. If you're listening to this and you have that, just know that the value of your house, as long as it's, you know, consistent or even just stable, uh, I'm willing to bet that the average interest rate or the average inflation over the last few years... I mean, heck, I know in twenty twenty-two and twenty twenty-one it was crazy high. But I, I'm willing to bet it's gonna be higher than your interest rate. And so that means that just by holding on, you're basically beating the g- the government at its game, right? Just by holding onto the thing that the government loaned you money on.'Cause I know you have a lender, but guess what? That lender got-- borrowed that money from the government, right? So basically, you're, you're tied to the hip with the government at a fixed rate, right? It's not variable. It's not changing. And so you latch on, and you're basically-- if the, if the government decides to print more money, you're beating the government. You're beating it at its own game because now, whether it's printing more money or whatever the case may be, maybe just for some reason the demand for the dollar is lower, right? There's two different levers that can be pulled to change the value of the dollar. But as inflation happens, let's say it's a five, seven percent, whatever, right, pretty high, and yours-- and all you're paying for that money is three percent, that's called arbitrage. I mean, that's like what, like any e-commerce or Amazon is, right? Like if you wanna have an Amazon business, you buy a widget for a dollar, you sell it for three dollars, right? That's the same thing. That's how the banks work. They borrow for four percent, they lend you to-- for six percent. That's all it is. So in this case, you're arbitraging. You're creating value by borrowing money for less than, than what the money is losing its value in while holding an asset, the house, that's not losing value and maybe even appreciating in value, not only in price. And that's what's beautiful. And so that's this silent wealth builder that a lot of people don't even realize the power. When you have a lot of houses or a lot of real estate, that really starts compounding. It's really the best way to kind of weather the long-term storm of what's happening in the world. With AI and crypto and all this kind of stuff, you-- The, the... It's like, it's like-- I think Cody Sanchez said it best. He said,"Real hard assets are like the last, uh," what were they called?"Lifeboats off the Titanic," right? Those are the things you wanna hold on to long term. So if you have a two point seven percent, three percent, whatever interest rate, uh, property, right, loan You still want to make sure that it's going to make you money, right? And you can look at it many different ways. You can look at it like, hey, you know, maybe interest rate, uh, or sorry, cash flow. Um, you can look at it, um, you know, is it going to appreciate? At ADPI, we teach cash flow as cash flow is the most important metric, right? Everything else kind of like will be, will be figured out and will work out no matter what, as long as you're making cash flow on the property. So that's the best case scenario. But I'll tell you of a story where I actually turned my home into a rental and I wasn't cash flowing. This was very early in my real estate investing career, and I was so set on buying a home with a VA loan, uh, because I had already kind of started writing about my journey. I'd already bought a rental. Yes, even before buying my first home with a VA loan. I already bought an apartment complex. Yes, before even buying my primary residence with a VA loan. I've done all that. And I kind of maybe wanted to, I don't know, I felt good about myself. I wanted to splurge, so I bought like a brand new build condo in Oceanside, California. The reason I bought it in Oceanside is'cause I looked at the path of progress and I saw that everything was appreciating massively over the last few years, except for Oceanside was, was kind of behind. It was like the path of progress geographically hadn't hit Oceanside yet. And lo and behold, I, I was right on that call. Eventually, it appreciated massively. But I bought this house, and when we turned around and we had to leave because, um, I, I got a new MOS, a new-- as a public affairs officer, um, and we moved to New Orleans. I had to go to training in Maryland, blah, blah, blah, blah, blah. Uh, you know, I had to, I had to turn it into a rental, and I was losing money on it every single month, which sucked because the cash flow wasn't there. That's not a position you want to be in. So what did I do to adjust to make my lifestyle still work out? And you guys might think I'm crazy, but I, I will-- I was early enough in my career to where keeping the momentum going, even through like the... I had to basically dollar cost average. I had to double down on the strategy to make sure it worked long term. And so what I did was I was like,"Well, life is a cash flow game. Where else am I losing money that maybe I can stop losing money to kind of keep my lifestyle where I want it to be?" Especially since I already had, um, you know, we had our first baby and, and life was only going to get more expensive. And what I realized is I was putting money away into my TSP, close to about the same amount of money that I was losing in real estate. Now, obviously, TSP is matching. It's a good deal. Didn't want to, like, stop doing that. But I realized, look, I don't want my investing journey at that time to just make my life miserable. I wanted to still be able to live a decent lifestyle while also investing. I also changed my-- I-- At the time, I was going through this shift of changing my mindset from being scarcity-minded to abundance-minded and thinking,"Hey, I don't have to save more necessarily. I just have to make more." I was dead set on putting myself in this pressure cooker situation to force myself to learn how to make more money, do more deals, all the things. And so I was like,"You know what? I don't want to continue- Um, being in like this Chinese finger trap of, of a situation where every single benefit, the TSP, GI Bill, potential retirement pension down the road, all this kind of stuff was, was going to keep me in longer. I knew I was gonna get out sooner rather than later. I knew I wasn't gonna do the twenty years. So I didn't wanna continue anchoring myself into all these military benefits. I wanted to have the opportunity to make a cleaner break. And so I basically stopped contributing to the TSP. And also-- let me pause there. Also, I realized that there's an additional layer of math that a lot of people kind of like skip over, and that's principal paydown. When I looked at the house and I looked at how much I was paying off in principal, meaning the actual loan, how much of that was being paid off every single month. Uh, so obviously, like the loan payment was happening, and then part of that was going to actually pay off the loan. The other part of it was going to, you know, just interest to pay to the bank for letting me borrow the money in the first place. I realized that I was actually putting a significant amount away towards principal. And so I started looking at the house like a savings account. I was like,"Wait, this is my TSP, and it is tax shelter." I was like,"Wait a second, I, I don't have to contribute to the TSP anymore. I'd rather not contribute to the TSP." Now, guys, you're gonna hate me for saying like there's some TSP maximalist on here, and I applaud you. I-- There's nothing wrong with that. But this is what I had to do to get to where I am today, and I think it helped. So I was like,"You know what? I'm not gonna, not gonna invest in the TSP. I want all of that income to go towards my lifestyle, but also towards my just financial liquidity to be able to, um, acquire more deals." I needed more liquidity to be able to do more real estate, period, end of story. So I was like,"This is actually gonna help me do more real estate." And so I realized,"Oh, look, there is principal being paid off every single month, and that is actually more than the cash flow I'm losing every single month by renting it out." And so I was like,"I have a renter paying me rent that turns around and puts, you know, pays off the interest and puts principal, and pays principal off, which is basically decreasing how much I owe the bank while the property is staying stable and potentially appreciating. So it's almost like a reverse savings account." So I was like,"I actually sta- still am saving. This house can literally be my nest egg now."

Speaker 3 15:19

So let's recap what I'm saying here. My property was losing me cash flow, which is what I believe and ADPI teaches is the most important thing when real estate investing, because that will almost ensure momentum gets built. But because I also knew that part of the momentum I was building was just getting reps in, I needed to practice. I needed to practice what I preach. I wanted to buy a house with a VA loan. I wanted to learn the ups and downs of actual homeownership, not only a rental property that was far away. And because I also knew that the principal, or I realized was that the principal I was paying off was greater than the m-- than the cash flow I was losing, I was like,"Wait a second. I can manage this. I can just decrease my, uh, lifestyle, or I can increase-- I can keep my lifestyle where, where it is by making up for that loss of cash flow by not investing in a TSP, because I do know that this property is going to do more for me long term, especially if like, if I did nothing else but just held it for thirty years, it was eventually going to be a two million dollar property after that thirty years, and that's going to be way better than my TSP because I wouldn't have to contribute anything because the renters were always going to just pay it off for me." And so that was how I approached it. And guess what? Uh, real estate is a, uh, game of, of patience. If you wait long enough, things will get really, really good. And what I did is I waited, and I just so happened to luck out in, in another way is that the interest rates just kept dropping down, uh, since like from twenty nineteen to twenty twenty-two. I just, I refinanced it, you know, even though I wasn't occupying anymore. I did the VA, uh, IRRRL, um, I-R-R-R-L. Um, and so it kept going down and down and down and down and down. And so my payments got better and better and better and better. And, you know, I was focused on life being a cash flow game, and so that was always better for me. And even though I, you know, had to incur a little bit of like loan costs every now and then, it didn't matter. The loan amount was still overall over time going down as the property was appreciating, and it was also becoming easier to hold on to because at that point I was basically, by the end of it, I was almost like break even on my cash flow. And so everything that the renters were paying me was going towards paying off principal, and that was incredible. It was essentially they were putting money away into a retirement account on my behalf. They were paying off this massive loan, um, on my behalf. And eventually that loan was gonna get, gonna be gone, and it was gonna be tied to a property that was probably double or triple the value of when I bought it. Incredible overall. Now, somewhere around this time is when I realized, okay, I'm gonna be getting out of the military. I was just finishing up two syndications, meaning where I was acquiring large commercial properties With investor money, and we were going full cycle, and it was time to pay our investors back and pay ourselves back. And, um, I was also getting out of the military. And so I took that opportunity to basically sell my current primary residence, which was in Metairie, Louisiana, uh, just outside of New Orleans, and sell that California asset and sell those two syndications to ha- to flush myself with some cash because I knew that the, that the road out of, uh, the exit out of the military was gonna be bumpy. No matter how prepared I was, I knew it was gonna be bumpy. I was, you know, a, a, a young captain at that point. I had two kids. Uh, little did I know I was gonna have a third one on, on, on the go here or, um, a third one coming soon. And, um, I also just had... I don't know. I, I-- A little bit after getting out of the military, I had, um, or going from active duty to reserves, that was my first step. I also had my wife's entire family, basically refugees, land on, in our laps, right? In our home in Metairie. So, um, a lot of big changes. I knew it was gonna be a bumpy road. There's no way it was gonna be smooth, no matter how smooth I wanted it to be. I think what carried me through is that my, my, like, kind of ridiculously almost like, uh, to a fault positive mindset, thinking everything is gonna be great all the time is what, what helped me just mentally get through it. But it was definitely even bumpier than I ever could have imagined. So having that extra cash is what helped me, uh, step out. And when I-- So I bought that house for five hundred and forty thousand, and I sold it for, I believe, seven hundred and eighty. And so I netted total in my pocket that was mostly tax-free because... Anyways, I'm not gonna get into that. Um, but it was almost all completely tax-free except for some, um, depreciation recapture. Again, not gonna get into taxes too deeply right now. Uh, I netted a hundred and seventy-two thousand dollars into my pocket. It was beautiful. Um, so yeah, that's, that's, that's kind of a different way to think about all the moving chess pieces when it comes to interest rates or paying for interest and whatnot. One thing that drives me up a wall is when people look at,"Oh my gosh, look at how much interest you're gonna pay over time. Look, it's this ridiculous amount. You're better just investing in, in the stock market." I... Like, fundamentally, there's just an, there's just a foundational layer of understanding of finances that's missing in that statement. First and-- Th- there's really two things. One is they're missing the entire concept of leverage, if anybody ever says that. And the other thing is they're missing the entire concept of inflation, okay? Let's start with inflation because I already explained that in depth, and I think you all are familiar with what I was trying to say earlier. But similarly to how we know that inflation is going to continue happening, and in fact, a lot of economists will tell you that, like, having, uh, at least a little bit of inflation is actually healthy for the economy. Um, but anyway, so as inflation is going to continue happening, even if it's at a modest Rate of like two, 3%, whatever. If, if it's gonna continue happening, that means the dollar is gonna lose its value over time. Now, how much do you think-- how much value do you think the dollar is gonna lose over a thirty-year mortgage, right? I can't remember. I did the math a long time ago, uh, kinda back of the napkin, and I plugged it into a calculator. I was like,"Hey, if a dollar keeps losing three percent every single year, what is it gonna be worth in three years?" And it was basically like half or something like that. Like, it was only gonna be worth half of what it is on year one of the mortgage versus year thirty. So when you look at those charts that show you how much you're gonna pay in interest, really m- a massive amount of that isn't real. Like, it's not real, right? Those-- The-- That, that those dollars are not nearly worth as much as they are in today's dollars. And so it's, it's overstated. It, it looks bigger than it actually is. Yes, you're paying that much interest in actual dollar bills, but the value of that interest is a lot less than it looks on the graph. And so that's what drives me up a wall, is people are, like, biting off on this concept that you're paying so much in interest. And something I'll say is I don't care how much I pay in interest as long as I make more from the investment than I'm paying for it. And again, that's arbitrage. Again, think of the Amazon example. If I pay a dollar for a widget to then go sell it on my Amazon store for three dollars, I don't care how mi-- how many dollars I'm paying for it, as long as I'm making triple or double or whatever the case may be. I don't care how much I have to pay for something if I can make more money from it. Remember that. That is such a critical lesson. Stop worrying about the interest and worry about how much you can make off of the interest. That's literally how banks work. They borrow at four percent, and they lend at six percent or whatever the case may be. That is how it works. The other concept that is missing when people say that kind of stuff is leverage. When they say like,"Oh, just invest that money in the stock market." Okay, let's think about this. If I have twenty thousand dollars and I invest it in, in the stock market, how much do I get? Let's say you're buying Tesla. You get exactly twenty thousand dollars worth of Tesla, period. That's it. You get the amount that you pay for.

Speaker 23:00

Now, imagine if with that same twenty thousand dollars, if you were able to buy a hundred thousand dollars worth of Tesla. And you are going to compare, obviously, uh, that's more beneficial'cause if you were to compare the, the, um, appreciation and the interest you're gonna gain, you're-- the returns you're gonna get from doing that, let's say it appreciates, right, the stock value appreciates ten percent off of twenty thousand dollars, what? You, you make two thousand dollars. Off of a hundred thousand dollars, you make ten thousand dollars. And that's what leverage is. If you're able to acquire a larger investment vehicle, you put in, let's say, twenty thousand dollars and you get a hundred thousand dollar investment vehicle, you, you wield that much financial wealth, and you're able to benefit from that much, that is, of course, a better outcome. Now, obviously, some of y'all are probably gonna point out,"Yeah, but you're gonna have to pay an interest rate for that-- for five X-ing your investment." And you're right. But if you can... Th-there's always risk and reward in everything, but if you can, uh, minimize the risk by investing smartly and being like,"Hey, you know what? You know you can invest in this long term. You know it's gonna do well long term," or without, you know, with, with, with reasonable, uh, expectations that it'll outperform whatever interest rate you have to pay for. Like, think of, like, real estate. Let's say your interest rate is five percent, but you know that over time, uh, the entire property is probably gonna do way better than that, and you're also gonna be paying down principal. You know that the actual outcome is better than you pa-- than the interest rate you're paying, then it's worth it, right? Um,'cause you're gonna be maybe making cash flow, plus appreciation, plus tax benefits, plus principal pay down, all that kind of stuff. So real estate makes sense, uh, in, in long term. As long as you buy in a decent area, you know it's gonna make sense long term. So as long as you can stomach the, the interest rate, logically, you'll be fine'cause you're buying something that's massive. And with a VA loan, you're buying something for basically-- you're getting a hundred percent of something for zero percent, right? You're-- The leverage is insane. It's like infinite. So the analogy again is like the stock market. Can you imagine buying something, you know, five times the amount of stock? If you had that option right now, let's say you're a stock person, you're like,"God, if I could pay, you know, five percent, um, to buy a bunch of Tesla, I would." Right? If that's the case, then- You know, awesome. Like, you get the concept of leverage. And so when peop-- but what people don't look at is when they look at,"Oh, just invest in the stock market. Look, the stock market's outperforming real estate," they're wrong because they're not considering leverage. They're right if it's dollar for dollar. If you have to buy a house completely without leverage, without a loan, but say a house is two hundred thousand dollars and I have to buy it for two hundred thousand dollars, I can either invest that into the stock market or into that house, then the odds are that you might be right. If you invest smartly in the stock market, it's probably gonna outperform the appreciation on that house and, and all that kind of stuff, right? Get it. I get it. But what that doesn't consider is the fact that for two hundred thousand dollars, you can actually buy a million-dollar apartment complex potentially, and that's most definitely, as long as you're... Gosh, I, I don't wanna say definitely, but if you are somebody who can, uh, downside the risk by making sure that you operate it well, the odds of it outperforming the stock market now are tremendously greater. Not to mention, not only will the appreciation mo- more than likely be better relative to the amount of stock you're, you're able to buy, the, the total returns you get, but also then you have, again, all the other returns that real estate brings. The cash flow, if you buy smartly, um, the tax benefits, the principal pay down on the loan, all that stuff, right? And that's where I think a lot of people, they just bite off of like this, this soundbite, this tweet, this little TikTok thing they saw somewhere instead of really diving into what's actually going on underneath the surface. So anyway, that's probably been more interest rate talk than you were expecting. Hopefully, that made a lot of sense. If you have any questions, as always, comment. If you-- this-- you found this valuable, please, please, please help contribute to our mission and share this, um, this episode, this video, this, uh, podcast episode, where- wherever you're listening to it. And that's it. Markian Sich is out. See ya.