The House Isn’t the Asset? Peter Skaggs on Real Estate Leverage

Peter Skaggs (00:00)
I say something very controversial. You ready here, Cody? Very controversial. OK. The house is not the asset. I’ve been calling it the asset because that’s what people understand it. The house is not the asset. The house is a key to the bank’s vault.

Cody Crabb (00:03)
Yeah, I love it.

Peter Skaggs (00:20)
And what you’re going to get inside of the bank’s vault is four more dollars. You’re going to get an 80 % loan. If today we live in a fiat currency day and age, what that means is that our dollars are IOUs from the government. You know, they’re not backed by anything. Well, why not go get more

Cody Crabb (02:16)
Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel and today I’m joined by Peter Skaggs, the owner of Investor Lighthouse. Peter works with buy and hold investors across the country, helping them not just get financing, but like build long-term strategy across their real estate portfolio. We’re gonna dig into how investors should be thinking about financing and where a lot of people get it wrong. So thanks so much for joining us today, Peter. We’re really glad to have you on.

Peter Skaggs (02:42)
I’m thrilled to be here, Cody.

Cody Crabb (02:44)
Glad to hear it. Well, let’s start here. How did you end up working specifically with buy and hold investors and in this world of real estate in general?

Peter Skaggs (02:53)
You know, it’s a great question.

I knew I wanted to be in real estate from when I was a young kid. Actually, my grandpa, ⁓ he had a real estate office. He actually built apartment buildings and things and I didn’t know my grandpa, but I heard stories about him. He passed away before I was born. I heard stories about him and I saw the blessing that that real estate had in my family’s life. When he passed away, my grandma was able to carry on his legacy because of

the real estate he owned and she was able to support her five children and comfortably because of that real estate. So I knew from a young age that I wanted to be in real estate and then I had one of those rich uncles too. And then rich uncle was also in real estate and I knew that he was investing. so Cody, in 2007, right at the height of the

real estate market my uncle was looking for his next investment property and I had a few dollars and and I asked him if I could ride his coattails basically he found a home that he really liked ⁓ as an investment and I literally bought the house four doors up from him and so I had no clue what I was doing no clue ⁓ was scared

Cody Crabb (04:16)
Wow.

And you said this was 2007.

Peter Skaggs (04:22)
2007, yeah, so scared, but everybody was in real estate, right, at the time? Everybody was buying real estate. I was scared, didn’t know what I was doing, but I knew that my uncle knew what he was doing, and so I trusted him and bought that investment, and that investment was a major blessing in my life. Not to go too much, this is a little off the cuff, but I bought that property for $340,000, and over

Cody Crabb (04:24)
Yikes, okay.

Yeah, yeah.

Peter Skaggs (04:52)
Over the next few years, I watched it go down and down and down in value to $220,000 in 2010. I had it appraised at $220,000. I bought it for $340,000. And I ended up holding onto that property until 2020. I sold it in 2020. I sold it for $640,000.

Cody Crabb (04:57)
Yeah.

Peter Skaggs (05:13)
I almost got double what I had bought it for, but I had to go through that downside. So they say, you know, buying bad real estate is like getting a bad haircut. If you wait long enough, it’ll fix itself. also, but I learned a lot of lessons from that. And then since then, I kind of got the bug. I started buying investment properties and, you know, and I’ve learned a lot of lessons and started helping friends, you know, who wanted to buy investment properties. And now, you know, that’s almost exclusively.

Cody Crabb (05:24)
Yeah, yeah.

Peter Skaggs (05:43)
what I do is help new real estate investors make wise investment decisions around finding and financing investment properties.

Cody Crabb (06:40)
So that’s an awesome story. Usually when you hear someone saying, invested in property in 2007, it doesn’t end with, and so that’s what I still do now. It’s very much not. So that’s pretty impressive that you’re still at it. No, but like you said, if you hadn’t held onto it as long, I mean, it wouldn’t have worked out that way. So there’s a lesson too.

Peter Skaggs (06:50)
Right. So true, yeah.

Well, and maybe I’d

add to that, sorry to interrupt there, but I’d add to that, Cody, that the reason it worked is because I bought it different than a lot of people were buying it. Mine cash flowed.

And that was important. that cashflow kept me above water, even while the market, while the value went down a hundred and something thousand dollars, you know? So I lost a third of the value, half of the value of that, not quite half, but a third of the value of that property. But I was able to hold onto it for another 10 years because of cashflow. And so that’s an important piece that I teach my investors. It’s like, you know, hey, we can go try to buy in the right market that’s appreciating in value, but that’s more game.

gambling, it’s speculating. We don’t know what’s going to happen to the market, but you know, we can get a little, we can be true investors, protect our principle and other things if we do cap, you know, if we buy something that has some cash flow that allows us to keep our head above water when other things are, you know, when others are drowning around us, you because they didn’t buy.

Cody Crabb (08:05)
Yeah, think, yeah, doing things in a smart way

is just as important as doing the smart things. So, yeah, I love that story. ⁓ So you mentioned earlier, we were talking a little bit before the podcast started, you mentioned earlier this idea of buying power, staying power, growing power. I’d love to hear, like, what is that framework? What does it mean actually in practical terms for an investor?

Peter Skaggs (08:10)
That’s right. Yes. Love them.

This is a thank you. ⁓ Great question here. You know, so the idea is is that we you know, I am in actually the mortgage space that’s been my background for the last 20 plus years have been in around mortgages. There’s a lot of gurus Cody that teach people how to find real estate, find a great, ⁓ you know, property or great market or a great deal. But there’s not a lot.

of people who teach you how to finance it correctly. And financing can make or break your deal, just like we talked about. That’s right, it really is. And so I’ve watched now as I’ve helped literally thousands of investors truly, like no exaggeration, thousands of investors now invest in real estate. You know, I’ve learned that…

Cody Crabb (09:00)
Arguably that’s more important than actually finding it is financing it right?

Peter Skaggs (09:15)
We want to help you understand what your buying power is. And we have some disciplines in that. An example of that is you’ve got to have money.

ready to be deployed. It can’t be sitting, oh, I’ve got money in my house. I just got to go tap it. know, by the time you’ve got a HELOC or whatnot, those opportunities might have passed you by. So you have to have money ready to deploy. There’s a reason that Berkshire Hathaway and Warren Buffett is sitting on $300 and I think it’s $70 billion of cash right now. It’s because they’re waiting for that right up to… He has plenty of places he could put that money.

but he’s sitting on it in cash because he’s looking for the write-up team. So we have to have cash.

And then you have to be ready to deploy it. And this is what Robert Kiyosaki talks about in Rich Dad Poor Dad. What investor has not brought up that book with you, Cody, right?

Cody Crabb (10:08)
Yeah, literally, it probably

comes up on every single interview I’ve ever done. Yeah, yeah.

Peter Skaggs (10:10)
every single one, right? So I’m

going to do the same. He says savers are losers. And that kind of hurt me because I was a great saver, you know, and he was calling me a loser. And really what he was saying is that I’m losing out on opportunities, not saying I’m a loser. He’s saying my money is losing out on opportunity. And so I feel very much the same way. We’ve got to deploy that capital when we have it. We need to deploy it into the right investments. And then if we’re going to deploy it, why not get the best maximum leverage on that?

earn

maximum return on that and that’s through leverage right I can trade $1 I can bring $1 to the table and turn it into five you know with a regular mortgage you know I bring my 20 % and get 80 % from the bank and turn $1 into five to go buy an

asset. And once we’ve done that, we want to get into great investing. What a lot of people got into in 2007-8, what caused a lot of the mess was they got into these option arms. They got into bad loans that changed on them.

The best financial tool anywhere on the market is a 30-year fixed mortgage. And so that’s what we want to do. So that’s an example of buying power. And once you’ve got buying power and you

understand those principles then we look at staying power because you know I’m a buy and hold guy you mentioned that in our introduction I want you to buy

But more importantly, I want you to stay in the game, right? Too many people get knocked out of the game. 2007, a lot of people got into the game. Most of them got knocked out. We got to have staying power. So we look at things like liquidity. We look at does the property pay for itself? know, do rents cover the mortgage? We look at getting rid of risk, you know, reducing your risk by doing some key things when it comes to that risk management.

We also, one thing that I think a lot of investors get lost on is they see great financing options like low interest rates. I had a lot of investors buying in 2020, 2021, and they shouldn’t have bought. They bought assets they shouldn’t have bought because they were focused on the interest rate, a temporary decision that they can change versus finding the right market and the right asset and buying at the right purchase price, which are permanent decisions. So that’s the staying power. We got to make sure

Cody Crabb (13:07)
Hmm.

Peter Skaggs (13:12)
that we have liquidity, that the property supports itself, that we’re focused on the permanent, and that we’re also transferring risk as much as possible. And then we want to definitely move into the growing power, and I can help you increase that. And that’s where I believe in buy and hold, and I can show you you don’t want to disrupt compounding, right? You hear, compounding is eighth wonder of the world, or whatever. You hear all these ⁓ cliche statements around compounding. buy and

hold is the same thing. I don’t want to be Cody. I don’t know about you. You seem like an excellent podcast host. I don’t think you’re busy doing what you do. Excellent.

and you probably don’t want to go out and swing a hammer in the evenings or on the weekends and try to fix a house. I’m the same. I’m really good at doing mortgages. I don’t want to be an active real estate. Now, it’s not to say that’s wrong or bad. There are a lot of people that are excellent at that that should do that that are great at that. That’s not what I’m great at. I want something that is mostly passive, you know, and and will kind of move forward with me. And then the benefits of real estate and growth is you get four.

We call it well stacking. You get four income streams, get appreciation, you get tax benefits, you get cash flow, and then you have that amortization where your clients are paying down your mortgage for you. You’ve heard that from probably just about any real estate guy too, you know?

Cody Crabb (14:38)
Well,

no, but this is the thing, though. Our guests are all not all of them, but a lot of them are pretty new to this. That’s why they’re listening to this podcast. They’re getting interested and want to learn more. And I think when we go over stuff like that, I think sometimes it’s important to be like, ⁓ for income, you know what I mean? For income streams. So.

Peter Skaggs (14:52)
Nah. Yeah.

You think about a stock as one income stream. Maybe it pays a dividend, but usually it’s just, hey, it’s going up in value. You don’t get tax benefits from that. know, hey, if I put in 401k, no, it’s not tax benefits, a tax deferment maybe, but not a tax benefit, you know, and so really powerful things. And then obviously we want it to generate some income so that we can reinvest. And that’s what I show people. Ultimately, Cody, we call that the freedom framework. What we just did, buying power, staying power, growing power and all of it.

it

is moving you towards what we would refer to as a flywheel. The ultimate goal is that if you own, you don’t need to own a lot. If you own a handful of properties, know, somewhere around 10, maybe a few more, a few less. If you owned about 10 great little assets and they’re mostly passive and you buy them in the right market with the right financing, then what that should do is create financial freedom for you. I genuinely believe that most, if they

their head down and figure this out and work with somebody like myself to help them, they could be financially free inside of 10 years. I genuinely believe it. I’ve done it myself. I’ve seen other people do it and it’s through the power of real estate. ⁓

Cody Crabb (16:50)
Yeah, well, I so okay, that’s so that’s how investors should be thinking about it. Now, I’d love to hear about like what’s actually what are you seeing happening around you right now? You know, people are getting hesitant because of rates and people are like interest rates. People look at the interest rates and they get so scared. And I would and you instantly were like, ⁓ they shouldn’t be worried about that. I would love to hear. mean, maybe should worry about that. My point is, what should they be thinking when they see the interest rate? Is that like a deal breaker? Is that like a let’s jump on it? Or what does that mean?

Peter Skaggs (16:55)
Yeah.

Yes.

Yeah, Cody, up.

The number one question I get as a mortgage guy, I bet you can guess what it is, right? It is, what is the interest rate or what are interest rates, right? That’s the number one question I get. ⁓ I get it, I get it. Candidly, we’re taught to look at interest rates because that’s what’s advertised on the billboards or on the spam email or whatever it is, right? In the mailers, that’s what we’re taught. And an interest rate is,

Cody Crabb (17:29)
Yeah, of course, yeah.

Yeah.

Peter Skaggs (17:51)
important, but it’s fifth on the list.

of importance and yet we make it number one. If you bought in the right market a market that’s going up by four or five six percent per year and I can show you some great markets that are going up by that right now. You know if I show you the right market and then I can show you the right asset you’re buying the right asset that you know it you know the purchase price is you know some a lot of the investments we’re doing these days 150 to 250 thousand dollars

purchase price, you know, and so you’re like, wow, where is that? You know, I don’t know where you’re at, Cody, but I’m here in Utah. You can’t buy it.

Cody Crabb (18:33)
I’m in Utah as well. I’m in Salt Lake City. Yeah,

Peter Skaggs (18:36)
Yeah, I’m in Draper. I’m just south of you. So

Cody Crabb (18:36)
near Salt Lake. Yeah.

Peter Skaggs (18:39)
awesome. yeah, Cody, you know, we can’t buy a house here for less than probably 500,000, right, in this market. But I can show you great markets where we can buy a property for $200,000, you know, and it’s a three bed, two bath, beautiful new construction. And it’s renting for 17, 18, 1900 bucks. For you and I here in Utah to get $1,800 out of a property, we’d have to buy a $500,000 house.

Cody Crabb (18:44)
Yeah, yeah, very true.

Peter Skaggs (19:05)
You know, and so so so we want to make sure that we’re buying in the right market, a market that’s appreciating, that has, you know, good economics, you know, good growth. We want to make sure that we’re buying the right asset. We want to make sure we get a good purchase price. Of course, you know, we’re going to buy, you know, we’ve got market values that are going to limit. But ultimately, we want to make sure we’re getting a good price, you know, and a good rent to purchase price is important for investors. What we just talked about there, you know,

Cody Crabb (19:06)
Easily, yeah.

Yeah.

Peter Skaggs (19:36)
$1,700 to $500,000, that’s not a great, but $1,700 to $200,000, that’s actually pretty good, you know? so purchase price, and then we want to make sure that we have a team around us to support us, because again, I want to be passive. I want to be a passive investor, you know, or mostly passive. And so I want to make sure I have a great team. Those are more important. Those will make you more money than what you’re

interest

rate is. I just showed a young lady this morning she was being told I can get a 5.75 and I said you can and I showed her how we could get her a 5.75 she ended up selecting a six and a half percent interest rate

And you say, well, why would she do that? She’s going to reduce cash flow and she’s going to because I took her from the 25 % down and paying two points to 20 % down, no points. And again, interest rates today are going to be different than when you might be listening to this podcast. But ultimately, the example of today, real time example. And the reason we did that is because that extra 5 % and hers hers was like $240,000 purchase.

That’s 12 grand that she doesn’t have to pull out of her pocket and lock up in this property That 12 grand changed her payment I’m gonna forget exactly how much it was but it was to the tune of like $80 a month $90 a month something like that and so we went through the math on that You know and it was like 10 11 years to break even for her I’m thinking it was actually closer to 12 years now I think about it, you know, so why would she and that’s assuming she gets rent

consistently every month month in month out the one thing I know for sure is She’s gonna have a tenant move out on her eventually. She’s gonna have somebody not pay rent She’s gonna have a maintenance issue. And so I would Yeah, yeah exactly inside 12 years. She’ll probably have it inside of two, know, right? And you know as much as we don’t plan on that and want that as investors It’s a reality and so I’d rather her control that $12,000

Cody Crabb (21:22)
Yeah.

In 12 years. Yeah.

Yeah, yeah, no kidding.

Peter Skaggs (21:48)
versus being conditional upon the tenant paying money each and every month. And she got it. And so her cashflow went down significantly. She was making like, I think we figured it out that she’s gonna earn like $21 a month, you know, in cashflow. You’re like, Peter, why in the world would she do that? Because she doesn’t need cashflow today. She’s got a good job. What she’s doing is trying to take ownership of her future. She wants that appreciation. She’s buying in a market that’s going up

Cody Crabb (22:14)
Yeah.

Peter Skaggs (22:18)
almost 5 % a year right now. We’ve been watching it for a few years. She’s in a market that’s going up. She’s buying a brand new construction, beautiful home, and the tenants gonna pay that principal down. And in five years, ten years, she’s gonna have a ton of equity and that equity is gonna make her far more wealthy than a cash flow would be, even if the cash flow is a little bit greater than the $21. So those are the things that we look at.

I say something very controversial. You ready here, Cody? Very controversial. OK. The house is not the asset. I’ve been calling it the asset because that’s what people understand it. The house is not the asset. The house is a key to the bank’s vault.

Cody Crabb (22:50)
Yeah, I love it.

Peter Skaggs (23:07)
And what you’re going to get inside of the bank’s vault is four more dollars. You’re going to get an 80 % loan. If today we live in a fiat currency day and age, what that means is that our dollars are IOUs from the government. You know, they’re not backed by anything. Well, why not go get more

Cody Crabb (23:31)
sure. Yeah.

Peter Skaggs (23:32)
And the easiest way to get an IOU and to get four IOUs is to bring my one dollar and get financing from the bank for the other four. I can turn my one dollar into five dollars and now I can own a bigger asset that’s going to generate me a lot more wealth and I’m going to get much better returns than if I put my one dollar into the market, know, the stock market or something like that. the asset, the true asset is the mortgage. ⁓

Cody Crabb (24:01)
Yeah, really. Yeah, well, the comments on this will be interesting. I’m sure people have something to say about that. no, but that’s a really good point that I think if you focus too much on the actual asset itself or the house itself or the property itself, you kind of are missing the whole point, which is the investment part. Like that’s the real estate part. But the investment part is the part that we that’s the reason we do all of this. So, yeah, that’s a really good. That’s a good call out, actually. ⁓

Peter Skaggs (24:01)
How’s that controversial? You know? Yes, I will be.

Yes.

Yeah.

Cody Crabb (24:30)
So we’re kind of winding down here. We’re almost out of time. But I did want to ask, ⁓ tell me, you mentioned you helped so many people through this process. How do you do that? What does this process look like? If someone is hearing this and they’re like, want to learn how to do this and get some help from Peter, how would they do that?

Peter Skaggs (24:50)
Yeah, so the best thing to do is we’ve got a free tool and I don’t know if that’s okay for me to plug here, Cody.

Cody Crabb (24:56)
yeah, absolutely, please do, yes.

Peter Skaggs (24:58)
We’ve got a free tool that we love to give out and it’s on investorlighthouse.com. That’s our website, investorlighthouse.com. And you’ll see a free deal analyzer on there. And if you were to click on that, ⁓ you will be able to get access to an application. What that application does is it allows you to put in, it’s just 15 simple questions. You put in answer 15 simple questions about a specific asset that you’re considering.

will tell you whether or not it passes the buying power, staying power, growing power test, the framework. And so they’ll be able to go through that process to determine is this a, you know, we tell you, you know, as a new investor, you don’t want all the, you know, the difficult terminology, the language that comes around, you know, you just want to know. So we’ll tell you green.

Yellow red and then from there you can schedule time with me to review that Property, let’s say you got a red in on it. We’re telling you no, you know stay, know This is not a great asset you could schedule time with me and we could look at why that is Why do we is there a way to fix it to make it a great asset? Is there something we can do with the financing to improve the buying power staying power growing power for you? You know and and then the really cool thing about this calculator is you

can actually add a second property or different kind of financing you can add and so you can compare like 20 % down versus 25 % down you can compare property A versus property B you can play with it and compare them and it’ll show you you know those comparisons and what we would rank as property one you know the best option the second best option the third best option for you and so we want to give that tool away for free and then ultimately what it is it’s just you know it’s a tool for you to start

Cody Crabb (26:22)
Mmm.

Peter Skaggs (26:49)
thinking in those terms of buying power, staying power, growing power, and then you’re going to schedule time with me to sit down and talk about it. Now, you may not yet have a property. Cody, know, we’re going to look here in Utah and we’re not going to find anything that probably hits all three and gives us a big green, beautiful, you know, green sign to go.

But if that’s the case, I can show you markets where you can get green. And so if you reached out to me and said, Peter, I’m not finding an asset in my market. I can help you find a market and I can show you actual properties that are going to get a big green shining light. You know, let’s go because it passes the buying power, staying power, growing power framework. So that would be my call to action. guess, you know, Cody is just go on to investorlighthouse.com, download that analyzer, play with it.

little bit and schedule some time with me and then we can we can help you take that next step.

Cody Crabb (27:47)
Yeah, honestly, this sounds like a great asset and a great tool that someone could really take advantage of to see. It sounds like it would be a good, almost like an educational, test it out kind of tool. Maybe you feel like you know what you’re doing. Put those numbers in there and see if they agree with, you agree with them. Because ⁓ that’s a great way to look at this. Peter, thank you so much for joining us today. ⁓ We really appreciate having you on ⁓ and you sharing all this stuff. ⁓

Peter Skaggs (28:01)
Yes.

Yeah.

Cody Crabb (28:17)
Listeners, if you got something out of this, and I know you did, go ahead and follow us on YouTube and on the podcast platforms and make sure you don’t miss another episode of Real Estate Pros. Catch you later.