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Dave Wolcott (00:01.576)
Ian, welcome to the show.
Ian Djuric (00:03.694)
Thanks for having me Dave, I appreciate it.
Dave Wolcott (00:06.474)
Yeah, you bet, Ian. I know the audience is really going to enjoy hearing about your epic journey through the waste management business as an entrepreneur, really scaling those businesses and getting into real estate and really what you’re doing today in terms of your family office and being an operator and everything.
super impressive background and I think people are going to really enjoy hearing that story. So why don’t we start there and just take us back a little bit, talk to us a little bit about your background and how you got here.
Ian Djuric (00:47.222)
I’m essentially a street hustler that made it big. That’s it. But no, I started off on the street. I was a door-to-door sales guy in the waste and recycling industry. I was sitting there at my door, someone came and knocked on it and said, hey, what’s going on? Said, hey, nothing much, what you want? I was like, hey, just selling trash service door-to-door. Are your parents home? Nope, can’t help you.
Um, I said, cool. He’s like, Hey, do you want a job by chance? I’m like, no, I’m making $6 an hour. I am great. He’s like, well, hey, I make about a thousand dollars a week. And that stopped me in my tracks. And this was way, way back in the day. A thousand dollars a week was insane. So I was like, let’s do this. I’m going to go see what door to door is all about. So the next day I went out, um, watched this kid make $300 in a day and I was hooked. I was like, how do I continue to do this?
Swim out there, spend the rest of the summer selling door to door, doing phenomenally well. Best life lesson ever, because you learn how to take a note so immensely quickly, because 80% of the people just slam the door in your face, curse you out. My favorite one is when you go up, you knock on the window, you’re kinda looking in, and they walk up, they peer in, they see you, they wave at you, and they just keep walking by, and just like, hey cool, not coming.
I think the light, so turn around and walk away. But it was a phenomenal time to learn how to take a note and get some really core basic sales skills because you’re having what, 80 to 90 sales interactions a day, so highly recommend door to door if anybody wants to get a career in sales, it was a phenomenal awareness for me. But got smart and wanted more. So I started my own sales company. We had 144 kids doing…
Door-to-door and business-to-business sales for waste and recycling companies up and down the East Coast. We work for small companies, so we also work for bigger companies like Republic Services. I think they’re the $9 billion second biggest trash-land company in the US. Went to college, eventually got smart, understood what reoccurring revenue was. It was great making several hundred thousand dollars a year doing the door-to-door, running my company, and I was killing it in college.
Ian Djuric (03:15.942)
But I kept seeing this trash, like, hey, you know what? I’m sending people to contracts, and they’re getting that monthly revenue every month, making profit every month, theoretically, forever. These contracts oughta renew. So I’m like, let’s be smart, let’s go ahead and do this, go for it. So I started my first trash recycling company from the ground up. We were bootstrapping it with about 400 grand. It was like 400 grand.
And we came in, came in strong. Sales team was absolutely destroying it. Big local, trashy guy said, Hey Ian, come into my office. This is about three, four months in. And I was like, cool, what’s going on? Like I’m in this space. It’s my first big meeting, per se. He sat me down and said, Hey Ian, thanks for coming in. I’m like, cool, is that a beer? I’m gonna buy your company today. And I think I sat back and I was like, wait, like this is a
This is a surprise, like, it’s cool. Not what I thought we were going. We’re also not for sale, by the way. Never crossed my mind to sell something. So it’s real simple. We’ve done my market research on you. You’re a phenomenal sales guy. You’re great at customer service. You guys are gonna come in and do an absolute ton of damage to this market. But you’re bootstrapped. You can only grow as fast as the money that you have, and you’re eventually gonna peak out and then have to take money in.
So here’s my solution. I’m gonna give you five million bucks to go away. This is gonna save me a lot more money than it is to have you come in and take way more than my customers. So five million dollars should be a lot for you, but he broke it down to me really simply. This is a two hour conversation. He’s like, hey, take five million bucks, go to a different market, and then look at your ability to grow off that five million dollars, versus you trying to grow off of the.
for 500,000 dollars that I had, and I was like, that would simplify my life, allow me the greatest bootstrap ever, and I wouldn’t have to take on any kind of investors for the near part of it, because we had a great base to it. So after a couple weeks, we took the deal. We moved over to a different state, started up, and we ended up building one of the top 100 trash recycling companies in the US. Never took on an investor, and took a big exit.
Ian Djuric (05:41.974)
Sorry, it’s a super long story day. So we sell the Trash Company and we’ve been at LP, our limited partner, for a long time. Obviously, very big trash company, doing very, very well. We are a limited partner in venture debt. Obviously, we have stocks and bonds like everybody else has. LP and a variety of real estate from self-storage to multifamily.
Dave Wolcott (05:47.339)
Yeah, no worries.
Ian Djuric (06:06.682)
And we had a whole bunch of single family homes. I just started collecting up because that was apparently the thing to do was to own small residential real estate. And it was kind of the bait of my business was running those single family homes. And because I didn’t have a system, I didn’t have a process, I was just snapping them up, putting long-term tens in them as fast as I could. And then I was just outsourcing all of the hard work and the rented collections. Not by system, but we were accumulating wealth, right?
So the Trash Company, I really kind of sat back and I was like, what do we want to do now? How do we pivot? How do we grow? How do we start a new company? And I absolutely loved Multifamily from being a past investor in it, watching the systems and the processes and how they get the scale. Because it was a similarity of kind of how you grow another kind of company. Different class of assets, but growing one empire to another has a lot of similarities into it.
So I sold all of my single family homes, and I went to my two favorite multi-family sponsors and I said, hey guys, here’s the deal. I’m gonna fully fund your deals. You can keep your fees, keep your promote, your profit sharing, it’s all yours. But I’m gonna run these and you can babysit. They’re a bit shocked at first, but getting a fully funded deal from one person is not a bad deal, especially when I didn’t want anything special. I was willing to take the deal as is, no negotiations.
So after a couple of weeks, we agreed to it. I spent upwards of $27 million and went to town the very next week. I started off just doing leasing. The number one core basic thing of all apartments is, again, a lot of apartments is sales. We have to lease our units, we get people to move in, and then the biggest thing is, we can talk about it later, but you make your money in the renewals, not in the original leases, right? All of our money’s in renewals, so we get people to pay more to stay.
So that was the biggest thing for me. We did that more in the assisted management role. Assistive management is delinquency and renewals, right? So then just kept working my way up to property management, then focused a lot more into the asset management side and construction. And definitely learned a lot of lessons about over renovating because I did a lot of that in about 20 units and did not get the ROI I wanted for the amount that we spent. So we spent a lot of time with sponsors, came back to a realistic market plan.
Ian Djuric (08:30.386)
spent about $9,000 to give out a $225 rent premium. That worked out well. And realized that I didn’t have to upgrade things to an A-class standard on a 1982 product, right? So lots of great lessons learned. Was super lucky that I was able to do it with my own money, be able to afford to buy my education. I wasn’t someone that would have done well in a syndication class or a weekend mastermind. I’m super hands-on, I still am today.
So yeah, that’s the core basic story. Fast forward to today, we have $2.2 billion in asset center management, primarily the Southeast and Texas, about 70% multi-family, and then some development and built to run from there.
Dave Wolcott (09:17.386)
Yeah, really awesome. And there’s so many golden nuggets in that journey, starting off when, you know, you actually just started, right, which was, you know, hearing about really taking on rejection, you know, and, and I find that that’s so interesting, especially as we’re all raising our kids today, right. And, you know, and right down to the soccer field, right. Whereas like, you know, everyone’s a winner and in sports these days, and they’re not,
letting kids even learn that lesson of, you know, there’s a winner and there’s a loser, right? But you learn that lesson early on and learning how to handle rejection and everything, which is just, you know, such a powerful lesson. And I think a lot of people today are even afraid, you know, to take on rejection, you know? There’s always some kind of fear kind of holding them back. So I think really powerful lesson there. And then I think it’s really insightful how you are able to just
you know, be so hands on and take all of your experience from the waste management business, right? And basically operating a business, and then bringing that into real estate and taking a totally unique approach to it by just, you know, completely lifting up the hood and looking at everything inside and out. And, you know, occasionally you hear stories about that people doing that in the restaurant business, you know, they’re like, they’re working everything from the waiter to
you know, the, the prep and the sous chef and all of these different things. Because if you don’t really have that experience, you know, how can you direct teams, you know, how can you optimize and things like that? So a super, you know, unique approach and, and basically 95% of the people out there aren’t going to do that hard work, right. To get into it.
Ian Djuric (11:07.79)
No, absolutely. To be fair, a lot of both those companies was sure I have a great skillset, but it was building those phenomenal teams that the team that we had the trash or cycle was great. And the team that we have now in place today is just there’s that there’s that book out there. It’s I always forget the title of it. It’s not how but who something similar that title is always Yes, I love that book and love the concept and
Dave Wolcott (11:30.822)
Oh, who not how? Yeah. Dan Sullivan.
Ian Djuric (11:36.422)
Bringing in a phenomenal team has really been a key thing for the love of our future success.
Dave Wolcott (11:41.77)
Yeah, yeah, for sure. And especially as it relates to wealth and, you know, it’s really awesome that you’ve, you know, created your own family office as well and created a structure around that. And what I found, I mean, speaking about, you know, who, not how, when I kind of went through my journey too, you know, anytime you would talk to a typical, you know, advisor, you know, it’s either an assets under management, you know, stock advisor, right,
only recommend the products that they’re selling to you. So they’re not really being a true fiduciary. Or when I exited my business, I got all kinds of recommendations to here’s an M&A attorney, here’s the tax attorney you should work with. But they don’t know anything about true tax optimization and a lot of strategies that are really out there for business owners and everything.
Um, you know, it’s really such a key concept, not only who, not how, but really building a dream team, you know, around your wealth, uh, that’s going to support you on the journey, wherever, you know, you are today, uh, and wherever you want to get to just, you know, you get so much leverage by bringing in that, uh, specific expertise.
Ian Djuric (13:03.534)
I’ll give you a wild story on that exact topic. I was with my dad this past week in West Palm Beach, Florida, and he has considerable wealth as well. Not the same scale, but some very, very well in his life. He has an advisor at UBS. My dad has 10 figures in stocks and bonds there, and his advisor never recommends anything that’s not a stock bond or something in that.
overall UBS stock portfolio that he runs and manages. At the same time, Blake works with UBS for alternative products. Like we can get our syndication or deals done through UBS clients. But because my dad’s advisor isn’t involved in those kind of deals, he doesn’t share any of that because he would lose his profitability.
on my dad’s portfolio by having to invest outside of it. So it’s, allow us again, and try to make Trulia’s fiduciary has access to everything that you should be able to have access to, regardless of their ed means.
Dave Wolcott (14:08.118)
Yeah, such a great story. Can you tell us a little bit of what was your inspiration really to create a family office? And there’s so many different structures out there when it really comes to that. So I know it’s kind of confusing for a lot of people, but what was really the vision that you had for yours?
Ian Djuric (14:29.798)
So two parts, I mean, starting the family office was, once you’re realistically get 30 million or nine figures, your wealth is going to affect future generations for the most part, unless you go spend all your money in yachts and planes, your wealth should take care of your generation or at least affect it in a positive way.
So kind of forming the family office was to force myself to not be an entrepreneur But to be a realistic future planner for myself and for my family
I’m generation one, which means I have this huge amount of capital that I’ve worked really hard for, but I don’t have experience or previously didn’t have experience managing that kind of capital, being an alternative investments person. So we set it up into a very kind of more safe haven, more of a hub and spoke model for it. But we still have a lot to go in terms of planning for how we’re going to allocate out for kids. Whether do we let children touch principal? Is it just interest?
out to manage themselves, is it going to be done through everybody else. It’s a mix of a living trust, irrevocable trust, a terrible trust. There’s a large amount of structure of trust within our main profile. And we could probably talk for two hours on structuring all those different trusts.
But a lot of ours is still yet to be done to be very fair. Primarily because I’m 38 and where we’re kind of going with the wealth and growth of the different companies is still kind of to be determined. My kids are eight, seven, and five. They’re still way too young to get involved. I think we’re still trying to teach them our interest into what wealth is as a concept and eventually kind of move in. So for example, we met up with a great family office
Ian Djuric (16:19.132)
a third generation one of the sons was 35 36 they’re worth about
eight hundredish million dollars and the younger generations all works in the family office their associates were retired like that’s how you get at that stage and he wanted to invest in a deal or do a jv with us but his family wouldn’t give him access to the capital directly he came out with us so we had to go meet with five other people and actually sit down with his dad and their
Ian Djuric (16:57.184)
my family office. Like my kids are involved every day, do you give them access to principal? Or do you allocate a set number of profits or exits a year that come along that goes into a money pool so they can go to them and allow them to allocate their own bucket? So I want my kids to be involved early, but at the same time, as soon as you let somebody touch principal, that’s how you lose money.
So big mindset shift for me of watching it happen to other people, watching frustration, watching excitement, and then how do I learn these lessons over the next 10 years so when my kids start turning 18, 20, I can implement a structure properly for them at that time.
Dave Wolcott (17:37.246)
Yeah, yeah, the statistics out there are really not pretty and that, you know, 75% of wealth is actually lost in G2 and by G3 it’s actually 90%. So it’s so great, you know, that you’ve proactively, you know, taken on kind of a strategy and what I, what I find, you know, really fascinating, you know, about the whole family office space and this concept. And, you know, look, even if you don’t have.
30 million and you only have 1 million in net worth, you can still use a lot of these principles as well. And one of the biggest principles I think is really, you know, creating like a family constitution and creating values in your family. And as entrepreneurs, right, we all do it in our business is one of the first things you do, right? It’s creating this vision statement, we’ve got a corporate culture, we’ve got values and we’re trying to live it and put incorporated into our businesses, but.
Not everyone is doing that with their families. And what’s most important, right? It’s your family because I think if you can really nail those value pieces, and then the mindset piece, I think that’s really gonna help people retain that wealth in future generations.
Ian Djuric (18:55.902)
I couldn’t agree more on the value set. Naturally, having the kids be involved in the creation of those values or adjusting those as you go along every five, 10 years. But I was talking with Logan Rankin last week in Naples and he was going through how, he has kids in similar age ranges. I think they’re a year or two younger than mine.
but slowly sitting down every year and walking through each of their family values and which ones were most important, the ones they wanted to work on for the year, and just the amount that he has his kids involved in kind of drove me to want to spend additional time in what I already do, driving those values home and what they truly mean and how we actually interact with those values in our daily lives.
Dave Wolcott (19:41.634)
Yeah, for sure. It’s actually, you know, we’re recording this here right before Christmas, and it’s one of the opportunities that I’m gonna take, because my kids are a little bit older in their 20s right now, and you know, I’ll tell you, if you don’t get those values in place by the time they even hit high school, it gets increasingly harder, right, because they go their own ways, they don’t wanna listen to what mom and dad have to say, but you know, we’re trying to take every opportunity we can.
Um, you know, to, to reflect on those values, to have, you know, examples of, you know, how we can live those in our daily lives. Um, you know, gratitude is so important having that vitamin G on everything we do. And it’s interesting because I found that, um, you know, we have four kids, but as diverse as our family is, the, the one thing that cuts through all of the noise and everything is value systems.
You know, because if you can hold that really core, that’s at the essence, you know, that cuts through these issues that sometimes can seem, you know, so emotional or so divisive and things like.
Ian Djuric (20:57.57)
Now, absolutely to that. Here, you can answer your question for me for this one, Dave. We’re sitting down talking about upcoming Christmas now and one of the struggles I have with my two oldest, they’re Irish twins, both born the same year, eight and seven.
is we’re always talking about family first, always having your brothers and sisters back, kind of regardless of the situation. So they’re both in elementary school, the same school, and different friend groups, different likes and activities. And occasionally one of them is something stupid or goofy, other ones are embarrassed by it, or someone might make fun of them for something, but it’s having each other’s back regardless of what they did, no matter what.
What kind of value would you call that?
Dave Wolcott (21:48.45)
Um, you know, that might be loyalty, I think. I think I would probably put that under loyalty is a good one.
Ian Djuric (21:59.662)
Now, that’s my biggest thing for the challenge of the year, is focusing on just having that loyalty to the family. Obviously, it’s great to ensure that we all do the correct thing, but regardless, people make mistakes just always being there for each other, kind of no matter what, because none of us are perfect. We all make mistakes on a daily basis.
Dave Wolcott (22:14.922)
Yeah, yeah, exactly. And I’ve found that just using examples or storytelling is super helpful with the kids so that they can just kind of get it at whatever age that might be for the kids, but just creating those real examples of how to do that can be pretty powerful, so.
Really good stuff. Let’s transition a little bit into your real estate and tell us a little bit more about your view on real estate right now as an operator. Super challenging year on the real estate front, especially with multifamily, what’s going on with the interest rates and things like that. We’re hoping rates are gonna come down next year, but what are your thoughts if you could share?
your crystal ball into 2024.
Ian Djuric (23:12.21)
I mean, everything’s presumption, everybody has their own opinions on it. Happy to share ours. So I’d say 2023 is probably our slowest year. Probably the second half of 2022 and the 2023 is probably our slowest year in terms of doing deals, especially in multifamily. I think we only did one multifamily deal, which was the best thing in Iowa since then. I think it was the most thing we did.
Multi-fibers are extremely difficult at the time right now. Especially if you’re using JV or institutional equity, they require a six in and a six out, which nothing will underwrite to, regardless of what you want to do. It just won’t underwrite to that. So JV equity is sitting on the side.
Ian Djuric (23:59.81)
would love to get into it, would love to buy more units, but you’re just not seeing the distress. Like people are looking for the 0708 distress and we’re not seeing that. Even if you are buying a deal from the bank back at someone losing all of their equity, that deal is still not necessarily priced appropriately. You could be coming in and buying something that’s still $10,000 or $15,000 store overpriced just because somebody paid dramatically overpriced in early 2022 and gave it back. Doesn’t mean you’re getting a fair deal. It may hypothetically be a discount
but it doesn’t mean it’s correct in today’s value and you’re actually getting discounted. You can still be overpaid by 15-20%. We were pretty big in bill to run in 21.
early of 22 and we’ve kind of made a big pivot exit. So we work with the Yield Street a lot, they have a pretty big portfolio across the board as well in the space and when we were underwriting built to rent exits in 20 to 22, obviously institutions were buying built to rent spaces at 3.5 caps, 4 caps, absolutely phenomenal return rates. And even if we were underwriting to a 5, ourselves being conservative at that time, um…
Right now you can’t exit that profile. You’re looking at a 5.5 to a 6% exit cap kind of across the board strategically depending where you’re at whether it’s Huntsville, Florida, Orlando, Houston So we took the pivot of let’s take a safe exit Lenard, Dier Horton, Ryan, all the big builders even the smart local ones are a massive need of lots for upcoming 24 And they want these neighbors to do build to sell versus build to rent
offering early. I was mentioning Yale Street, their partner of ours, and they’ve been doing this on a couple other assets already. They said, hey, this is an option that we’ve been doing across our board. There are equity and deal, we think this would be good as well. We’ve seen some sheets, but we’re not quite sure. We take the early exit, we push it through, and we’re going to exit about 1,200 lots, or would have been.
Ian Djuric (26:05.294)
sites from Savannah, Huntsville, Winter Haven, Florida. And we’re going to return about a 24% to 27% IRR just selling the lots. So exit is about two to two and a half years versus a five-year plan. But again, it’s all about pivoting in the right position to take any safe exit, take any return, and then not be able to redeploy that capital in a space to have a better understanding of where we’re at, where we’re going to be at for interest rates going forward somewhat.
Self storage, we’re pretty bullish on new development because most people want the climate control and the ability to kind of add on. The 1990s is the older product where it’s all just the roll-up or just the non-climate controlled roll-ups just dirt all in the ground or even if it’s paved.
We just don’t see the ability to kind of create value, just force rents up in today’s environment or thing on there. So we’re kind of letting that sit and dry. And obviously our big, especially it’s kind of been in new construction, primarily in condos. I think trying to do multifamily new construction in today’s environment is incredibly, incredibly difficult because interest rates, you’re almost at 10 to 11% on new construction debt. And you’re gonna have to carry that set a variable rate.
And then two is, I don’t know how in the world you forecast a multifamily development cap exit in three years from now. So the risk profile in having to lever up your stack with family development just doesn’t hit a profile for us. But we’ve done pretty well with our Tivo and Lofty projects. Let’s definitely race for those. And we have two more upcoming in 24 that we’re rather excited about.
Again, those are a little bit easy for us because we pre-sell those and then we build them, so take away a lot of the risk profile. But very excited for 24. We’ll see what it holds for multifamily and obviously interest rates. We’d love to buy more, but depending if the Fed drops down to four and a half, we’re still seeing rates at five, seven, five, six. So kind of excited to see where it goes.
Dave Wolcott (28:16.874)
Yeah. What, what specifically would make you a buyer in multifamily in 2020?
Ian Djuric (28:25.714)
I think it allows me what our investors require. So from an institutional investor, they require kind of that 15% IRR kind of driven at a minimum. They want you to be able to.
have a successful underbred exit of six cap sales price. And if I can underwrite to that, I’m a buyer all day because we have hundreds of millions of dollars of capital waiting to come into these deals if we can underwrite to it. So that’s probably the biggest thing. I think a lot of it’s also gonna be the right situations. So I think there’s still a lot of builders out there who built brand new, beautiful product that finished in 22 that they were looking to sell at these four caps or,
We own a property in…
Friends with Texas, we bought it for $220 a door, late 21, and they built a, I think it was sort of Baybrook, they built behind us. It’s a little bit nicer, they’re both Class A products, obviously. And their original price was $282 to exit. That’s what they planned to come in and sell for. They tried to sell about a month and a half ago, they kind of maxed out around $220 a door. So over $50,000 a door, less what they wanted to.
And they ended up not selling. But a lot of these equity groups that are in these deals don’t want these, they’re not operators, they’re builders. They’re merchant developers. They come in, they build multi-family. They lease stuff as fast as they can. They leave plenty of meat on the bone for us to come in, buy them, move up rents to market. But they’re stuck operating because they can’t exit at the pricing. And I think a lot of the equity groups are going to say, hey, you know what? We don’t want you to operate this project for another two years.
Ian Djuric (30:13.32)
that the payoff gives me no cashflow. At my three year hold, now it’s in turn to a five to six year hold, and my IRR every year is just ticking down because of the longevity of the deal. So I think a lot of people like Carlisle and some of the other bigger groups that have been the equity for us are gonna say, hey, you know what, we’re gonna take an 8% return, 10% return, let’s exit, take your money back and go redeploy into a more realistic new build scenario. And I think being able to snap some of those up at a phenomenal basis level will make me a huge buyer.
We love the new product, we love A-Class, obviously because it’s right around a 32% expense ratio versus you look at C-Class or B-Class, you’re at a 45 to 55% expense ratio. So we really love to be in the 30s and have the ability to kind of come in and get some realistic cash flow on the class that you need to have stuff. Those are probably the two scenarios in which we’re a very excited buyer.
Dave Wolcott (31:08.362)
Yeah, really insightful. And are there any specific markets? Are you still feeling strong about those markets you’ve been operating in historically? Do you feel that those are gonna be bubbles in the Southeast or Southwest, or are you still focusing on those markets?
Ian Djuric (31:25.966)
I don’t think things are going to bubble as much as people are kind of saying. So for example, we have 3,000 units in Houston.
I still love the market. However you look at insurance, one of the biggest reasons we’re able to survive in that market where some people went from $500 a unit to $2,200 a unit and got absolutely wrecked is we have these big natural insurance policies across five or 7,000 units or we’re able to do one-off things with smaller local insurance providers in those areas. Little people not. But with that and property taxes and the over amount of…
fraud in Houston, I don’t think we’re a dramatic new buyer in Houston this time. Do I still love Texas? Yes. Maybe a little Fort Worth, Dallas suburbs. We’re always a suburb buyer. We’re not a urban buyer. I’m not a high-rise multifamily guy. It’s not our concept. But I still love Texas. I still like Jacksonville, Florida. If pricing comes down a little bit further from where it is, I still like…
The Burbs of North Carolina were passed on South Carolina this time, were passed on Vegas. Done very well with our latest deal in Iowa and watching a bunch of other deals, just the rent growth people are achieving in the Midwest. So we team up with a great operator called Chris Salazar who’s done seven deals in Des Moines, Iowa. And that’s kind of how we wanted to enter the market, was with another seasoned operator so that we were just one off by ourselves trying to learn the market.
So we came and teamed up with him and that feels good. Phenomenally, the organic rent growth is off the charts. We were underwriting to $135 in rent premium with a renovation. I think we’re really spending about $6,000 on those. We’re getting $145 to $150 in just organic rent growth. And then when we do the renovation, we’re achieving about 230 to 225 with the renovation. So super excited to kind of explore the Midwest further.
Ian Djuric (33:29.356)
the opportunities and rent worth there.
Dave Wolcott (33:34.146)
Yeah, really, really interesting thoughts there. Ian, if you could give just one piece of advice to our listeners about how they could accelerate their own wealth trajectories, what would it be?
Ian Djuric (33:50.572)
Such a tough question, but…
Ian Djuric (33:55.822)
I’ll give it from a personal standpoint versus an overall thing. People may disagree that I’m okay with a little bit of risk. It’s okay to be a little bit uncomfortable in what you do. Take a small portion of your allocatable money and take a little bit of risk with it. My dad’s return profile off is eight figures in the stock market is 4% a year.
and he’s super happy, safe and comfortable, but he’s not creating wealth. If you allocate even a million dollars of that into a hard money fund at 11%, the amount of wealth creation you’re making, if you let that money combine and continue to grow, and even if you’re not taking the cash out, you’re saying that you can grow on top of that or compound, you’re really trying to create wealth. So don’t be afraid to take a little bit of risk.
Dave Wolcott (34:53.302)
Yeah, I really love that Ian. I was actually just reading a book this week that really talks about the psychology and the fear of change and how strong that is for humans, right? And it actually becomes really your, you know, your subconscious. And we will do anything to avoid, you know, change in our lives, right? And as much as we’re talking about alternatives and real estate on this show, I know there’s a ton of listeners out there.
who still have the majority of their asset base in government-sponsored qualified plans or in the market, and especially right now, right? I mean, we heard at the Family Office Conference the other week, I mean, there could, there’s definitely a correction coming in the market. I think that’s for certain, could be pretty significant as well. So there is always some degree of risk, but.
you know, just like you said, you know, just to allocate some portion to taking on some risk, you know, move out of your comfort zone and try to, you know, learn something new. And then, you know, see how it goes, right and learn from there. So really appreciate that. That’s that sage advice for all. And really appreciate you coming on the show as well. Ian, some great pearls of wisdom.
that you shared and I think that’s super helpful for people to just learn on their own journeys wherever they are Trying to take some of those valuable lessons in their own lives If people would like to you know connect with you or learn more about what you guys are doing. What’s the best place?
Ian Djuric (36:30.802)
Best face is just our website, blak or feel free to shoot me an email, Ian at blak Happy to kind of connect and offer value however we can.
Dave Wolcott (36:41.722)
Awesome. Thanks so much Ian, really appreciate it.
Ian Djuric (36:44.954)
Thanks for having me on Dave, I appreciate it.
Dave Wolcott (36:47.126)
You bet.
Addie (00:02.577)
All right, Dave. So I know everybody’s really interested to hear a little bit about your background and where you kind of came from to develop this holistic wealth strategy. So would you mind telling us some of the pivotal moments that led you to developing this holistic wealth strategy?
Dave (00:19.326)
Yeah, sure, Addie. For me, it was really back in 2000 when the tech bubble was happening. And I just, I can still remember to this day, just waking up to a sea of red in the indices and watching, you know, the Dow, the S&P and all of my tech stocks that I had been working so hard to accumulate, just get completely obliterated overnight. And I just felt really helpless with that.
And I really didn’t have any control over that. And so to me, that was kind of one of my last straw moments in the stock market. And then in addition to that, it was also just these, I think, myths around financial planning, things that we heard, things such as put all of your money in 401ks, right? And then.
you’re going to be able to defer your taxes, grow that capital over time, and that’s really the best thing that you can do, right? But I started asking questions, things such as deferring your taxes, does it really make sense to defer those taxes? It may help you out in the short term this year, but as I started to look into it, I mean, the one thing that I can say for sure is that taxes are likely going up in the future. The other thing is,
is that when you withdraw those funds, they’re actually going to come out as ordinary income in that ordinary income tax bracket, which is the highest tax bracket you have. So why would you want to do that? Yet all of the advice is kind of pointing you there. I think so there were a lot of things for me that really kind of led me to try to find out, how are the top 1% doing it? Because I knew it wasn’t in this traditional way.
Addie (02:14.345)
Yeah, no great points. I think a lot of people, all you hear are the same things over and over. These government-sponsored plans and, you know, these are what these big companies are offering employees. And if you don’t take anything into your own hands to do some research and figure out your options, that’s kind of all you’re left with. So tell me a little bit more about how you kind of…
began researching or figuring out that there is a world of alternative investments out there and what kind of helped you take the leap? Because I know it’s scary to go against the norm and you know what everybody else is telling you, these financial advisors, but how did you take that next step into this world of alternative investments?
Dave (02:53.61)
Yeah. So for me, Addie, it was really realizing that I am my biggest asset. And at the time, in fact, there were plenty of times during my life that I didn’t have the capital that I wanted to invest in that, you know, next opportunity, whatever it might be, that real estate offering, things like that. So I was trying to figure out what are additional ways that I could accelerate my wealth.
even if I didn’t have capital, you know, and it really, you know, after starting to study books, and remember, this is like back in 2000, right? So they didn’t have great podcasts and YouTube and all these different resources, right? So I was having to network and meet different people. I was reading books, every book I could find around, you know, wealth creation, entrepreneurship, things like that. But there’s certain things, right, that I would see examples and read in a book, for instance.
you know, of how someone actually got a 10 X or a hundred X return by frankly being creative, right. And, and, and thinking through, you know, how could you create money out of an opportunity? So being, so things such as like, you know, resourcefulness, right. Uh, resilience, you know, those, those kinds of things, you know, were super important and you know, to, to make this really real for everyone.
You know, we developed really, you know, what I believe is, you know, uh, a true formula for net worth, right. And the holistic manner, uh, which is this formula that your financial IQ. Plus your mindset IQ, plus your relationship capital, plus your physical capital is really the equation for net worth. So again, going back to this example, when I didn’t exactly have, you know, true like.
capital to work with. I just didn’t, I didn’t have money. What did I do? I was working on my relationship capital, maybe, you know, creating new relationships with people that were playing the game better than I were. So they were exposing me to new opportunities that could be partnering opportunities, opportunities to create a new side hustle, tax saving strategies, things to actually, you know, keep more of my hard earned cash flow.
Dave (05:18.998)
you know, for me, right? So I was learning things like that. I’ve always learned through my journey that physical capital is so important. And what I mean by that is actually your health, right? Because you can have all the dreams in the world, but if you don’t have your health, you’re gonna only have one dream, right? So health is very important and can really drive your energy, your vitality to, you know, achieve these things you wanna do.
And of course, mindset and also financial IQ, right? My financial IQ early on in my career was limited to what my financial advisor was telling me, which was just this kind of tried and true advice about conventional thinking and how people are doing things conventional. So let’s just kind of follow the crowd and kind of do that. But I realized that, hey, there’s…
all kinds of other asset classes that I could start investing in. There’s different return profiles based on where I am on my journey, different things that I could do, new opportunities I could create. And it wasn’t until I started learning and educating myself that I was able to make some progress with those. And then of course mindset, right? We can’t underestimate mindset because mindset is everything. We’re just about to start a new year.
you know, 2024. And again, you know, we’re, we’re talking about the, the focus on today’s podcast is, you know, what have I learned from doing a hundred interviews with ultra wealthy, uh, investors? And I’ll tell you the one common denominator Addie is mindset, right? Um, all of these folks have a tremendous mindset of how they can, you know, accomplish different things.
get to new levels, get to new heights, and always having that growth mindset versus a scarcity mindset.
Addie (07:20.265)
Yeah, awesome points. I think one of the biggest things that jumps out to me is the whole holistic word in your strategy. It really just shows how it’s so much more than just the money, the numbers, the strategy. There’s so much more to it. And I love how your formula and some of these vision planning things and exercises that you do with investors focus on a lot more than just the wealth aspect, but your health, your mindset.
all those things that you mentioned. So can you kind of dive a little bit more into the holistic aspect and how having, you know, your core values be part of this vision and, you know, that constitution or, you know, what you want that family office to kind of stand for when you approach the holistic part of the wealth strategy?
Dave (08:07.954)
Yeah, for sure. So, you know, when I was going through my wealth journey and even today, you know, I just really love to, you know, kind of peel back the layers on, you know, what does wealth truly mean to you? Right. And it means different things to different people. Right. And it should not be measured by the number of zeros in your bank account. We’re all trying to accelerate and trying to grow.
Um, but at the end of the day, I mean, what is the level of your relationships? Right. What type of health do you have? You know, um, are, are what type of values do you have? Are you, are you contributing and making the world a better place? Right. I mean, because I think in reality, these are the things that make us fulfilled as humans and really it’s kind of this journey towards self actualization.
Right? We kind of, if you go back and you remember Maslow’s hierarchy, you know, we always kind of think at that base layer, right? Where it’s all around like financial security and I’ve got to have a job, I’ve got to have income so that I can provide for my family. And that’s important. Right? We, we, we can’t underestimate that. Um, but if you can start to move behind that and, and go to the next level, you know, it’s all really about, you know, creating an impact, you know, having, you know, relationships in your life.
And as Dan Sullivan likes to say, it’s about these four freedoms, right? So, so not just freedom of money, but having freedom of purpose, you know, are you waking up every day being fascinated and motivated with the work that you’re doing, whether you’re W2 or an entrepreneur, right? Do you have freedom of time? Are you able to spend your day?
as your optimal day, right? Spending time on your health, on your relationships, on your family, you know, on going to your kids’ sports games or, you know, going to your older parents and making time to see them. Are you really doing that, right? Because we can actually use our wealth to be able, you know, to get there, right? So I think freedom of time, freedom of purpose, and then freedom of relationships are also just
Dave (10:27.546)
so important in addition to just freedom of money.
Addie (10:32.725)
Awesome. Yeah, I know I love it. Let’s dive in a little bit more to some of these alternative investment strategies and how they kind of add to this wealth strategy formula and equation and how people can kind of apply this to their current portfolio.
Dave (10:49.646)
Sure. So I mean, one of the most insightful podcasts we had in the 100 episodes was the founder of Tiger 21, Michael Sonnenfeld, who has a community of over 1300 members. And the average net worth in that community is 100 million. Okay, so these are truly the ultra wealthy. These are the best of the best.
uh, in terms of investors and people who are managing their wealth. And one of the biggest insights I got from that interview was that these folks literally only have 22% in terms of allocation of their entire portfolio in. Equities. Okay. So I know a lot of folks out there are listening to this podcast. They’re learning and things like that.
But I guarantee you a lot of people have more than 75% exposure to stocks, bonds, mutual funds, or 401ks, right, which still have the same type of exposure. So if the best of the best only have 22% in equities, I mean, wouldn’t it make sense to actually model them and realize that there’s a lot that’s gone into that asset allocation model?
And they’re basically trying to limit their risks, right? So the other key buckets that the, that was made up in their portfolio are, uh, real estate and also alternative investments in private equity. And of course they have cash positions and life insurance as well. So it’s really important to start to structure a portfolio model of your assets. That’s not just the traditional 60 40 that your financial planner
is advocating because by the way, those are all of the products they can sell to you under their umbrella. And you need to be looking at it much more holistically, right? Which we view as assets that have strong macroeconomic fundamentals because they’re actually become more recession resistant. So
Dave (13:12.714)
Right? You’ve always you’re in favor of supply and demand type economics, like real estate, where you have shortages in certain markets, and people need homes. I mean, those are basic needs that we have, it’s not going away. We’d like to invest in energy, because energy, it continues to grow wherever you live in the world, whatever industry you’re in. And of course, you know, we’ve got this growing middle class.
right around the world that now are getting, you know, more cars, washing machines, all these things, and they need energy to support this. So investing on the side of looking at these macro economic fundamentals, I think is really important. And then the other, you know, real big lesson is looking at really having a three dimensional return profile to investing in these assets. So if you had a thousand dollars worth of Amazon stock.
Let’s say you’re only hoping for one thing, which is that stock to actually go up in value. And all you’re doing is hoping it’s going to go up in value. But in reality, we know that it can go sideways, it can go down. But when you invest in some of these assets that we’ve been talking about, such as real estate, energy, things of that nature, we’re able to drive cash flow, tax efficiency, and also…
force an appreciation into the asset so we can drive up the value. We’re not just hoping the value is going to go up. We have a business plan that’s going to drive value and create a better return. So in that light, we see these as three-dimensional type return profile around these assets.
Addie (15:02.057)
Yeah, no, very interesting. I don’t know how people haven’t stumbled across these ideas sooner, but I guess it does take a little bit of understanding and knowledge to really know how you can utilize these. So I’d love if you could kind of talk about an example of how that would look for somebody.
Dave (15:21.17)
Yeah, and actually, I’ll answer your first question too, Addy, which is really, you know, why do people not really realize these are there? I mean, I never saw these, right? So these types of investments were typically reserved for the ultra wealthy. They only had exposure to these. But when the Jobs Act came out, they created, you know, essentially this form of crowdfunding.
where investors can come in for as little as 50,000 into these types of assets and basically pool together and create what many of us know as what’s called a syndication. So we can all group our funds together and then invest in a $50 million real estate property versus in the past, people didn’t have access to these.
types of investments. So as long as you’re an accredited investor, you can at least get access. But this is why, you know, no one has, you know, typically really seen them because they’ve been really invisible to a lot of people. And a lot of people, you know, they become accredited, but they haven’t really realized what accredited access actually gets them. Right. And again, their financial planners aren’t advising them about these opportunities.
unless they have it in their portfolio.
Addie (16:51.689)
Yeah. Could you share an example of how maybe one of these deals looked, the return profile, some of those things in comparison to, let’s say, a stock?
Dave (17:02.942)
Yeah, so, you know, we, one of the presentations I had worked on, that I spoke at recently, it was, it was really interesting looking at a multifamily property over the course of a 20 year period. And we compared essentially, you know, your traditional investment, if you left your money, and we, I think we had it in the S&P for about a 20 year period. And
that was growing at a 7% return, which was actual during the timeframe that we estimated at that was the return profile that it made, right, was 7%. However, one thing, again, planners never really put in front of you is that growth is then subjected to taxes, fees, and inflation.
So what you thought was like that 7% return and growing over the long haul was actually more like 2.5%, right? And if I compared that to, you know, let’s just talk about a simple, you know, a simple investment that most people understand, which would be multifamily real estate or apartment buildings, right? And in this case, you’re able to drive actual passive income from the investment.
You can actually use bonus depreciation to offset that income. So that income is coming in to you tax free. Um, and there is some type of business model where, um, you know, here’s a simple example, right? We go, go into one of these properties and convert 300 toilets to low flow toilets. And reduce the water bill by $150,000 a year. Right. Which improves your.
net operating income in the asset, right? So that’s really an example, right, of how you can get that three-dimensional return in that asset class. And again, you compare that to how you’re doing in the stock market and it considerably outperforms with less risk.
Addie (19:24.329)
Yeah, definitely. I’m convinced. Yeah, let’s also talk about, I really want to hear more about the infinite banking strategy. I know you’ve really interviewed a lot of top-notch guests like MC on here about the strategy and how it’s kind of a foundation for your holistic wealth strategy approach. So let’s dive into that and kind of some of the opportunities that it offers investors, but also the…
how it kind of forms that foundation to this strategy.
Dave (19:56.686)
Sure. You know, this truly is one of the wealth strategy secrets of the ultra wealthy. And the more I got to know high net worth, ultra high net worth families, family offices, they literally use this strategy as a cornerstone to their wealth, right? Because we often think about wealth in terms of how do we grow and multiply our wealth, right? What is that rate of return? But at the same time,
We want to be able to protect our wealth, right? And then we’re also looking at multipliers. And this is something that the ultra wealthy do so well, right? Which is how can you get $1 to be doing multiple things at the same time? Right? So by using a properly structured whole life insurance policy and using what we call infinite.
banking, infinite banking is really the process of you becoming the bank, utilizing this life insurance policy. Um, what you can do is create a tax free income, right? That’s compounding over time. Um, and allows you to do many different things. So number one, you’ll never outlive your money in future years, right? Unlike the stock plan, which has you taking money out.
every year and killing your golden goose when you get into your later years. This one, it’s constantly accelerating. One of the biggest things is you have access to the capital. So you can actually, as you fund the policy, you’re able to take capital out and then go pay for your kid’s college. Use it for maybe you’re in between jobs or your spouse lost their job and you need to bridge for a certain amount of time.
I can just borrow this capital, no questions asked, fill out one form, have the capital, you know, wired to your account inside of a week. Right? I mean, that is really powerful. And I mean, let’s just talk for a second, Addie, about how important is that in this specific timeframe that we’re in? So January 2024, we know there’s a ton of uncertainty in the world.
Dave (22:18.442)
in terms of geopolitical events, we’ve got this election that’s coming up, impending recession that’s kind of looming. So we have all of these things going on and then there’s just so much uncertainty. Well, how do you create certainty in an uncertain world? It’s trying to take back control and be proactive in planning for some of these different things.
Right? So if we were able to, again, start to allocate some of our investment portfolio into a vehicle such as this, you’ve now created this liquidity strategy that is, you know, not only giving you the ability to access this capital, you know, being kind of a reserve capital and taking the money out when you need it, but it’s also providing you with this, you know, tax free compounding.
And that’s creating more velocity in your overall portfolio. Right. So you start to get this working for you in conjunction with some of those other, you know, asset classes that we talked about, and you can slowly start to build up this whole snowball effect where all of these things are working together. And now all of a sudden, you know, your portfolio is growing 20%, 30%, 50% and more.
Addie (23:43.913)
Yeah, no, it’s really powerful when you kind of see how it works, the tax-free accumulation of wealth and also just the tax, it’s part of that tax mitigation strategy. Can you talk a little bit more about the tax side of it and also maybe the legal protections or kind of that like sheltering effect that this policy could have on your money?
Dave (24:04.622)
Yeah, you know, I never thought I’d be so excited about talking about taxes. But after, you know, years of, you know, running a businesses as an entrepreneur, I just got so frustrated with, you know, number one, never knowing I would finish the year off, you’d run your financials, see how you were doing, but never really knew what was our tax liability.
You know, and then April would come around and you’ve got this massive bill that you just were not anticipating. Um, and so I kind of just worked up the chain, started to work with, you know, more prestigious CPA firms, uh, all the way up and, you know, I continue to get the same results, which is they’re basically doing your tax planning in a rear view mirror, right?
versus doing proactive tax planning and looking at your entire environment and then trying to structure different things into your overall strategy. So in this case, you know, you asked the question about infinite banking, right? That should be something that a proactive CPA should be advising you on, that you can actually, this tax-free compounding, even in the infinite banking policy,
can be so strategic and can way outperform even the higher return in the stock indices with much more predictability. Now do you need to put everything in there? No. But having some allocation in there that increases your predictability, your control, and reduces that uncertainty.
Addie (25:51.605)
Yeah, no, it really ties into the concept of becoming your own bank too and giving you control over that money and the tax stuff is just an added benefit almost. But yeah, I also, applying that strategy to somebody like me or maybe a really high net worth individual with 100 million net worth, how would the strategy look for?
you know, comparing somebody like me who is a little bit younger and not as far along in their journey compared to somebody who’s at a hundred million.
Dave (26:24.042)
Yeah, it’s interesting. And this is really one of my passions is really trying to share these lessons learned that I’ve had over the years and really impart them to people wherever they are in their journey. And so that they can really accelerate their results. You can get there so much faster than I did with the proper education and support, having a team.
You know, that, that supports you through the journey, right. And, and making, you know, the paradigm shift from the traditional, you know, conventional planning type of thing. Um, but it’s been so rewarding in my position over the years, uh, to be, to watch people implement this holistic wealth strategy and kind of go through all the different, you know, five phases of it. And again, at different levels of net worth.
Um, I mean, I am seeing people, you know, completely grow their net worth by over seven figures. Uh, and then that continually just keeps compounding. Um, and it’s just, it’s really massive results, you know, versus the typical, you know, kind of 7% set it and forget it in your 401k or in the stock market, but it’s implementing things like.
you know, the infinite banking, right? So you’ve got tax-free compounding and strategy. It’s about implementing a proper tax strategy that can reduce your number one biggest expense, right? It’s about reducing some of those bigger wealth destroyers, you know, like looking at stock market losses over the long term and how that really impacts your wealth.
Uh, it’s about diversifying into different asset classes that can create, you know, what I call is a hundred year portfolio. You know, can you get asset classes that are much more recession resistant, uh, and can work through, you know, multiple generations and things like that. Uh, it’s about creating a team around you that’s totally supporting you and your vision.
Dave (28:42.366)
Right? And what that means to you, maybe it’s, you know, maybe you’re later on in life and you’re looking for more cash flow at that point. Right. So you’re structuring your assets like that and you’re getting the right asset protection planning advice and, and estate planning advice at that point in time. Right. Putting all of these elements in place, which is essentially what a family office is. Right. A family office is a structure that
You know, if, if families have a hundred million or more, let’s say, you know, they have a dedicated team of all of these different types of professionals working all around them that all support their vision and what they’re trying to do. And we’re working on their wealth every day versus having a traditional financial planner, uh, who’s giving, you know, one dimensional advice, right. Based on the masses. Uh, and again,
only recommending products that kind of fit into their suite. Right. So, so I think having this holistic view of that is just super critical for people as they grow their wealth. Um, but you know, building that right, right team and starting to implement these things. And again, I’m just, um, I, you know, I couldn’t be happier to see the results that, you know, we’re having, uh, with investors and, and people, you know, really transforming their lives.
Their mindset is just really amazing.
Addie (30:13.545)
Awesome. Yeah. You keep touching on, you know, family and generations and, you know, wealth that can stand the test of time. Do you want to talk a little bit more about legacy and how, you know, you kind of plan to achieve your goals related to creating a legacy for yourself and your family?
Dave (30:34.142)
Yeah, sure. Legacy, it’s really fascinating, right? So the statistics are that 75% of G2 or your Generation 2 wealth is actually lost. And by the time it gets to G3, it’s 90% of all of that wealth was actually lost, right?
So if you’re a Gen 1 person and you’re an entrepreneur, an investor, you’ve worked hard all of your life, there’s a real responsibility to pass on what you’ve learned around building that wealth. You’re not just trying to pass on the wealth itself, but it’s the values. What about all that hard work?
you put into achieving that? What about all the values that are so important in your family that holds your family structure together? Don’t you wanna pass that on to future generations? So I do, that’s very important for me. It’s one of my goals is to really have these values be passed on to future generations. And also, I would like to make impact in the world.
You know, I would like to really transform the way people think about money. And, and in doing so they can really create unlimited freedom in their lives. And then they can also, um, you know, just start to live, you know, much more of a fulfilling and extraordinary life, right. Versus being stuck in some of these old paradigms that we’re all in, or maybe limiting beliefs.
or conventional thinking, whether it comes from Wall Street or corporate America or the government, but just change the way you think about money. Use some of these strategies and tactics to help you really accelerate that, and then create a much bigger impact on life.
Addie (32:46.837)
Yeah. I love the phrase that you’re your biggest asset and you constantly have to be sharpening the saw, you have to be learning, educating yourself and kind of using all of these things to kind of improve yourself before you can kind of take action and impact others. So do you want to talk a little bit about your personal goals for growth and kind of improving yourself? I know you’ve talked about health and how important that is to you as well.
you know, the financial IQ aspect and always learning. I’d love to hear a little bit about what you’ve learned in terms of, you know, how you can improve and grow yourself.
Dave (33:26.622)
Yeah, it all starts with creating a vision, you know, and I think in this day and age, it’s so hard, we’re all constantly bombarded with the amount of information that’s coming at us with the amount of things that we have to do and kind of get done. Um, but again, this is like, this is such a perfect timing for people to really think about if you don’t have crystal clear clarity on your vision.
sit down this weekend and work on it, you know, with your spouse, right? Because it’s the beginning of a new year. There’s a lot of things kind of going on, but it all starts with just understanding that vision because that’s, you know, just think about it. It’s like any time you go on a road trip, right? What’s the first thing you do? You plug in your GPS coordinates and you say, Hey, we’re going to this location. There’s going to be bumps in the way and there’s going to be stops and things like that.
but we’re ultimately getting to this destination. Well, sadly, people haven’t really spent the time to do that with their wealth, with their life, right? But when you do have that clarity on where it is you’re going, then you can bust through walls. You can deal with obstacles. You can set your allocation of your portfolio to support that. You can build a team of like-minded
people and mentors to support you, you know, to get there. And all of those things, you know, from your original question, you know, it’s all around investing in yourself, right? Creating a vision is investing in yourself. You know, that time couldn’t be spent, you know, better than really having true clarity in terms of, you know, where it is you’re going. And you know, I believe we’re on this planet for such a short time.
amount of time and don’t you want to just absolutely live it to your max potential? You know, because the last thing we want to do is just kind of wake up and wow, another decade has gone by, another year has gone by and we haven’t done those things that we’ve really wanted to do. We haven’t maybe traveled. We haven’t spent time with loved ones like we’ve really wanted to do.
Dave (35:51.774)
So I really encourage people to kind of think about that and wherever you are on your journey, just think about creating that vision, think about getting to where it is you wanna go, and then investing in yourself to be able to get that. Are you investing in your health, right? How many things are you doing on a daily basis in your health to get you to the goal that you wanna have? How are you investing in your relationships?
How are you investing in your education? It’s funny to me, right? I never considered myself a good student going through school. I worked hard to get Bs, let’s call it that, and just never liked memorizing things and going to school and all of that. And here I am now spending six figures on my own education through
masterminds and online courses and training and everything. And I mean, I’m spending so much money on my own education. And it’s interesting, right. But I’m seeing the big, you know, ROI from that. And that’s massive. And then, you know, and I love to be able to, you know, share that with others. So that’s such a huge takeaway is investing in yourself is, you know, you will always have the biggest.
return on that 10x or 100x type return when you invest in yourself.
Addie (37:22.645)
Yeah, definitely. It shows how it’s been, you know, paying off, investing in yourself and putting yourself first. And, you know, that’s kind of the first step to any of this. You can’t get anywhere without your plan and your vision. So do you have any advice for, you know, investors or people listening today on where they can start in their journey and kind of set 2024 off with good, strong intentions for the next year?
Dave (37:46.762)
Yeah, I think to really summarize that, I mean, let’s again go back to that formula and we can summarize that formula for folks, which is your net worth is equal to your financial IQ plus your mindset IQ plus your relationship capital plus your physical capital. So if you’re short in one area, or let’s say maybe you don’t have the time
right, to, you know, invest in, you know, your physical capital at the moment or something, right? Well, you know, maybe you can, you know, change some of your habits and your goals to increase your financial IQ this year, right? So have you joined any mastermind groups, right? Do you have any accountability partners, right? In fact, I mean, speaking of mastermind, that was
Dave (38:47.342)
and virtual family office is so that people could, you know, plug into all of these things. They could transform their mindset by sitting in a room with other like-minded people trying to get to the next level and learning on how you do that. It’s about creating accountability partners to say that, hey, I am going to, you know, get in place an asset protection.
Because I’ve worked so hard, I’ve worked 30 years to get in place what I actually have in place, but what if all of a sudden I was facing a $10 million lawsuit? You know, or what if, you know, you get that call from a doctor that says, you know, you’re challenged with something, right? Are you prepared for that?
But by being in this kind of mastermind type community, you have accountability partners, you have like-minded people helping you to level up, helping you to expand your mindset, and also identifying new opportunities and strategies, and new partnerships, strategies. So much of all this is financial engineering as well.
How can we, you’re only limited really by your mindset and where you can think of the opportunities coming in. So what are you doing to be able to do that? So I think the advice and the takeaway as people enter the new year is try to put that formula into place. And I understand that you may not be able to do everything at once.
but really try to make some investments in your education, in your mindset, and your relationships, and your health. I mean, those are the key ones that are really going to give you some progress. And I think the last comment I’ll make, Addie, as well, and this is Dan Sullivan’s question, which is just such an insightful question, is if we are having this conversation one year from now,
Dave (41:01.707)
what needs to happen for you to feel good about your progress personally and professionally. And then you can break that down further by identifying what are your top three dangers or risks that you have in your life? What are your top three opportunities that you have that you need to take advantage of? And what are your top three strengths that can help you
seize those opportunities and mitigate those risks.
Addie (41:34.209)
Awesome. Yeah, I know personally for me, a goal is to listen to more podcasts because I really feel like the, you know, analogy that you use pretty often about, you know, learning a new language, the best way to do that is to just fully immerse yourself into the culture and be there, speak it, hear it, you know, learn it, listen to it on the TV. It really helps kind of shift your way of thinking because it’s all you’re around and your influence and what you hear.
And the same goes for this financial education journey. You know, you’re not gonna learn if you’re not around people that are talking about the same thing, speaking the same language. And it’s really awesome how different groups of like-minded individuals can come together and just accelerate how quickly you pick up and learn these concepts and these critical, you know, ideas and strategies because…
It’s never a one size fits all. Everybody’s got a little bit of a different situation, but applying these same concepts is really cool to be able to apply them to yourself once you’re hearing it in different contexts and how different people interpret these things. Love all that. What’s your biggest takeaway, I guess, from the past year and the past 100 episodes interviewing people? Do you have any?
Dave (42:42.751)
Awesome.
Addie (42:51.457)
favorite, you know, things you’ve learned, interesting things or what was your, you know, maybe favorite episode.
Dave (42:58.558)
Yeah, I mean, some of my favorite episodes were, you know, we talked about Michael Sonnenfeld with Tiger 21. That was amazing. Their asset allocation strategy. That was super insightful. I really enjoyed the conversation with Garrett Gunderson as well. You know, he’s in the space of wealth creation, you know, for many years, right. And thinking about things alternatively.
And, you know, we had a lot of parallels in our journey in terms of the discoveries he made, you know, once he started, in fact, he was actually a financial planner and then started to get some exposure to family offices and seeing how the ultra wealthy were really kind of investing and then starting to use some of those strategies and tactics. I thought that was quite insightful. Neil Bawa. I mean, he is the, you know,
data analytics, guru around investing in real estate. So some really good thoughts from there. We’ve had just so many good guests and I’m really excited for next year as well, Addy. We have a number of even better and bigger guests that we’re gonna continue to help people and providing this education that’s free for everyone to access.
So that you know, they can really just start growing their game and leveling up
Addie (44:27.414)
Well, I’m super thankful that you get to bring this content to us and we get to sit down and hear a conversation. I think you bring a lot of great insight and great experience, the right questions to ask. Thank you for having me and having all these great guests that we get to learn from as well right alongside you.
Dave (44:49.878)
Yeah, appreciate the opportunity, Addy, to share everything with our listeners. And we’re going to continue working hard for all of you because at the end of the day, that’s what really matters. You know, are you able to increase your financial IQ, your relationships, all these things, you know, through the podcast and everything. So we’re pretty excited about that. And one of the things that we wanted to do to kind of help you with your journey and really try to kick off the new year.
is to provide a holistic wealth strategy scorecard. So you could fill that out and kind of get some insights as to do you have any gaps in a particular area? Are you strong in a certain area? And it might just be kind of something that lights a fire in terms of, again, your vision, your goals, what you’re planning for the year. And people can go to pantheoninvest.com.
And if you just fill out that form, we will send an email to you with a scorecard.
Addie (45:54.441)
Awesome, I can’t wait to get my hands on it.
Dave (45:57.61)
You bet. Thanks, Addy.
Addie (45:59.71)
Yeah, have a great new year!
Dave Wolcott (00:01.166)
Chad, welcome to the show.
Chad Johnson (00:03.575)
Man, it’s a treat, Dave, to be with you. I’m so pumped. Thank you for having me.
Dave Wolcott (00:08.206)
Chad, I am you bet I am so grateful that you’re on I know the audience is definitely going to love this episode. One of the core pillars that we talk about in overall holistic wealth strategy is a lot around mindset, right mindset is just it’s just everything you know you look at people like Elon Musk and Steve Jobs I mean these major industry transformers right and what
mindset they have, right? What an example and everything. And I know that’s part of the core to your philosophy as well. So I know folks are really going to, you know, kind of enjoy this. And then also, you know, talking really about, you know, holistic wealth, right? Because, you know, wealth is really interesting when you start to unpack it, right? It’s not really about the zeros in your bank account, you know, at some point.
It’s, you know, you can add more zeros, but it doesn’t get you to that overall fulfillment, right? It’s like the four freedoms and the family, which I know is super important for you as well. So for folks who aren’t familiar with you, with you, tell us a little bit about your story. How did you get here? How did you become an entrepreneur? And, and talk to us about your amazing family as well.
Chad Johnson (01:09.949)
Wow.
Chad Johnson (01:30.819)
Well, Dave, you know, I love that you went right out of the gate to this big picture of what wealth is, right? Because I do think a lot of people narrowly define that as like, well, it’s just a number, right? If you reach your number, then wealth is yours. And I love the fact that, you know, at an early age, I guess, growing up in a big family, I was one of eight kids. And I realized from an early age that we were in arguably maybe middle class at the time, you know, in our financial situation.
I grew up in an incredibly relationship rich environment, right? Where I just was around, you know, parents who just were pouring into me in the right ways, siblings that were my best friends and a neighborhood full of connected relationships, right? And so I grew up feeling extremely rich, like never feeling like I lacked, right? Even though I knew there were people that…
lived in big houses and drove big cars, nice cars, and had big trips. And not that there was anything wrong with any of that. In fact, I aspired to see some of those kind of breakthroughs in my own financial situation at some point, right? That was part of my childhood dream. But it’s weird because you mentioned that holistic picture of wealth and what that looks like. And I think from a very early age, I don’t know where it even came to me, but I was like, man, the way I want to measure success in my life is going to be different.
than what maybe everybody else would choose. And I came up with these five priorities, right? And I call them my giant five. I used to spend much time around me. You know, you’re gonna hear me talk about my giant five priorities. And you know, the first one being my faith. I’m a believer. So like that grounds me, right? It’s my relationship with God. It’s my spiritual life. And that’s first for me. If I’m right there, then my number two priority is my key relationship. You know, it’s funny, Harvard did a study, Dave, and.
and they published this book, largest longitudinal study on happiness ever. And they tracked it for these generations. And the single outlier, you know, on what was it that actually made human beings flourish? What was it that made them so happy was that, those key relationships, whatever it was, key friendships, key relationships with maybe parents or a spouse or their partner or kids or friends, but it was those relationships that made it rich. So I said, okay.
Chad Johnson (03:49.743)
If I’m right with God, right there, now my relationship with my wife, I want it to just grow and grow and grow. I don’t want it to ever diminish, right? And it’s funny, Dave, because I coach a lot of entrepreneurs, right? And one of the key areas I see them kind of break down their wealth is through divorce. Dude, you wanna talk about a hit, you know, to financial well-being and stability. It’s like take everything you’ve been building for so long and just rip it in half, right? And rip the business in half or rip the assets in half.
and what a slow down. And so I’m constantly telling people that are wealth builders, hey, take care of those key relationships. It’s not only just gonna make you happier, right? More fulfilled, but it’s also going to make you richer long-term, right? If you continue to grow in these ways. So that number two relationship, my wife, Janiece, we just celebrated 30 years. I can’t believe it. I’m too young for that. You know that, but no, you know, but it’s, and I like her more than I ever have and she’s still pretending she likes me. No, we…
Dave Wolcott (04:39.85)
Wow, congrats. Yeah, yeah, congrats.
Chad Johnson (04:48.947)
have a great relationship, you know, and we work at it, right? So it’s fun. But that’s the second relationship out of the five for me. The third is if you have kids, for me, I’m going, man, there’s no success, no measure of wealth that will matter to me if my children aren’t flourishing, right? And you know this, when you have a kid, you literally ache if just one of your kids isn’t doing good. You know, if they’re suffering, if they’re going through difficult times, and every parent has a kid that goes through difficult times.
it just impacts your whole world, right? And you start going, ah, I’m not okay if they’re not okay. So, you know, really point into that third priority and saying, hey, I wanna see them flourish and be everything that they were meant to be. I have 11 of them, right? My wife and I, I told you I liked her a lot. We have proof, we have 11 of these kiddos, and the youngest is 11, the oldest is now turning 29 in January, right? Which is hard to believe.
and we’re expecting our 10th gram baby. I mean, it’s just like, and Dave, you know this because we’re both a part of strategic coach, right? And for years, Dan had that 10X program and I was the one guy that didn’t get what he was talking about, you know? And I took 10X home and I told my wife, hey, we only have four kids, we need to have six more because we got a 10X. And you know, we got a 10X’s family and anyways, she went along with it. But so third priority for me is those.
Dave Wolcott (05:49.422)
well.
Dave Wolcott (06:04.132)
Yeah.
Chad Johnson (06:12.407)
those kiddos and seeing them flourish, right? And then fourth, you know, Dave, it’s been said that a billionaire with a belly ache just wants to feel better, right? I mean, they just, they can’t even enjoy what they have. None of us can if we’re not a position of wholeness and health, wellness, vitality, energy, right? And I could say life, family, business, all of it is an energy game.
And so my fourth priority is how do I take care of myself, right? Physically, mentally, spiritually, so that I’m able to bring A-level energy to my best opportunities consistently, right? And so I lost my health at 12 years old, I mean, at 10 years old, and then my early 20s. And mainly it was, anyways, I won’t go into all that, but it really made me realize the value and the wealth, for lack of a better word, there is in health and vitality, high energy living.
and being able to protect that asset. And so health is number four. And then number five for me is really where the great game of business comes in or being a value creator or an entrepreneur, or for those that aren’t entrepreneurs, but it’s crushing your career, your life, right? It’s taking what you’ve been given, your God-given gifts, talents, abilities and putting them in the play in the marketplace and making a massive difference, right? Serving more people or whatever. So to me,
for me, if I go, hey, these five things are in order for me and I’m maintaining them in proper reflection of reflecting in my life, I feel like that’s such not only a platform for success, but it’s a model for sustained success, right? It’s just gonna get a bit, well, bigger, richer, fuller, year by year. So those five priorities, I literally came across them, don’t know where, I wish I could give credit,
what is it, credit to where it’s due. I don’t know if it was just something I came up with or if someone shared something with me, but I literally was like, these five are gonna be my thing. And so as I went out into my life, I had a really slow start financially. I’ll be real honest with you, my story is a windy path. And I struggled early on. I had some really, my wife and I, when we were married, couple of kids, I was jumping from one business, starting this business, seeing this one fail, you know, I had a lot of.
Chad Johnson (08:35.711)
early learning to do, to put it simply. And then had some successes along the way, but along the way I was filtering everything through those five priorities. And so when it came to my career, I said, Hey, I’ll start a business, I’ll sell a business, but everything’s going to be in service of these other five. And so on the career side, if you want a bit of that story, I literally grew up in Los Angeles. You know, I,
My mom pulled me out of public school after seventh grade. I was one of these students who turns out I was actually loved learning, but school wasn’t the environment I loved learning in. I felt extremely bored. It was frustrating. I was one of these guys that was like, my grades were okay, but I was really there for the social and for, for all the other things. And she thought she could porn into me faster, better, harder. And she did. And so she did that, pulled me out at seventh grade. Homeschooling was not cool in the, in the eighties.
in Los Angeles, but I got my high school diploma by the time I was 16. And at that point I was like, well, what am I going to do? And so I ended up jumping into a local junior college to take some classes, found out I could get my emergency medical technician certificate at 18 and I could become a ski patroller and I was kind of a ski bum, you know, I was like, I wanted to, you know, I love skiing and I’m like, Hey, they’ll pay me to do this, but my ambitions, it was funny.
Dave, because I always knew I had big ambition, but I didn’t know how my path was going to develop at all. So I’m ski patrolling, I’m working construction in the summers, and I meet my wife, and I’m like, man, I gotta get a real job. I wanna marry this woman and have a family. And anyway, so I end up going back to, at the age of 21, 22, going back to the family business.
My dad and uncle were running a company in Los Angeles, screen printing labels on glass bottles. Okay, and they were very silk screen these labels. Things, we didn’t do this particular project, but a lot of people recognize this project like Great Goose Vodka. You know, it’s a really gorgeous bottle, color screened into the glass, fired at high temperature. The color actually becomes a part of the label. It was there in Los Angeles, city of commerce. And so I start working in that environment and I find that
Chad Johnson (11:03.683)
Being there, I get so excited about the potential of that company, right? I’m seeing the opportunities for growth, for reorienting our direction, for realigning our team. I mean, I just, we had been in business since 1934. My grandfather and his brother actually started that business in the middle of the Great Depression. I was too young, to be honest with you, in my uncle’s eyes and maybe in my father’s eyes. And they’re like, hey, you know what, Chad? We love your excitement and zeal and all this passion you have, but.
You really don’t know anything from anything. So we just started biting heads, right? On what could be done, what should be done. And I realized, Hey, I need to go do some other things. And so I went back to school and, uh, I started two other companies, a janitorial service window cleaning company, right? And I started a mobile espresso and coffee bar business and, and I thought I’d made it, Dave. I’ll be real frank with you. I thought I was, I was at ski patrol there in Southern California, snow summit.
And I thought I had made it because I had a line 10 people deep at my little mobile espresso bar at the bottom of the hill right there at the ski resort. Cause I had contracted with the, uh, the resort and I’m skiing, right. With my uniform on helping damsels in distress with their broken, you know, bindings and hurt knees and, and whatnot. But the line at my coffee bar buying $6 lattes all day long was just cranky. And I had two gals in there running the machine.
And that first month I made 30 grand and I was skiing. And I was like, man, I finally figured out this kind of entrepreneurial mix. This is, I just, I started forecasting my big future around how I was gonna do this and I’m gonna set these up at other ski resorts and in this back early 90s. And at that time, most ski resorts, it was just, hey, go up to the restaurant and get a coffee. And they didn’t have lattes and mochas and all the other stuff that was coming along. So.
It’ll last two months, right? Before the owner of the resort, he’s sitting there going, whoa, Chad’s making a hand over fist down there. And he calls me into his office. Hey Chad, you know, love you. Thanks for the idea and everything, but we’re gonna go and put in our own. And anyways, but it is welcome to the entrepreneurial ride, right? And Dave, at that point, I literally, I’m on my way, but I’m just kind of doing some of this, some of that here and there.
Dave Wolcott (13:14.734)
Sure, sure.
Chad Johnson (13:24.847)
And meanwhile, I had married that woman of my dreams, Janice, and we had two kids. And my brother sat me down and he’s like, Chad, he didn’t basically say you’re a loser, but he said, you’re a loser. He says, you’re trying all these things. You have all these entrepreneurial dreams. You, you make some money, you, you win some, you’re losing some, but really you’re just all over the map and you really need to sober up and get a job. Like get some stability in your life. Right now he had, he was a firefighter paramedic. He had this stable career.
And he’s just like, you know, get a life. So it was funny. I sat down with my wife. I said, is he right? You know, am I just like, and she’s like, it would be kind of cool if we could just make steady income for awhile. And like, you know, cause we’re all over the place. And I said, okay, I’ll do it. Let’s go. So I jumped into back into school and became a firefighter, paramedic, went to fire academy, went to paramedic school. And it was interesting because at this point in my life, I absolutely found I loved learning.
I was there for my reasons. I was sitting on the front seat. I was top of my class. It was just an interesting change from my growing up years around school. But it was funny because I fought that career big time because it felt like I was a fish out of water in a lot of ways. Get hired in the fire service, realize that I’m not a good mix for the fire service. So much love and respect for the men and women who put on the uniform and go do what they
but I was not a good government employee. I was not a good union guy. I couldn’t sit at meetings and talk about how we need to get a 2% cost of living increase. And it just wasn’t me, right? So I was literally going, I was dying there. And anyways, I’ll shorten this up. I end up getting a call from my buddy. I got hired in the fire service. I’m a year off, I get off probation. I tell my wife the day I get off probation, like my chief and captain come in, shake my hand, congratulations, Chad, you have 24 years left.
Oh man, it felt like prison bars had just slammed around me, right? And I’d gone and met with a financial advisor a few months prior. And I sat down with him and he says, Chad, what are your goals? And I literally said, well, I want to be a millionaire in the next six years. And he just, he looks at me and he’s like, dude, you’re nuts. You’re like, you’re crazy. You’re like, what are you thinking? You know, and I’m like, and he says, if you saved eight times what you make.
Chad Johnson (15:51.351)
your gross income, if you saved eight times that for the next 10 years, you wouldn’t even get there. He’s like, you’re nuts. And I walked out of there and I’m like, I’m obviously doing the wrong thing. I’m in the wrong industry. What am I doing? Back to the drawing board. I get a call two months later from my buddy, Mike Willis. He’s working for UBS as a financial advisor. He says, Chad, I want to fly your Colorado Springs and I want to explain something to you.
I go up to his corner office there on the 10th floor, you know, and I’m like, wow, this is a different world, you know, and he starts talking numbers that I’m like, well, that lines up with my goals, you know. And so he’s like, Hey, would you be interested in doing this? I’m like, a fire guy can do this, you know, I mean, I’m a, I don’t have a degree in finance. Long story short, I get hired by UBS. They put me in a bullpen with seven other guys and these guys are from Duke and Notre Dame and they have finance degrees and I’m like the firefighter paramedic in the room going.
I am so out of my game, right? And it was just saying yes to these opportunities, but all of a sudden I wanted it more than anybody. I had a growing family, I had three kids, number four was on the way, right? I’m like, man, and long story, I keep saying that, but it was really cool because I found a new world and it was a results economy. And it was an economy that said, hey, if you produce, you win. If you don’t, you fail.
And the results are 100% on your shoulders. And I loved that environment and started to find ways. And it took me longer than I wanted, but I started to find ways to do the work of gathering assets. And in the financial world, I mean, the task Mike gave me, because we were gonna be quote unquote partners, was I only wanna sit down with people who have a million dollars to invest. And I realized, boy, did I have a lot to learn if I was gonna get that.
woman, that man to sit down with me, unload their top drawer, share their finances, you know, the whole picture and trust us and me in particular with that responsibility. And so unbelievable gains in my life growth curve at that time. And it was long in that I realized my entrepreneurial passion came alive. I realized I never wanted to work for somebody else. In a sense, I really enjoyed that freedom.
Chad Johnson (18:15.647)
I’m in there three years, we sit in front of hundreds of millions of dollars of assets that come in. It’s an incredible win for both of us. And I get a call from my dad. And he’s like, Chad, I’m now, before I was 21 years old, now I’m 32. He’s calling me and he says, Chad, would you move your family back to LA and take over the family business? And I’m like, absolutely not. I said, I’m loving where I’m at. I like the freedom. I like my life.
And I’m on a crazy good trajectory. I just, this is, this is good. He persisted and it was interesting because I. Well, I said yes eventually. And I moved my family in 20, 2002 back to LA. And at that point, he asked me to come in as general manager of that business. And.
I had this vision of what that business could be, right? We come into a company and you sit there and go, man, I see it being like this. I see the culture acting in this way, honoring people, really honoring our clients, doing the best work on the planet. I see us growing in these ways. And after two years of really head down, my father left the state two weeks after I got there. He was serious about retiring and getting out of the picture. My uncle, who was his partner, had a family emergency, was gone three months later. It was all on me.
which was the best thing ever, because I was really ready to carry that responsibility and do the learning, and it was hard learning. I saw linear growth over the next two years, but it was very, I’m gonna say, very frustrating growth for me, Dave. And in 2004, my buddy who I worked with in finance, Mike, Willis, calls me up and says, Chad, you gotta join strategic coach. And I’m like, what’s strategic coach? He goes, just do it. And he goes, and if you do it, don’t sign up for one year, sign up for three years. Just commit.
in your mind that you’re going to go three years. He says, this will change your life. Anyways, I jumped in and Dave, I want to say that inflection point in 2004, October of 2004 was one of the most profound inflection points in my wealth building journey in every way. You talked about mindset. I had been reading books like voraciously since I got out of high school.
Chad Johnson (20:34.399)
I don’t know where that passion for reading, for learning came from. This was before podcasts and all those other things, but I was reading. And if it wasn’t a book a week, it was a book every two weeks. I was just, you know, grabbing, I wanted to learn in books on, you know, they were almost all on personal development or mindset or growth or, you know, business or, um, how to, you know, develop customers or how to deal with team or leadership. And, and so when, when I came into the business,
I felt like I had this fairly good working knowledge of these things, but I came to coach and all of a sudden I hear concepts called like unique ability. And I was like, wow, that’s powerful. You mean there’s certain things that I could be better at than anyone in the world. And there’s certain things that I just will always be incompetent at, or I really shouldn’t spend my time doing. And Dave, you know that concept just as well as I do, but it was a profound shift for me. And
I started to orient my business and my life around those new ways of thinking. The gap and the gain. Dave, I don’t know if I’m making an overstatement when I said, I felt like it almost saved my life. I didn’t realize what a gap right was. I lived in a world of constant perfectionism. I was striving towards the ideal. Even when I get to my goal, okay, the goal is make 100 grand. You get to 100, immediately it had gone to 250.
And when you got to 250, it immediately had gone to 500. And so it was never, I was never living in the game. And it was, everything was always moving away. And I didn’t realize what it was doing to my thinking and how it was undermining my confidence. I was undermining my success. And I was one of those perpetual self-floggers, right? Just if I didn’t meet the goal or I didn’t meet the mark, man, boy, would I be rate myself internally.
And I didn’t realize how destructive that was. Anyways, Coach changed my life. We saw that company over the next 18 years grow exponentially, top line over eight times, bottom line over 18 times, right? You know, just started to see these incredible gains and anyways, couldn’t be more grateful now as I look back at the journey, because you mentioned those four freedoms, you know, the freedom of time.
Chad Johnson (22:55.235)
the freedom of money, the freedom of relationship, the freedom of purpose. And I slap myself, Dave, I wake up every day in that world realizing that I’m free to do what I was put here on earth to do, to choose those opportunities, choose those people. And so now I get to be an investor, I get to be a business owner, I get to be a coach, I get to be a dad and a granddad, and all these things in a world of…
that’s free and it’s just, it’s stuff I dreamed about as an 18 year old but now I get to realize. So that’s way too long aversion buddy. I’m sorry, that’s too much but.
Dave Wolcott (23:35.263)
No, it was. Yeah, that was excellent, Chad. No, I think you went on to all of the questions I was really going to ask you subsequently. But I, you know, just really love that. The first of all, the whole concept of G5, I think is just so powerful.
And I love frameworks or thinking tools, right? That give people guidelines and sometimes we all get lost in the chaos of the world or information overload, right? So when you can kind of just think about these five, giant five things in your life, how can I keep all of these balls afloat?
Chad Johnson (23:56.159)
Yeah.
Dave Wolcott (24:14.49)
Um, you know, that’s where you’re going to have the most satisfaction and fulfillment. And, and what I think we share in common as well, which is, which is really kind of fascinating, you know, it’s a real deep level of thinking, but you know, if you go back to Maslow’s hierarchy, right? I mean, you know, you’ve got your basic needs, which is where, you know, we’re all starting out in our twenties, just trying to figure it out. You’re trying to pay the rent.
trying to put food on the table and figure out what’s important, then you have a family and so you need more financial security. But it’s really this path to really self-actualization, right, and this growth that some tremendous people, people like Tony Robbins, right, and Gandhi, right, have potentially reached the top, although there really is no top.
Chad Johnson (24:39.523)
train.
Dave Wolcott (25:07.03)
but it’s just this constant journey of growth and things. And I think it just becomes so fulfilling and meaningful. So do you have a few concepts or things you could share with the audience in terms of what’s helped really fuel your growth, what’s been able to guide your growth through the amazing journey that you’ve had?
Chad Johnson (25:33.999)
You know what, Dave? Yes. You know, when I’m asked that question, I like to say people’s mindset comes out their mouth when they speak, right? And, and you think about, you know, I’m a real estate investor is one of the things I get to do now. And, and it’s interesting because with real estate, I say the most important real estate in the world is real estate right between your ears. There’s, there’s no more important valuable, uh, real estate and
So many of us are actually undermining our future by either looking at our past the wrong way or choosing our thoughts in the wrong way moment by moment. I think the most important thing that people do that are successful, that unsuccessful people don’t do, is that they manage the real estate between their ears. They choose their thinking. They choose their thoughts. They think.
You know, Dan likes to say they think about their thinking and they realize that a wrong thought or a negative thought or an undermining thought or a thought that dwells on the failure rather than the lesson, right, that stays in the gap is actually doing yourself brain damage. And it’s interesting because I like to tell our coach clients, I would love to see my brain scan today. What my brain went…
look like in a scan versus what did 10, 15, 20 years ago. Because I believe that successful people actually build better brains. That we’re actually, when we talk about that journey of growth and success, we’re actually becoming someone different. People say, well, no, they think, well, you landed this, you bought this business or you grew this company or you arrived at this certain destination. Well, really it was…
you became someone different along the way. And so in building our thought and building our brains by every thought we choose, I don’t know that I understood it a young man just how important that is, right? Just how fundamental and that every day I’m either building my brain for a bigger future or I’m undermining myself and my present and my future. And every thought matters, right? And there’s a scripture I love, it says, take every thought captive.
Chad Johnson (27:59.319)
And I like that thought that I cannot allow thoughts to go through my brain. And imagine you have a beautiful piece of real estate. You know, you’re trying to create an environment for somebody and it’s a resort. And if you did not make that resort, if you did not protect that resort and anybody could just come through and dump garbage on the lawn and drive through it at any time, morning, noon or night, they could play any kind of music as they barge through your property, it would destroy it in a heartbeat. And people get that.
with real estate, but our brains, we literally allow that to happen through the things we listen to, the things we see. I am fanatical about reminding people, turn off the news, right? I mean, why would you let people dump garbage in your brain if you’re trying to create a resort or this purposeful tool? And why would you let all this, and I’m the guy who used to be a junkie for all of it, news and politics and all the stuff.
But if I can’t influence it, I don’t need to know about it. Man, I wanna make a difference on the things that are in front of me that I could do. So I just, to me, that journey of building a brain and know you’re in that process, whether you wanna be or not, right? Everybody’s in the process. And for them to embrace the opportunity of it. And to me, that would probably be the single greatest factor. When I hear people talk, it just breaks my heart sometimes
even in their language, they’re beating themselves up. You know, they’ll literally say, I’m not a positive person. I’m not a good communicator. And I’m like, it’s okay if you say I didn’t used to be, but separate yourself from it. And that’s reframing it, choosing a better thought, because you can be better. And, you know, and anyways, it’s protect the number one real estate in the world, right?
Dave Wolcott (29:46.37)
So good, yes.
So good, Chad, really love that metaphor. It makes so much sense. And, and really also one of the things right that you know, people should think about too, is this, you know, this concept of basically, you know, investing and we’re not only investing in, you know, into financial assets, right. But it’s, it’s really the G five that you talk about, right, we’re investing versus having expenses. So we’re investing in relationships.
We’re investing in our health. We’re investing in our mindset. And I struggled like for years, right? Where I always used to think, you know,
Chad Johnson (30:22.351)
on.
Dave Wolcott (30:28.982)
you know, I’ve got to be the first one into the office and I’ve got to be the last one to leave. And, you know, I’ve got to be there. I’ve got to do all of this, you know, time and effort and everything. And I struggled with, you know, the time that I would spend kind of working out like, oh, I’m working out, I should really be at work. Or how can I have time to meditate? Because I got to get into the office, I got to answer my emails, I got to do all these things. But you know, now,
I mean, I’ve really been able to kind of grow from that and look back and say, you know, that is actually, you know, the 15 minutes a day that I meditate is one of the most powerful 15 minutes of my entire day. That really takes me so much further, right? You know, so I think when people can make that shift to, you know, making these investments and not seeing things as costs.
you know, like you say, keeping the garbage out of your head, right? You can just you can really 10x.
Chad Johnson (31:29.355)
It’s you keyed in on it in a way that I think is so powerful Dave and so few see it. I literally had someone come up to me and say, how can you blow, was the term, blow so much money on family trips? Because I like to ski with my family and do different adventures with my family and have shared memories and experiences. And that was their terminology, right? How could you blow? How can you do that? And it’s interesting because when you talk wealth, talk holistic wealth,
I have literally created a freedom fund, a separate account, Johnson Family Freedom. And it’s about, it’s there only for the purpose of investing in shared experiences, in renting a big house and bringing everyone together. Right before Thanksgiving, we brought all our kids, all our grandkids in, right? And it’s not an expense to me. I don’t ever even view it as a cost. I see it as this is an investment. You know?
Same thing with my wife. You know, when I do anything, when I spoil around, when I plan a trip, when I’m doing constant little things, it’s I wanna be constantly investing, yes, money, but time, creativity. And you hit on it, Dave. If we see ourselves as investing in our health, you and I were talking before the call, peptides, right, you know, stem cells. What are all the things that we wanna be? Be.
None of these things are cheap, easy, they don’t fall on your lap, they’re not provided by the healthcare system, you have to go out and find them and invest on your own, but you care about that, so you invest in it. And I just think that framework is so powerful. If we can reframe all those priorities as investments, boy, you’re gonna, I think, well, I know that. I get to live one of the richest lives of anybody I know. And it’s that mindset that everything that really matters.
deserves investment. You gave me great language.
Dave Wolcott (33:24.294)
Yeah, so powerful, Chad. I think it’s just really great to focus on that, his mindset. And we have in our holistic wealth strategy, we have five different phases to kind of getting to holistic wealth. But the first one, it’s really all about yourself. It’s all about the mindset. And you just, again, you look at some of the grades of the people who…
you know, who’ve made it really far in life in terms of, and let’s just think about, you know, true wealth, right? In terms of self actualization, right? And growing, you know, with all those giant fives, you know, they haven’t been just, you know, because there’s a lot of people that have made a lot of money, maybe they’re CEO of a fortune 500 company, but their family is broken, their health, they’ve sacrificed their health, you know, to get to where they are.
Right? So, you know, how do you really define success, right? And wealth, right? And I think it’s, it’s all with that framing in the mindset.
Chad Johnson (34:25.507)
That’s it.
Chad Johnson (34:29.323)
That’s it. And I love that each individual is going to choose their own priorities. And it’s funny, everybody has priorities. Everybody’s already chosen them, whether they’re intentional about it or not. Right. They can just look back at their calendar over 2023 and look and say, well, this is where I spent my time. This is where I spent my money. This is where I put my energy. These are people I spent my time with. These are my priorities. What’s cool is we come into the end of a year.
You know, there’s no better time to kind of sit down and say, hey, what do I want? Right? Because we all have the opportunity to level up as we go forward, man. I’m like, I’m more, as much as I’m grateful for my past, I’m so excited about my future, I can’t even see straight, right? I mean, I see so much opportunity and I can’t wait to go there, but it’s so beautiful to think that today, someone listening to this call may sit there and go, you know what, my priorities have been A, B, and C.
But I can change them at any point. Maybe health hasn’t been their priority. Maybe their faith hasn’t been their priority, their marriage or their relationship or their kids or whatever. Maybe their business hasn’t, maybe their finances, I don’t know. But they can literally sit down today and decide, hey, these are gonna be my top, my giant five, or they can say, hey, these are my top three or whatever. And I think having that filter of your own chosen priorities through which you say yes or no to things, through which you…
You know, say, yeah, this is worth my time, my energy, my money, my, my investment, um, is, is such a, a foundational skillset for really getting where you want to go eventually. And, and I just love that people can choose that. And I hear people do that. And even our coach workshops, I’ll hear them literally say, you know what, my priorities have been this. I had a gentleman in my workshop this summer. He’s like, you know what? My business is crushing it. He goes, I’m just, I’m making millions over. And he says, but what I want.
And I’m realizing right now as a change of priority, I want to 10X my relationship with my wife. And it was so cool because he came back a quarter later and he says, unbelievable, what changed his intention around his priority? That was it. He didn’t change his wife, he didn’t change his, he just said, my priority is shifting. So I just think the power of clear priorities, Dave, man, successful people get that. And as we can make, and we all have to make it our own.
Chad Johnson (36:54.975)
And we have them already, but are we choosing them real intentionally? And then are we building our day around that? Our week around that, you know, our calendar around that, our finances around that. Because if we are, man, we can make such crazy good gains and, and our richness, man, there’s a richness of soul, Dave, like you were talking about, you know, there’s this richness of soul where you just sit there and look at each part of your life and, and kind of go, man, I can’t believe I get to, to experience this life, you know.
That’s the success I want people to have. They’re gonna go, come on, right? Is this for real? I mean, come on. Anyway, it’s so good.
Dave Wolcott (37:26.762)
Yeah. Awesome. Chad, what does your morning routine look like?
Chad Johnson (37:35.747)
You know what, I’m a guy that I’ve got to roll out of bed and put on my running shoes. And I will say this, I mentioned that thinking, I choose my first thought while I’m still in bed. I used to wake up in the gap. And very first thought, I literally choose it intentionally. It’s now part of my habit. And it’s my kickoff this morning. I wake up and my first thought is, thank you, Lord, and I fill in the blank. Thanking God for, and it could be
that it’s that I get out and be on a podcast with Dave. It was one of the things I was like, I can’t wait to get on a podcast with Dave. I can’t believe I get to, I have two other calls today that I get to be on that I can’t wait. They’re amazing people and I get to be in their life. And right, and I, so I’m just start by thinking, choose my first thought. I want to start with gratitude. Next, I roll out and put on my running shoes. I got to get moving. I’m just that guy. My wife can go sit down and journal and do all her stuff, quiet. I just, no, so I get up, I go for a run. I used to run a lot.
I’ve now backing off my cardio a couple miles, maybe two miles. And then I do 15 to 30 minutes of weights because I’ve got to start putting muscle on this 53-year-old frame, man. It’s important to me, right? So I start with the fitness side and then often I’ll put in my buds and I’ll be listening to something that’s encouraging, uplifting, or when I’m running, I like to memorize scripture. But I’m really… I’m really…
concerned and concentrated on feeding my mind in that morning and taking care of my body. So I really wanted to start with this, like you said, this proactive approach to my day. Then come back and then I get out my planner and my journal and my Bible and I kind of have my little quiet time where I’m kind of looking at all the priorities of the day and I often will read a little scripture or I’ll resnip it out of a book and I just have this little
calm, quiet planning time. And then I’m into my day, right? And I build my days around free focus and buffer days, like we talk about at Coach. And so I want to really crush my focus days with just A-level value creation, driving the business forward, driving the revenue side. Buffer days, I’m doing other things. I’m doing level 10s and other meetings.
Chad Johnson (40:01.239)
cleaning up the messes, building capabilities, delegations. And then I’m really, really convinced that people that are high performance blow off free time. They don’t know how to rejuvenate many of them. They don’t know how to build an A-level or a gold, silver, free day where they can truly just replenish themselves physically, mentally, spiritually. So yeah, my morning routine, I mean, that’s kind of the kickoff and go. And I built this little slide deck also that I kind of…
It reaffirms my unique ability, you know, what I was put here on it to do my top three activities I want to do, you know, so I just kind of, they’re, I call them my affirmations. This is kind of built on, um, you know, how, uh, it’s how Elrod’s yeah. More miracle morning routine. Yeah. It’s, it’s, it, it juices me. Yeah. That’s it. It’s just, it’s yeah. Yep. That’s it.
Dave Wolcott (40:45.238)
Hallel Rods. Yeah, yeah, miracle morning. Yeah, yeah, that’s excellent. It’s so intentional. It’s so intentional, Chad, right? It’s so powerful. Like you’re controlling your day, you’re controlling your future, and just living not in the gap to someone else’s ideal. You’re living your own ideal, and it’s just so satisfying and fulfilling. So, you know.
Chad Johnson (41:04.511)
Nope.
Chad Johnson (41:11.651)
That’s it.
Dave Wolcott (41:12.822)
Bridging from that as well, tell everyone about the G5 Summit. I mean, this is in alignment with your philosophy and the G5 that you have are just so powerful. And then coming, having 11 children, which blows me out of the water. Okay. I thought having triplets and another one was a lot, but 11 kids, I mean, come on.
Chad Johnson (41:23.257)
Yeah.
Chad Johnson (41:35.339)
Hey, hey, Dave, stop. Dave, stop. Triplets are on another level, dude. Not, I’m not even, I just was talking to a parent of twins, Dave, twins are next level. Triplets blow my mind, okay? We had them one at a time the old fashioned way. We were slackers, so don’t even, don’t even. But you know what, to your…
Dave Wolcott (41:41.774)
Thanks for watching!
Dave Wolcott (41:50.527)
Yeah.
Dave Wolcott (41:56.106)
By the way, fun, fun fact though, Chad, right? So in the Marine Corps, I got EMT certified as well. But I knew that God had another purpose for me because when you have so many kids, you never know what kind of medical emergency can pop up or wherever you are. So it’s really a great skillset to have, right?
Chad Johnson (41:58.593)
Yeah.
Chad Johnson (42:03.843)
Come on.
Chad Johnson (42:10.922)
Hahaha
Chad Johnson (42:15.947)
Isn’t that true? It’s so interesting you say that. I love the confidence in knowing, hey, when something goes down, I at least have a framework. You’re exactly right. And it does go in Andy, you know, G5 summit. Yeah. You know what? Super excited. We, my wife and I, um, we, we put on this annual event. Now we call it our G5 summit. It’s around those giant fives. I tell people it’s for people who are crushing it in their life.
Dave Wolcott (42:25.054)
Yeah. So tell us about Yeah.
Chad Johnson (42:42.679)
but they wanna make sure that they’re really intentionally living their priorities. And so it’s kind of this planning couples romantic weekend is what it is, or not weekend, it’s an event. We’re doing it in Scottsdale, Arizona, it’s our third one. We typically have anywhere from 10 to 20 couples, I think it’s mostly around 15 couples that have landed. So we have some great dynamic couples that are coming and we basically walk them through some really
great thinking tools that set them up for awesome conversations. They go away, you know, really feeling like they understand each other better, like they’re aligned around not only the business goals or the career stuff, but also all these other elements that they choose as their priorities. So you know, it’s really fun. We have what we call our five by five planning model, which allows us to blow up those five priorities that they choose and map it out so that they…
they literally calendar their 2024 in a way that aligns with their priorities. And so the feedback we’re getting is just really, really solid, right? When people get super clear, get attentional, get aligned, and around the same mission and vision, it brings intimacy, right? And it brings that closeness. So our next one, like I said, is January 10th through 12th, in Scottsdale, Arizona. People could go to g5summit.com. It’s literally…
G and then the number five summit.com. And we still have room for more couples. If there’s a couple more that want to pop in, we would love to have them join us. And it’s an absolute blast.
Dave Wolcott (44:22.91)
Yeah, I mean, what better way to invest in your number one relationship, right? I mean, it’s just, it’s so powerful, right? And we talk about that, you know, investing, you know, having these relationships that are so important, but you know, are we, is it, are we really just giving it lip service or are we actually spending time, you know, with that relationship? And I think, you know, I’ve found that having some structure, uh, around that.
Chad Johnson (44:29.315)
That’s it.
Dave Wolcott (44:50.546)
is so empowering. And to your earlier point, you know, you know, these relationships are really what’s key, right, from a longevity standpoint, a vitality standpoint. And even, you know, how you live your life like day to day, you know, is that marriage, I think not a lot of people, you know, honestly, not a lot of people can talk about their, you know, marriage the way you did, when we started this, right?
Chad Johnson (45:00.127)
Yes.
Dave Wolcott (45:17.838)
So kudos to you. I mean, it sounds like an amazing relationship and it’s something for those of us to aspire to, but super important to definitely invest in that relationship. So really love what you’re doing there, Chad, and hopefully some folks will check it out. I guess the last question I wanted to ask you is,
If you could give just one piece of advice to the audience about how they could accelerate their own wealth trajectory or their life trajectory, what would it be?
Chad Johnson (45:53.871)
You know what, it’s such a good question. I wanna take it to this, what a mentor of mine told me around investing. And it just, it serves me very well because there’s so many directions people can go with wealth, right? It’s so many different opportunities. I get calls like you do probably every week with people wanting you to be a part of this, invest in this company, you know, be whatever. And this mentor said, hey Chad, three things. He says, number one,
invest in things you know and understand. And I just thought that was an interesting thing because I hear people get bit all the time because they’re like, well, I don’t know a thing about it, but it sounds great. You know, and it’s like, sounds too good to be true. Well, very good, probably is. But invest in things that you know and understand. The other one is he says invest in companies or opportunities where you know and trust the integrity of the leadership and their capabilities. He’s like, as much as the opportunity may be great, you may not understand that.
product or the offering, you know, or the market, make sure that the leadership behind it has integrity. And then his third thing was he says, Chad, invest in things that you actually like to use in case the market goes down. And he gave me his own examples. He’s a pilot. Believe it or not, he made money with his planes. He also was he liked cars. And so he made money on exotic cars, buying high end really.
You know, and he had a strategy for it and was unbelievable. And he really enjoyed using them and take them a racetrack. And then third thing he invested in real estate in, in places he wanted to travel with his family and they were, you know, they were short-term vacation places and a lot of different places that he goes. And then the fourth one he’s invested investment grade jewelry because his wife liked jewelry, but it was investment grade. And so he had this safe full of really cool jewelry that she liked wearing. And.
But it was on this, you know, and he goes, the thing with doing this and investing in things you know, in love, understand, you know, and then again, he made most of his money in the medical field because he was a doctor and he had done all this great work in that space and understood the players and understood the market and did phenomenally well. But it was an interesting thing because those three things, I’m gonna tell you, Dave, have really saved me a lot of stress, a lot of grief, and it’s made my life as an investor incredibly rich. And it’s funny because it goes, even if…
Chad Johnson (48:14.751)
Even if one of those markets goes up or down or whatever, I’m still enjoying the thing that I invested in. And I just thought it was so different because a lot of people invest in things they don’t understand, people they don’t know or trust, and things they don’t even want to use or deal with. And so it’s all becomes a number. And that’s like measuring your life in one way, in zeros. And I don’t want to measure my life in zeros. I want to measure in a holistic way. So it’s really been awesome. I don’t know if that’s in line with what you’re thinking, but it’s…
Dave Wolcott (48:43.058)
Yeah, really safe.
Chad Johnson (48:44.364)
really beneficial for me.
Dave Wolcott (48:45.638)
I really sage advice, Chad. I really like that perspective and it’s such a unique twist because again, you know, we’re, we’re really listening to all these talking heads and financial services that are all just talking about, you know, yields and ROI and all of this complexity, right? But, you know, I encourage people to really just kind of unpack that and what does it really mean to you? And, you know, to your point, you can invest in something that not only you understand, but you know, you have a little bit of passion for.
Chad Johnson (49:02.583)
Yeah.
Dave Wolcott (49:14.822)
It makes it just so much more enriching. Awesome. Chad, I can’t thank you enough for spending your time with us. It’s been so insightful. Can’t wait to go back and listen to this again and look forward to our next chat.
Chad Johnson (49:18.943)
Yeah, yeah. It’s almost like you can’t lose. Even if it goes down, you still like the thing you bought or invested in.
Chad Johnson (49:37.935)
Appreciate you, Dave. It’s an honor and a privilege to be with you. I really respect you and love the work you’re doing. Keep up. It’s awesome.
Dave Wolcott (49:45.346)
Thanks, Chad. And lastly, any other, if people would like to follow you, just learn more, connect with you, any final places besides G5 Summit?
Chad Johnson (49:54.603)
Yes, yes, absolutely. You know, if they go to G5 Summit, there’ll be a dropdown menu for people to sign up to my weekly email. And it’s really kind of encouragement, insight, whatever learnings from my week through a positive focused lens. And it goes out every Wednesday, it’s called Five One Wednesday. So people can either subscribe to that there at G5 Summit. Or also, I wrote a book and it’s again, it’s an intentional romance book, True Story of…
dating, marrying my wife. It’s called How to Win a Heart, but they could literally go to howtowinaheart.com and kind of follow along a little more of our story. There’s some other offerings along that way, but those would be the two best ways.
Dave Wolcott (50:36.91)
Awesome. We’ll be sure to put that in the show notes as well, Chad. Thanks again. You bet.
Chad Johnson (50:40.387)
Thank you so much, Dave. Appreciate you. See you soon. Bye-bye.
Dave Wolcott (00:01.462)
Rick, welcome to the show.
Rick Jordan @mrrickjordan (00:03.07)
What’s shaking Dave? It’s good to be here, man.
Dave Wolcott (00:05.642)
Yeah, no, really great to have you on. I know the audience is really gonna enjoy this one for sure and get fired up. So as we start, why don’t we tell us, tell everyone how you got here. Tell us about your entrepreneurial journey, which was quite a progression and pretty inspiring. So tell us, how did it all start for you?
Rick Jordan @mrrickjordan (00:27.586)
Yeah, you say tell everybody how I got here. Where is here? I think I’m still trying to figure that out.
Dave Wolcott (00:34.634)
Yeah, I think it’s this journey, right? We’re always on a journey and you actually, you never wanna stop, right? Because then you get trapped in your goals, but it’s really this journey, this evolution, right? I think of growth and listening to some of your background. I know you’ve come a long way, including building a public company. So that’s pretty impressive.
Rick Jordan @mrrickjordan (00:55.082)
Yeah, I mean, that’s the thank you. That’s why I was like, where is here? Because the company just went public just a couple of weeks ago. You know, Lisa is at the time when we’re recording this. And even that day, I was in Vegas in Blue Wire Studios filming a TV show called Office Hours. David Meltzer is the host of the show, and I was one of the co-hosts. It was a blast, man, because we were interviewing people like Randy Jackson.
Rick Mache, I mean, some big deal celebrities and a lot of people in the sports arena too, a lot of pretty cool people. And I’m sitting there in between guests and I’m texting, I’m emailing because it was like a three week push to get this thing over the finish line. And then it was like in between, I think it was right after I interviewed Randy Jackson and it was right after that I looked like, oh, the wire just hit, we’re public. It was just in the middle of the TV show. And
Dave Wolcott (01:44.274)
Yeah, yeah.
Rick Jordan @mrrickjordan (01:47.238)
It was so interesting to me because Dave’s become a good friend over the years. And I look over at him, I’m like, dude, I just got the wire. We’re public. The deal is done. And he’s like, Oh my God, that’s so awesome. And I’m like, it’s kind of weird, you know, because it’s like the question of where is here and I’m thinking, wow, why, why does this not feel any different? I’m just going to go back to the show. I’m just going to jump on with another guest and things continue as normal. So it’s just been kind of interesting, man, that for that journey to
to get to this point and still it’s just a milestone. Like you said, we never stop, right? The company going public is just a milestone because a year from now, two years from now, three years from now, who knows? But the timeframe, it could be sooner, it could be later, we’ll up list in ASDAC. So that’s another one to be like, wow, that’s another milestone. It’s like, what happens after that? I don’t really know. Those are just milestones in this journey, all the way from.
Now being poor as a kid, dad dying when I was 16, first Geek Squad agent in Chicago, starting a company just on my own, just as a solopreneur, and now this. It’s kind of mind blowing, dude.
Dave Wolcott (02:54.398)
Yeah, it’s really amazing. Can you give us a little bit of that trajectory? How did you start? How did you become an entrepreneur? And tell us a little bit about Reach Out and how you got there. Because I think there’s some great parallels and insights that people can learn from that.
Rick Jordan @mrrickjordan (03:13.002)
Yeah, you bet. I joke about it a little bit. Like when I started to reach out, like when I became quote unquote an entrepreneur was I was fired, you know, laid off, I should say, because Best Buy was downsizing an entire B2B department that they tried to build for a couple years, I helped build it, I wrote the sales playbook for this B2B division. Now they were trying to become what we call in the IT industry of VAR, value added reseller. So they started selling and nobody they don’t
this to this day, they don’t sell them anymore, but they were selling servers, networking equipment for businesses, installing it through a special division of Geek Squad. You know, not what you see in the big box stores that sit on the corners in a lot of cities. It was a very different mindset that they’re in a very different market they were trying to get into. And I helped I wrote the sales playbook to teach all the consultants on how to sell these things, coming from a background of sales all the way back when I was in starting at Radio Shack.
when I was a young, young store manager at just 18, but it’s like my sales career. I still say started when I was at McDonald’s, man, cause it’s a, I go back to this and this is, you said you listen to the podcast. One of the episodes I talked about the, the God of all sales questions, which is do you want fries with that? Uh, anytime anybody would come through the drive through or order something at the counter, you know, if it was just a Coke or a burger or whatever, it was always, do you want fries with that?
Dave Wolcott (04:30.563)
Yeah.
Rick Jordan @mrrickjordan (04:35.394)
And it’s one, it’s asking for the order, but it’s also an upsell. And that’s really what taught me sales way back when. And it’s really that simple because if you ask for the order first, and then you ask for the upsell, you’re going to make more money. A repeat customer is one of the ones that’s as we all know in the entrepreneurial space, it’s much easier and less expensive to retain and grow organically within your customer base than it is to sign on a new customer.
Dave Wolcott (04:40.077)
Yeah.
Rick Jordan @mrrickjordan (05:00.278)
but new customers are also the lifeblood of any business too. So it’s kind of a paradoxical effect, but also it’s symbiotic in a lot of ways. Starting to reach out, but the entrepreneurial journey really dates back before then for me. And I always forget to mention this. So today’s your lucky day, Dave. I’m actually gonna talk about this here. Coming out of high school, I always wanted to have something with recurring revenue.
Dave Wolcott (05:20.494)
Cool.
Rick Jordan @mrrickjordan (05:27.882)
And at that time it was like 1999, 2000, a couple of years after high school. So I was 19, 20 years old. I learned HTML, but this was during the dot com craze, right? And I went to a bootcamp to learn networking on the Linux operating system. And I started a web hosting company and a web design company. The web hosting that I saw was a way to have recurring money.
Now at that point in time, I was looking at commoditized services, very low price. I didn’t realize the business, I was 19, right? I didn’t realize the concept of a saturated market or a commoditized market at that point. So everything was low price. I signed on a few customers, but I’m telling you, I think that business might have made at its peak, maybe $400 a month. So I was still working elsewhere. I was still a project manager and then I became the first Geek Squad agent in Chicago. So I was still doing these other things.
Dave Wolcott (06:16.746)
Yeah.
Rick Jordan @mrrickjordan (06:22.986)
shut down that business because I’m like, this is never going to make any money. But I always was like, I want to have something that has recurring revenue to it, something where I can count on those funds every single month. And at that point, I was just thinking lifestyle, right? Entrepreneur. That’s it. So when Best Buy laid off 700 people nationwide in what they called Best Buy for business, that was their B2B shtick. That’s when I’m like, all right, now’s the time.
I started signing on customers right away in our industry, in the IT space. There’s a concept called break fix, which means it breaks. You fix it, you get paid. You know, it’s literally that simple. If a computer slow, you make it fast again. If it has ransomware, you remove it. You know, that’s not a good business model because I like to affectionately call that nothing against these people, the plumbers that are in the world because they do things I can’t. Right. But I call it like the plumbers of the IT industry. Because you don’t really.
call a plumber to come out and do maintenance, so to speak. You don’t have a monthly subscription to a plumber. That’s not something that exists. They’ll come out and they’ll do new construction, of course. And this is where I say I admire them because, dude, there’s pitch to drainage pipes and everything else. I mean, there’s brilliant, brilliant minds. A lot of math goes into it. And after that, the next time you see them is when something breaks.
very similar to the IT industry, the consultancy space. It’s like, we’ll do all the new stuff for you. And then when it breaks call us, it’s not a scalable model. Recurring revenue managed services is, and especially when I learned throughout the course of these times that ultra premium is the way to go. And that you plus now that I’m in the capital market space, right, recurring revenue, I learned this a few years ago, you can place a debt against recurring revenue.
So for the ultra wealthy that are listening right now, or how do you become that way, that’s a key concept for anybody that’s building a business is recurring revenue is something you can put debt against and that debt you can use to acquire more revenue.
Dave Wolcott (08:27.838)
Yeah, no, that’s such a great point and recurring revenue right on the personal side. I mean, that aligns to a lot of our investment thesis, which is, you know, passive investing.
We’re trying to create passive income that’s predictable, it’s reliable. So if the economy starts going down, we still have income coming in that’s outside our active income coming in. And it’s really the same thing in a business. You’re looking for that predictability so that you can scale and grow the business. And I’ve made my mistakes as well along the years and had a business that had tons of fluctuations to it and consulting business.
Rick Jordan @mrrickjordan (08:37.578)
Yeah.
Dave Wolcott (09:07.252)
because it didn’t really have recurring revenue. So a super, you know, super important lesson there, for sure.
Rick Jordan @mrrickjordan (09:09.442)
Yeah.
Rick Jordan @mrrickjordan (09:13.59)
There’s a lot of people that complain in the technology space now. I mean, it’s a, my space is weird, man, because it’s a, a lot of people that are IT consultants in this space are always going after the, the low price or the free tools that might exist. And they’re trying to always do things like on the, on the least possible cost, but it doesn’t service our customers well.
So when you look at the recurring revenue, like you’re talking about, you need valuable assets in order to obtain valuable assets, you have to have resources to begin with. And this is true on the investment side too. Those assets are the things that you’re talking about, whether it’s a customer, a piece of property or a portfolio of stocks, whatever it is, those are assets that can produce that cash for you.
Dave Wolcott (00:01.442)
Shannon, welcome to the show.
Shannon Robnett (00:03.624)
Hey, thanks, Dave, for having me. I appreciate it.
Dave Wolcott (00:06.422)
Yeah. Appreciate you being on the show today. I know you’re going to provide a lot of value to the listeners. Um, tell us how you got into this game.
Shannon Robnett (00:15.251)
Well, you know, unfortunately, or fortunately, however you want to look at it, I was born into a real estate family. My father is a builder and developer and my mother’s a third generation realtor. So I became a realtor. My son is a realtor. So we got five generations of realtor in our family and my brother builds custom homes in a resort area. And so I just kind of grew up seeing real estate deals get done. My, my parents were very entrepreneurial.
not only did they own businesses, but they understood the power of real estate and the ability of that to provide long term cash flow and wealth. And so I was always seeing mom come home and talk about, you know, the Johnsons down the street or thinking about moving their business. And my dad would talk about a lot he saw and they would put a building together and they’d put a tenant in it. And, you know, it didn’t make a whole lot of sense to me until at 50 years old, they retired with cash flow, starting with absolutely nothing.
30 years prior. So it really kind of just was part of my daily life. And I remember I even told Robert Kiyosaki the first time I met him, that his book wasn’t very impressive. And he kind of cocked his head at me and said, you know, was like, really rich dad, poor dad is one of the world’s best sellers on finances. And you don’t think it’s very impressive. And I said, Well, I realized that I grew up with poor dad.
And he started to laugh and he says, you know, I’ve gotten that response from a couple of you guys. And so, you know, it was really, I got to live out the book, rich dad, poor dad, and didn’t even realize it until much later in life that I had such a great education growing up.
Dave Wolcott (01:55.882)
Yeah, that’s really interesting. And I know, so I have a brother and he is an architect. And he knew from a very early age, you know, that he would just wanted to get into architecture and everything. And on this show, we’ve had, you know, a lot of syndicators, you know, folks coming in that are doing multifamily projects and everything, but mostly from kind of a value add perspective. So.
Shannon Robnett (02:02.571)
Mm-hmm.
Dave Wolcott (02:19.874)
So how did you know that you actually wanted to get into the development side of real estate, right? Because it’s kind of a whole different animal.
Shannon Robnett (02:29.139)
Well, it is, you know, I started my companies back in 94. And I was building, you know, I’d build a building. I built a couple of houses. I realized they didn’t like homeowners. So I began to build, I went into the commercial world and I realized that every time I finished a building, I stopped getting paid. You know, the owner continued to get all the benefit of it. I created it. I started to see owners that would come to me and they were…
you know, trying to find a value solution to the plans they had. They’d bought a very expensive piece of land or they bought a very inexpensive piece of land and it had all kinds of issues with it. And, and so I saw that by problem solving in a unique way, I was able to do that. And then I think I was 21 years old and I was working on a job and my crane operator was talking to me about needing yard space and would love an old house. And I got to know the lady that lived right next door. She was in her late seventies and had a mentally handicapped son. And,
She was looking to sell her three or four acres with an old house on it and move to a assisted care facility for the two of them. And I kind of saw what was going on here. So I put that deal together, Dave, not with my last $500, because that would insinuate that I had $500 in front of that, but it was really my only $500. And I put that together and then I had to go through the county and I had to get it rezoned and I had to get the exceptions for him.
his crane use and all this stuff. And so I saw where I could add that value because the crane operator knew about the old lady next door, but he didn’t have the ability to get it through the county to get it zoned properly and all those kinds of things. And I was able to do very well on that project. And I saw where being something different really added value because I was able to be something for the for the lady. I was more than just a realtor for her.
I was able to be something for the crane operator because I was able to solve the problem and get the zonings and do the things that were necessary. And he just got to keep doing what he was doing. So, and then from there, I just began to see in 2001, I built my first industrial complex for myself. I still have two of the original tenants in that project, 22 years later. And I just saw how being the person that puts all the pieces together, you’re actually creating the original value add.
Shannon Robnett (04:52.555)
because you’re taking sticks and stones and they don’t become anything more than just sticks and stones with a profit margin on them until you put the tenant in there. And the minute you put the tenant in there, it’s like you wave a magic wand and all the valuations change. And I saw how you could do all the steps I was already doing and one more, and you could add a tremendous amount of value to the project. And so I really kind of launched out into that in early 01.
Dave Wolcott (05:22.614)
Yeah, really fascinating. It really resonates as an entrepreneur, right? And just basically trying to solve problems, creating value for people, but doing that in this development and real estate space. And that’s what I always find so exciting about real estate, right? Is you can just have so much creativity to how you can generate revenue, how you can build value, how you can reduce costs, right?
Shannon Robnett (05:27.432)
Yeah.
Shannon Robnett (05:48.775)
Yeah, you know, and the thing that real estate gives you is not only the creativity there, but there’s the tax side of the creativity, right? And we’re not talking about the kind of creativity that lands you in jail. We’re talking about instead of viewing the tax code as a penal code, really viewing it as a guidebook on how and where the government wants to offer certain incentives to do certain things. And when you really combine, I believe the value of development with
the tax code, you really have something that’s supercharged and create some of the best opportunities in investing, which is why we’re so heavily into it.
Dave Wolcott (06:26.986)
Yeah. So let’s unpack that a little bit in terms of, you know, tax incentives on, you know, new development, right? Because if you’re using bonus depreciation on an existing property, you know, we’re all kind of familiar with that. But on a new development project, right, since that’s kind of phased in through your build and everything, how do tax incentives, you know, typically go with those kind of projects?
Shannon Robnett (06:55.455)
Well, you know, there’s something that not a lot of people have heard about, but it’s the 45L tax credit. And it’s a federal tax credit that’s worth about $2,000 per dwelling unit based on the energy code that it’s built to. And in 2003, it’s going to be as much as $5,000 per unit. And that’s just a 179 deduction.
and it’s available only at the time you put the building into service. So it really does offer a tremendous amount of tax savings. And then yes, you’ve got your cost segregation studies and your bonus depreciation that you’re allowed as well. And, you know, it really just adds something special to that. And then
you know, there’s opportunity zones. So if you were to be able to stack these three together, build an apartment complex in an opportunity zone and use the 45L tax credit, you really have the opportunity to stack some amazing benefits together that can really be the secret to making a good deal incredible.
Dave Wolcott (08:10.014)
Yeah, I think you hit the nail on the head, right? That’s what Tom Wheelwright always talks about is that, you know, the tax code is actually a series of incentives, you know, for investors who know how to leverage it, right, and understanding that. So, you know, pretty, pretty unique way to kind of look at it and stack those incentives. And then how about on the industrial side? Is that is that viewed a little bit differently?
Shannon Robnett (08:37.159)
Well, you know, the industrial side, I like an industrial to like the bond of real estate, right? Not James Bond, just the regular bond, right? It’s slow and steady. You know, we’ve seen such a massive uptick in rents in multifamily over the last half a dozen years that’s really, you know, skyrocketed values, low interest rates kind of predicated that even getting better.
Dave Wolcott (08:47.534)
Thank you.
Shannon Robnett (09:04.319)
but we’re starting to see that level off. We’re starting to see cap rates come back in alignment. But if you look at industrial, industrial never really did spike like that. But if you do a cross comparison, industrial is such a more stable product. And I’m talking about the flex space where you’ve got tenants from two to 10,000 square feet. You’ve got buildings from 20 to 60,000 square feet. You’ve got complexes of four or five buildings.
things like that where small businesses get their start, whether they’re cleaning companies, storing their supplies, their delivery companies, their cabinet shops. I even have one that makes gelato ice cream and another one that Sarah coats guns, right? So they run the gamut of what businesses do, but we forget that 60% of businesses conducted in America is conducted by small business. And so you’re looking at these places and if you compare them to multifamily,
You know, multifamily, you have a one year lease, you have no way to pass on any additional increases in expenses, you’ve got a tenant that is, has a decent credit score, but doesn’t personally guarantee the lease. There’s nothing really behind it other than the one year. And the tenants move a lot because your home address isn’t necessarily as important as your business address. So if you go to the other hand and you look at a industrial.
lease, it’s typically a triple net lease, which means that all the expenses get passed through the tenant in a pro rated manner. So if the property taxes go up or the insurance goes up, which is happening nationwide right now, that’s not a responsibility of the landlord. So if that’s out of the way, you’ve got a credit tenant that’s got signed a personal guarantee that usually has a balance sheet that also is going to pay for all the increases that happen based on municipality functions and interest.
insurance functions. And then they build businesses that their address is very, very important to them. It’s kind of like our email address anymore. Businesses don’t like to move. It takes time to set up. They’re not able to just call their friends over and grab a pizza and move on a weekend. You know, they’re really investing time, money, and effort to set up their businesses and be there. And when you’re looking at a five to seven year lease, you’ve got stability there.
Shannon Robnett (11:18.811)
In most industrial leases, there’s a bump clause that says that every year your rent will go up an agreed upon percentage. We put a little bit different spin on that and nobody really seemed to care for about 18 years, but all of a sudden in 2022, they didn’t like this particular phrase, Dave, that your rent will increase 3% and or CPI, whichever is greater. And as you know, last year CPI went up almost 9% and so did all my rents.
Dave Wolcott (11:49.002)
Yeah, interesting advantages there for sure. And how many units do you typically have in buildings, right? Because I’ve seen some industrial centers, right, that might have just one really large tenant, right? Like say an Amazon type, you know? And then so, to me, you’ve got a little bit of risk, right, in terms of vacancy, right, if you have some kind of issue. But what kind of assets, you know, in tenants are you really looking at?
Shannon Robnett (12:17.387)
Well, I think that, you know, I think your analogy is very accurate, right? And if you look at who’s buying the Amazon size, they’ve usually got 10 or 15 of them, right? So the chances of one being empty at any time kind of gets them back into that 5% vacancy range for their portfolio. So what I like is I like a building of, you know, a minimum of about 20,000 square feet. I like the two to 4,000 square foot tenants.
They don’t want a lot for TI. You know, they would need an office and a bathroom and a roll-up door for most cases, you know. We just put a building into service in January that is 20,000 square feet and has seven tenants, right? And there’s, we had one custom TI, they didn’t want one of the bathrooms we were putting in. That was the only difference that we had.
We just bought another center down in Houston, Texas, that was completed in 2020. And the previous owner had put very short-term leases on it because he was filling it during COVID and he was doing whatever he could to get it full. And there was no rent bumps. So as the tenants have come up for renewal, we raised the rent about 12% and thrown in our special little clause there that bumps the rent. And…
I agree with you. I think the Amazon building is like having a duplex. One tenant moves out, you’ve got a massive vacancy, and you’ve got an occupancy problem. But the multi-tenant, two to 4,000, 5,000 square foot users are ideal because there’s a lot of them out there, and they’re very easy to refill, and it’s not a lot of headache, especially since the industrial tenant knows that if you’re…
going to do improvements on their space, they’re going to pay for it plus a profit margin. So in a lot of cases, they just, it’s just work and people treat where they work a whole lot different than where they live as far as what they require. And it’s, it’s a much simpler product to own. It goes up on a steady rate. Life insurance, money, uh, life insurance companies love to finance them. So you’re able to get long.
Shannon Robnett (14:36.863)
10-year debt with a 25-year balloon is very common, and even in today’s interest rate environments, you’re in the low sixes for final debt.
Dave Wolcott (14:46.146)
And how about from an LTV standpoint, how are you structuring in this environment? LTV and debt structure.
Shannon Robnett (14:52.544)
I’m sorry, from what?
Shannon Robnett (14:57.171)
You know, typically we’re doing, and we’ve done this the whole time, we typically don’t like more than about 65% loan to value on the debt. It does lower returns, but it increases the safety margin. And having done this, you know, Dave, when I did my first deal in 2001, I think my interest rate was right about 9%. So anything that we’re seeing over the last 15 years has been a phenomenal improvement over that.
So to look at that and look at it and say, I’m gonna bring in more equity, I’m gonna have more cash flow, less opportunity for a vacancy to derail this situation. It really, it’s just, in my opinion, it’s more prudent, even when you could have gotten more loan to value, it’s not always the best thing to do. We do have the deal in Texas, we got 4% money on that, we’re at 50, I think 51%.
LTV with nine more years left on that debt. It’s fixed. So it’s really a great product.
Dave Wolcott (16:06.774)
Yeah, it seems as if, you know, on the commercial side, right, for industrial, that it is typically a lower LTV. I’ve seen a lot of projects even with zero debt, you know, zero financing and all in them to, you know, help reduce your risk. And I think that’s a good balance, you know, in your overall portfolio for investors, right? As you’re looking to build out this, you know, this portfolio, get some diversification, right? With different risk profiles.
Shannon Robnett (16:28.555)
Completely agree.
Dave Wolcott (16:35.318)
you know, different debt profiles.
Shannon Robnett (16:37.747)
And you know, Dave, you don’t see a lot of people, you know, we saw this a lot in the multifamily space over the last couple of years, people were buying it at historic low cap rates. They were planning on, you know, executing their business plan, which included, you know, new paint, new carpet, maybe new deck chairs by the pool, and then raising the rent 300 bucks and then exiting. You don’t see that near as much in industrial. Industrial is more like the Chef Tony.
set it and forget it. It’s gonna create that constant cash flow. It’s gonna create three plus percent appreciation annually. It’s something people like to own for six to 10 years because that’s why I call it the bond. It’s really just that thing that kicks off cash, creates value, and then you maybe have other things that you do that are a little bit more speculative or a little bit more aggressive in your portfolio.
but you’ve got these in the back knowing that you’re always going to be getting this much of a mortgage payment or this much of a dividend payment.
Dave Wolcott (17:40.278)
Yeah, now that’s spot on. And do you typically have an exit plan for these? Are you looking to exit at some point or six to 10 years? Or do you try to just keep them and cashflow them for longer?
Shannon Robnett (17:52.415)
You know, I always look at an exit plan because not everybody wants to be in a deal forever, right? There’s the opportunity. We’re building a ground up facility for a 40,000 square foot international tenant in Florida that we’ve got that projected at about a seven year hold. And the reality is, you know, we’ve got a 10 year lease with the tenant. It gives the new buyer about
three years of good tenancy before they have to do a refi or anything like that, or sorry, renegotiation on the lease. So it gives them strength, it gives them bankability. You’re not looking at something where they’re gonna wind up with an empty building 12 months down the road. So it’s really kind of at its peak as far as value. We’ve written down, we’ve gotten out of any prepayment penalties that were associated with the loan. We’ve paid down good money on the principal.
seven years at 3% appreciation has gone up about 20% in value. We’ve received a 7% cash on cash in the first year and that’s continued to improve. So all of those things make for a good mix that does about 14 to 16% annually without any tax incentives as far as depreciation goes. But it really is just steady and something you can really count on. And putting an exit in there, I think is always prudent, especially when you’re using
syndicated model where you’ve got LPs involved just because not everybody wants to be there forever.
Dave Wolcott (19:25.354)
Yeah, yeah, no, that makes that makes total sense. And what do you think from a, you know, perspective around opportunity zones, right? You talked about that a little bit before, I don’t know how familiar people are with these, but are there particular opportunity zones, any markets that you like, and any asset types in those opportunity zones that you’re favoring?
Shannon Robnett (19:53.055)
Well, you know, as you know, I’m based out of Boise, Idaho. We’ve got projects going from Washington to Florida. And I’ve looked at, you know, when I look at markets, I look at, there’s nine markets across the United States that I wanna be in. And I look at opportunity zones in those. We’ve done industrial projects in opportunity zones, and we’re getting ready to do a multifamily project in opportunity zones. But, you know, just to make sure your listeners understand, an opportunity zone was something that was created during the Trump administration.
that if you do a 1031, you sell the building for a million dollars, you have to spend one more dollar than you spent on your replacement property. In an opportunity zone, you’re investing capital gains into it. So it doesn’t matter if it’s stock capital gains, it doesn’t matter if you were the one guy that was able to buy a boat and sell it and make money. However you have your capital gains, whether it came from real estate or anything.
you’re able to reinvest the capital gain. So if you use the building scenario, you bought a building for a million dollars or you sold a building for a million dollars that you bought for 500, you’re only required to invest the 500 or a portion thereof. And that allows you to defer the capital gain until 2026 when you’ll pay it in tax year 2026. And then if you hold the asset after making the improvements on it for 10 years,
then you’re able to exit that deal completely tax free. So there’s no capital gain on your exit. So it’s a pay the tax now, or pay the tax in a couple of years, and receive all the benefit of tax freedom when you come out the other side. And we bought a piece of property here, talk about tax stacking. We bought a piece of property here that’s an industrial warehouse, and it’s right by the mall. So it’s two blocks from our central mall here.
and it had 45,000 square feet of multi-tenant. They were about 50 cents on the dollar for going rate on rent. So I knew I had a backup plan if I couldn’t get it rezoned, but I got it rezoned for 200 units of multifamily. It’s right on a bus line, it’s right by a freeway exit. It’s all the things I would really like to have for a seven story project. But when we purchased it, we were able to take the bonus depreciation on the property and depreciate out.
Shannon Robnett (22:12.087)
quite a bit of the warehouse giving almost 60 cents back on the dollar for every dollar of LP investment. Next year in 24, we’re actually going to demolish the building. So we’re going to finish taking that depreciation. It’s one of the few times you can take 100% depreciation on the project, right? So now my LPs are going to be set up with a situation where they’re not going to have, they’re going to have enough tax offsets that they won’t really have any pain coming to them in 2026 when that tax bill is due. Then we’ll, we’ll build a
It’s about an $80 million project on the site. We’ll depreciate that. We’ll take the 45L tax credit. We’ll do those things that are required to get those benefits. And then from there, we’ll hold that asset for 10 years. And then when we exit somewhere around 2036, we’ll do that tax-free.
Dave Wolcott (22:59.982)
Brilliant. Love it. Yeah, that’s really solid. And is that 45L tax credit, is that a passive loss or active?
Shannon Robnett (23:10.639)
It is a it is a it is something that’s only passed on to the developer but because They’re trying to incentivize developers to build more green. So if you’ve got a zero energy ready With a prevailing wage you can get up to five thousand dollars a door But if you’ve got a 50% savings over the 2006 IEC you’re able to get a two thousand door $2,000 a door tax credit and it really
It really helps because it’s only available to the development team. So when we’re building ground up and our LPs are involved, they’re part of that development team and they get to experience that, which in a lot of cases will offset most of the gain coming out of the project.
Dave Wolcott (23:56.266)
Okay, so does the LP get a share of that tax benefit? They do, yeah, okay. Yeah. Yeah, no, that’s awesome. I love the tax stacking, putting it all together, and just kind of like we were talking about, right? It’s, the tax code is there, it’s just for those that really know how to leverage it and kind of put it together and figure this game out. So I…
Shannon Robnett (23:59.443)
Absolutely. Yeah. The way that we set it up, they do. We make sure that passes through.
Shannon Robnett (24:09.493)
Yeah.
Dave Wolcott (24:22.258)
You know, a question I wanted to ask you, Shannon, right? I mean, you’ve got quite a diverse portfolio and different projects that you’ve done. You know, you started your career in real estate, you know, early on, right, as an entrepreneur and everything. So out of all of that, have you actually developed a personal like investment thesis or a wealth strategy that you’re that you have kind of a framework that’s guiding you?
Shannon Robnett (24:48.095)
Well, I think the very first thing that everything, everything that I look at has to do is it has to cash flow. And I don’t care if it’s a value add. If you’re buying a value add right now that does not cash flow prior to your execution of the business plan, in my opinion, that’s not a deal I would look at. If it’s not a standalone income producing project or property, then it’s going to be a difficult acquisition. Because if anything goes wrong with your business plan.
you’ll find out very quickly that you’ve overpaid. When we’re doing development, we look at, we only look at specific markets. We look at markets that not only have growth as far as people moving in, but have strong wage growth. Because that’s really where the key to our appreciation comes from is raising rents. And if you can’t, if you’ve got a stagnant wage in the area, it’s really hard to make your rents defy that because.
They say that in the average C and D class property right now across the United States, people are paying 38 to 45 percent of their income. If people are paying that much of their income and you’re trying to raise rents and wages aren’t going up, you’re very quickly going to run out of blood in that turnip to squeeze. So for me, it’s got a cash flow before any strategies that I’m going to do to put additional cash and effort into it. It’s also got to be in a market that is growing both.
people and wage. And then I always like to put the tax spin on it. I mean, to me, the tax spin is like the cherry on top, right? It’s if I can get, if I can, if I can find a way to keep the government’s entitlement to my money. There’s just something about it, Dave, that just warms the bottom of my soul if I can figure out how to save that and be tax efficient in that way. But really, those are the things because, you know, markets
Dave Wolcott (26:35.245)
Yeah.
Shannon Robnett (26:41.343)
Markets are cyclical. It doesn’t matter if you’re in the oil and gas market, it doesn’t matter if you’re in the stock market, doesn’t matter if you’re in the real estate market, there’s continue to be cyclical. And if you’re not being prudent in what you’re buying, you’re gonna wind up with situations where you’ve overpaid or you’ve overextended those kinds of things. And it’s gonna make things harder than it needs to be.
Dave Wolcott (27:03.53)
Yeah, for sure. Now on the tax flow, tax or the cash flow side, right, you talked about always having cash flow in the properties. And so are you anticipating right and say, let’s say it’s a five year hold type project on a new development, because you know, you know, you have build, then you have lease up and everything. So a lot of the new development projects are actually not cash flowing for the first couple of years. So you know, how do you consider that?
Shannon Robnett (27:33.651)
Yeah, so when I look at that, you know, when I build out my model for a new development, I build to an eight cap, right? So if I can’t get to the value of what I’ve expended making that property pencil at an eight cap, then I won’t do it. Now, there is obviously that build out portion, right? There’s that time that you’re under construction, you’re not paying interest, you’re not receiving income, but you’re also not having to carry it. So you’ve got the lease up period.
But through that, we’ve got that modeled in there. So there, and these are more of an appreciation play on the ground up development side. But when you’re acquiring an asset, when you’re buying something that’s existing, a lot of people get kind of starry-eyed about, I can buy this and I can really improve it and I can do all these things and it’s gonna be great and I’m gonna raise the rents. And I’m seeing people now that did that in 21, they bought this asset, they’ve executed the business plan.
David flawlessly, right? They have really nailed it. They’ve got the rents up, everything’s done. And now they’re here to convert to perm debt and that marker’s moved. And so now they’re underwater because they didn’t have cashflow on this asset, right?
Dave Wolcott (28:43.498)
Yeah.
Dave Wolcott (28:52.275)
Yeah, no, that makes a lot of sense. I guess I was thinking from an LP standpoint, as investors are kind of building out their portfolios, I think it’s important to just really kind of prioritize. Do I need cashflow right now or do I need growth? You want a certain percentage allocated to each and everyone kind of has a different approach to that. But…
Yeah, totally agree. You know, from your expense, you know, perspective as a sponsor.
Shannon Robnett (29:18.208)
Yeah.
Shannon Robnett (29:22.271)
Well, and Dave, I agree with you. I think there’s really three types of investors, right? There’s those that are wanting cashflow, there’s those that are wanting appreciation, and there’s those that are wanting tax benefits. And they usually break down into pretty three easy categories, right? These people are getting close to retirement. They’re thinking about converting things back into something that will sustain them. Your people that are looking for tax advantages, you know, they’re that 30 to 50-year-old.
that has really got a career, they’ve hit their stride, they’re making a couple hundred grand a year, and all of a sudden Uncle Sam is fleecing them for taxes, and they go, oh my gosh, I’ve got to change this, right? So changing the way that they make that money, changing how they build that wealth, really helps them out in a 37% way. And then you’ve got those that come to the game and they think they want cashflow, and then you explain to them the cashflow on the amount of money they have.
isn’t going to sustain them, so they really need appreciation. And I love the development deals for appreciation because they’re very strong on that. And then we usually find ways to exit tax efficiently, i.e. we move to another project, we go from a ground-up development into an opportunity zone. We do things like that are tax advantaged for our investors. We help them think through those strategies.
so that they’re able to maximize how that wealth continues to grow.
Dave Wolcott (30:48.834)
Yeah, it makes perfect sense. And how about, you know, what is your philosophy on financial freedom? I’m sure it kind of stems right off of that.
Shannon Robnett (30:57.895)
Well, you know, you’re asking the wrong guy, because I mean, you’re asking my definition of financial freedom is being able to do what I want with my time and with my energy, right? But I’m doing that, right? I mean, somebody asked me the other day, you know, what’s your goal for retirement? I said, my goal for retirement is to die with an LOI in my pocket, right? I want one last deal, you know, but
Dave Wolcott (31:21.93)
Yeah, right, right.
Shannon Robnett (31:25.247)
You know, for most people, financial freedom is that. You know, Tony Robbins’ book, Money, Master the Game, is really, it’s got a chapter in there that talks about how much money do you need to live the life that you want? And a lot of people think they need, you know, $50 million when they really need a couple hundred grand in cashflow every year. And yet they position themselves to have the big house, the big cars, all that stuff that takes that money instead of having the lifestyle.
That’s maybe a little bit more economical, but it creates the opportunity for $10,000 or $15,000 a month to really float the boat. And so being able to put yourself in that position where your company calls you and says, hey, you’re moving to Toledo, Ohio, and you say, you know what? I’m not. That’s financial freedom. It’s the ability to tell your kids, you can go to whatever college you want.
It’s the ability to decide that the family vacation is going to happen anywhere in the world that you want because that’s what you’ve decided. So for me, financial freedom doesn’t necessarily mean giving up the J-O-B, giving up the work, right? Because I love what I do. I’m really passionate about it. And I really enjoy the deals. It’s about being able to decide when you’re gonna do the deals, when you’re gonna go to work, when you’re gonna go on vacation, and who’s gonna have control of that time.
Dave Wolcott (32:44.074)
Yeah, I think investors really need to unpack, what does financial freedom really mean? Because it’s an overused term, but you have to keep asking why and peeling back the layer. Are you trying to get more time freedom, maybe with your family? Like you pointed out, it’s basically having freedom of purpose.
Shannon Robnett (32:50.504)
Yeah.
Dave Wolcott (33:05.382)
as well, right? To be waking up every day, you know, being fired up about what it is, you know, that you’re doing. And it’s interesting because I think there’s this whole fire movement as well, right? Where people are talking about getting to, you know, your income, exceeding your expenses at an early age. But, you know, you don’t want to go do that by, you know, moving to a low cost country and
Shannon Robnett (33:05.727)
Right, absolutely.
Shannon Robnett (33:24.394)
Right.
Dave Wolcott (33:29.962)
you know, cutting all your expenses and say, hey, I’m financially free, right? You know, my income are exceeding my expenses. Well, now what, right? Am I truly living the life that I wanna live? So I really enjoy the whole investor psychology component of this and really understanding, you know, what it is that’s driving you, right? Because all of these different assets, whether it be, you know, industrial or doing these tax strategies, all these really things,
Shannon Robnett (33:31.945)
Right.
Shannon Robnett (33:38.323)
Yeah, yeah.
Dave Wolcott (33:57.494)
You know, you need to figure out what makes sense for you as an investor in your life at the chapter you are in your life and for your family.
Shannon Robnett (34:06.727)
Yeah. And I think, you know, Dave, to add to that, you know, whenever you see people talking about financial freedom, you know, they got a big house and they got a Bentley and they got a jet and they got all this stuff. But that’s, I think, you know, when people understand what really, what they really want out of that, when they really understand that, it really affects their investment strategy, because they understand that time horizon, too. And I think a lot of people get into real estate thinking that it’s a it’s going to be a faster build.
But like I’ve watched my parents, it’s a snowball. It takes a while to get it going. I mean, investing $100,000 is the start. But being able to repeat that on a semi-annual basis or even two or three times in a decade is going to get that ball moving and rolling so that by the time you’re looking at that 45, 50 year range, which I just crossed that barrier of 50 this year. I know I don’t look it, but thank you, Dave.
Dave Wolcott (35:05.29)
Hehehe
Shannon Robnett (35:06.051)
But when you really look at that, you start to understand how you’re going to spend the rest of your time, and it really gives you the effort to push into that and make the sacrifices to get that ball rolling and get those things going early on.
Dave Wolcott (35:20.546)
Couldn’t agree more. I think it’s so important and it’s really a process, right? Investing is a process. And that’s why we like to focus on that a lot in our community is actually creating an overall wealth strategy, right? That’s supporting your goals, supports your investor DNA, right? And then you can start to look at, you know, these different asset types and figure out, okay, well, you know, how does that work for me, for my time horizon, for my risk portfolio, you know,
Shannon Robnett (35:26.679)
Mm-hmm.
Dave Wolcott (35:50.84)
perspective, right? All of those different components kind of drive it.
Shannon Robnett (35:54.943)
Well, and you have a similar philosophy to me. You know, you lead with education, right? Because the worst thing, I mean, I think that really, honestly, 2008 could have probably been entirely avoided if investors understood, if we had a more intelligent investor that understood what a negatively advertising loan does, that understood some of the things that were going on in that marketplace. And by leading with that education, it helps people that come running to the deal and go, I really want this deal, but they don’t understand
whether or not it’s the best for them. Because real estate is just like people, there’s a different deal that’s gonna fit different profiles and not everybody fits into one deal. And you and I have seen this happen where syndicators are just piling everybody in regardless of what their outcome is or what their thought process is, and then the investor gets involved and it’s not doing what they wanted it to do. It’s not providing them with the tax benefits or it’s not providing them with cashflow because they got involved in a development deal.
whatever the case may be, and it’s really educating the investor so that they truly, truly understand what their profile is and what their goals are and what their time horizons are. I absolutely couldn’t agree more with you, Dave.
Dave Wolcott (37:05.762)
If you could give just one piece of advice to our listeners about how they could accelerate their own wealth trajectory, what would it be?
Shannon Robnett (37:13.663)
You know, I really think that tax strategies is absolutely the number one thing. If you think about it, you’re going after a 12, 14%, 16% IRR in real estate. When, if you’re a high net worth individual and you’re working with a tax strategist or you’re doing, you know, advanced strategies, you’re gonna be able to save 37% of your income. And that’s gonna be your highest rate of return by far.
giving you more money to invest. In fact, there’s even scenarios where the IRS will pay you to invest in deals. And I can give you several of those that I do on a consistent basis, but focusing on the tax portion of it and paying attention to that, especially if you’re a high net worth individual in that 37% tax.
Dave Wolcott (38:00.566)
Yeah, really appreciate that Shannon. Appreciate your time coming on and educating our audience today as well. If people wanna reach out and connect with you, learn more about what you’re up to, what is the best place?
Shannon Robnett (38:13.951)
You know, the easiest place to do that is just shannonrobnett.com. You can get all my social medias there. You can even get access to my calendar. Grab 15 minutes. Let’s have a chat, see if there’s anything I can help you with. Tax books I can point you to. Opportunities, whatever it is, even just help educate you on what I’ve learned over the last 30 years in the business.
Dave Wolcott (38:34.139)
Awesome. Thanks so much, Shannon.
Shannon Robnett (38:36.267)
Thank you, Dave. Appreciate it.
Dave Wolcott (00:01.318)
Joey, Russ, welcome to the show.
Russ Morgan (00:03.965)
Hey Dave, thank you for having us.
Joey Mure- Wealth Without Wall Street (00:04.167)
Oh man, so glad to be here Dave.
Dave Wolcott (00:06.938)
Yeah, really psyched to have you guys on. I know the audience is going to get a lot of value out of this one, as well as some good entertainment as we go along. But we’ve got some good shared philosophies, I think, very like-minded in terms of our approach. And really, guys, I love the mission that you’re on to help people achieve financial freedom. Really break…
break free from Wall Street and conventional thinking, right? And really try to shift our mindset, which isn’t so easy, right? We talk about it a lot and everything. Um, but you know, people, people have different things they’re working through. It could be limiting beliefs from your past, maybe how you were raised, uh, certain things about your environment or where you’re from and things like that. So, so I really applaud your mission. And, um, you know, I think that’s a good segue to start the conversation with folks.
who may not be familiar with you gentlemen, and let’s talk about your background, how you got into this whole world of, wealth without Wall Street.
Joey Mure- Wealth Without Wall Street (01:16.194)
Yeah, so I’ll kick it off, Dave, if that’s okay. I was in the mortgage business for 11 years and during that time, kind of came to the realization that a larger income doesn’t equal freedom. And I’m a pretty slow learner. So it took me, you know, all of those 11 years, but it was one of those things where I had put that in my mind as, man, once I hit a certain income level.
in my active business, right? That that was going to equal some sort of, um, financial success. I wouldn’t have even called it financial freedom at that time, but I looked up at that time, I was making well over $300,000 in my twenties. And I thought, man, this is better than I would have anticipated. But at the same time, I was losing the people who I love the most. My wife, I have five daughters and I just remember distinctly
some very, you know, some stories here. One being at the beach on vacation and telling my wife and kids, Hey, you guys go on down to the, to the beach. I’ll be right behind you. Just, I’ve just had to make this one more call. This one more pre-approval, whatever the case may be. And three or four hours later, I’m walking down that boardwalk behind my condo and there’s my family walking up that same boardwalk on the alternate side.
and just pissed, just so discouraged and disappointed that Dad is physically with them on vacation, but not present with them emotionally, mentally, whatever you want to call it. And I just remember that being like a wake-up call like, wait a minute, what am I doing? Right? I’m working so hard to create a lifestyle for these people who I can’t even enjoy it with. And
It was moments like that made me realize like, something I’m doing is not giving me the end result that I want. So my vision of what I wanted wasn’t matching up with what I was doing. And so it really took that, those sort of kind of wake up calls along with a book that Russ shared with me in 2009 that just made me say, there is a different way.
Joey Mure- Wealth Without Wall Street (03:42.398)
And I need to be on that path, not constantly following the traditional thought of what you should do.
Dave Wolcott (03:50.642)
Totally resonates. I think so many people are just struggling with the grind because in reality, right, we were all raised to put in sweat equity, work really hard, right? These are the values that we, you know, instantiated us when we were raised, right? So I think that’s a really interesting reflection that you had at that point to make the shift. How about for you, Russ?
Russ Morgan (03:52.12)
Hmm.
Russ Morgan (04:19.556)
I listened to your story and it’s so funny that I feel like my story emulates a lot of yours, Dave, where you talked about, except I didn’t have three kids at one time, I spread out the four kids over, you know, a period of like eight and a half years. We did, we decided to do it a more traditional approach. I love the way that you guys just shotgunned in there. But when you, when I was listening to your story and you were talking about kind of going to the financial planner and saying, what now?
Dave Wolcott (04:41.542)
Ha ha ha.
Russ Morgan (04:48.232)
And then realizing that the six to 7% a year approach was not going to fit what you wanted. Well, I was that financial planner that you were going to, no, not literally, but I was, I was a certified financial planner and I was telling people a lot of those same things that you were hearing. And the confused look that you left with was the one that I would, I was familiar with, they’d leave my office and wonder, man, is this the best strategy?
But it took the market crash in, in 2007, 2008 for me to realize it for myself. My wife had finished dental school in 2006. So the two of us were highly educated, highly paid, right? And the market though, this took half the investments that we had been depending upon that same approach that I was telling people. So I was eating my own cooking. It just realized when it went down, I had no idea.
no idea what was going to keep it from going down in the future. And all of the mentors, all of the people that, that I surrounded myself with at that point in time had no idea either. And that’s when I realized that I had to take a more active approach. I had to go find a strategy and I didn’t feel like it was laying inside the walls of wall street, which was pretty scary because that’s how I was professionally trained. I was professionally trained.
to teach people this approach and I had seen it broken. And more importantly, I’d seen the lack of confidence on the faces and then the responses when I asked people inside of Wall Street, what was going to prevent it from happening in the future. And it led me down a path that ultimately, thankfully has us here talking with you today.
Dave Wolcott (06:40.742)
Well, thank God you saw the light, Russ, because a lot of financial planners haven’t quite yet seen the light, but it’s a lot rosier on this side, right?
Russ Morgan (06:52.997)
It is, I mean, it’s not easy, right? But it is, I didn’t know it then. I, now we talk about financial freedom. You mentioned that’s the mission that we’re on to help people become financially free to stop trading time for money, very similar mission that you, that you share. I just didn’t know the formula was easy. The work to accomplish it is hard, but the formula is easy. It’s just having more passive income than we have monthly expenses. And once I was shown that formula.
Then even with my public school education and Alabama upbringing, I still knew singularly focused, I could accomplish that one goal. And once I started trying to do it for myself, then I started sharing it with other clients and Joey was one of those clients and he decided to come on board and help me do it much better. And we’ve continued to have clients come on board and start teaching other people. And we’ve just continued to get better along the way.
Dave Wolcott (07:49.402)
Yeah, no, that’s really fantastic. And I think another key dimension people don’t really talk about as much in making that paradigm shift, it’s really all about control as well. You know, so part of my frustration was, I mean, I remember in 2000, you know, during the tech bubble, right? And, you know, things were good, things were good, things were good. And then just, you know, things dropped like a hot air balloon and you had
absolutely no control and this just feeling of helplessness on what you had worked for years and years and years and decades to build, right? To, you know, build up your hard earned equity. And then just to watch that rug being pulled out from underneath you. I mean, for me, it was super unnerving. And you know, that’s what really helped trigger me to say I’ve got to take I got to get a different strategy. And I have to take control.
Russ Morgan (08:48.472)
Yeah, well, it’s when you, for some of us, it’s easy because we didn’t like you and I didn’t, we have to unlearn a bunch of things that we were either taught professionally or from others. But for some people, like they’re just hearing it for the first time. And I’m so envious of those people, right, that are able to just gain it from the beginning. And Joey was one of those people who he just heard it and just like, okay, cool. And call it on so quick. And for
For me though, when I was trying to figure out all these things I had to unlearn, all had to unpack all of the ideas of where I was putting money and what the results should be. Right? Like I was thinking return on investment and sort of, instead of cashflow.
Dave Wolcott (09:30.938)
Yeah, for sure. So what do you guys think in terms of an investment thesis or overall wealth strategy? I know you’ve put something in place, which I think is just really cool and shows that you are eating your own dog food, which is basically, you know, taking your own passive income. Right. And you guys have kind of put that together. I don’t know if it’s in a particular entity or something.
But you are looking at different opportunities to generate cashflow and try to, you know, create financial freedom to help show other people. So maybe that is your investment thesis or wealth strategy, but can you break that down for the audience?
Joey Mure- Wealth Without Wall Street (10:14.122)
Yeah, I’ll kind of jump in there, Dave, to say, I think the thesis that I have is that there are five major components that someone needs to solve in their investment journey. And it all starts with, and we call these our five pillars and our right next thing process. So like, one of the biggest issues that we find when people engage with us is they love the idea.
passive income being greater than monthly expenses because they can see what that would do for them is they could literally pull up their calendar and There would be nothing on it Right. Imagine that like your passive income exceeds your monthly expenses. That means something is I know this isn’t really how it happens anymore But you would go out to your mailbox and you’d pull out checks
that equal more than your monthly expenses and you didn’t do anything for those things to show up. Right, it was just automatic. Now, if that was the case, you would look at your calendar and it would be zero like requirements on your time. You now are the person putting in the boxes. Like I’m a calendar blocking guy, like so I get to put the boxes on my calendar. My employer doesn’t put them on there anymore, I do, right?
That’s what people love, but they don’t understand that there are really some components that they need organization to in order for those things to happen. And it all starts with vision, right? Our very first pillar is if you don’t have a vision of what your life would look like, who would you be? What would you be doing and what would you have if you were financially free today?
That’s one of the first things we do with everybody that works with us is they go through that process of building out that vision because to be honest with you, Dave, they’ve given up on that. Most of us, if we’re honest, we’ve given up on what is possible and we’ve only done what, like what we have to do. We’re putting up with what’s been given to us or what we at least perceive to be our only option.
Joey Mure- Wealth Without Wall Street (12:33.326)
is to keep doing what we’re doing and expecting something different. But the reality is if we can stop and dream for a minute and go ahead and put out in front of us that vision of what we’re trying to accomplish, only then should we consider what to invest in and what our money is doing.
Russ Morgan (12:53.841)
Can I jump in there because this is the vision part and I think it’s talked about a lot Dave, but not really ever fleshed out for many of us to actually follow because I think we’ve, we may even feel that it’s fruit fruit. And if you’re impatient, like I am, you want to jump to the actual thing. You’re like, shut up, Joey. Tell me the thing that you’re doing. Dave asked you, what’s the thesis? Like how are you guys investing? I want to get into the deep.
and nuggets of that because there’s so many gold nuggets and probably what you guys have done. I want to hear that, but I want to share this insight that he, that all of the stuff that we talk about as things that we implemented and we had a guy come in our office, I don’t know, six or seven years ago, we hired him to be like a fractional COO for us. And he asked this one question that’s developed our thesis. And I think this is why we start with this is that he said, how much money do you make? And we gave it.
He said, now tell me what do you need to live off of? And we told him, and he was like, well, wait a second. You guys are making way more money than you need to live off of. And I was like, yeah. He said, so now let’s develop everything else in light of the fact that where you spend no more time having to make money and you’re building out things that are just giving you more and more of your time back. And so when we decided that the most important valuable resource that we had was our time, then that
that informed our investment thesis as well. So our investment thesis came out of the idea of we are going to invest where it doesn’t require more time. And if we do put time into it, we have to have a trade-off and give up something else that is taking time from us. And so when we build out this vision, and so as we were talking about vision for anybody, we started with us to say that we had to really know what we wanted because most people don’t know what they want.
And so without developing that, you don’t know what investment strategy you should employ because there’s so many different strategies, right? There’s very active and there’s very passive and you needed to figure out. So for us, we had to say for us, we were going to not put any more time into our investing approach without giving up time somewhere else.
Dave Wolcott (15:04.942)
Yeah, that’s spot on Russ. Um, I really boil it down to the four freedoms that are there, right? Because if you have more money, right? Kind of like Joey was saying, you know, what is that enabling you to be, do, or have right in your life? So, uh, do I have freedom of purpose? If my calendar is clear, am I getting up every day and spending my time on something that’s fascinating and motivating to me and has a big purpose? Right. If I have freedom of time.
You know, I have the time with which to plan my day or spend it with my family, uh, you know, as I choose also freedom of relationship. You too, you too chose to work with each other and help educate others versus, you know, being in that institutional environment where you’re working for someone else and you know, they’re not necessarily like-minded.
So I think, you know, really with investor psychology, it’s really unpacking those, you know, those freedoms of what you’re really looking to try to get at. But let’s take it to the next level for the audience and let’s talk about your investment thesis, right? Let’s talk about some particular things. So my guess would be clearly you’re looking to invest for cashflow, right? If you’re trying to get to financial freedom, there’s probably some tax efficiency components in there.
There’s probably some growth, but let’s talk a little specifically around your thesis and what kind of assets you’re targeting.
Joey Mure- Wealth Without Wall Street (16:35.626)
Yeah, so I’ll mention a couple of things that we’ve learned the hard way is to that point, it is all about cashflow. And secondly, it is all about an operator. Right? When Russ was telling you just a minute ago that we had to be very clear that there could be no more time invested, but we had to use that cash flow that it was creating to buy back our time.
That really changed everything. I’ll give you a quick story that led to that. Years ago, I bought a drop shipping company thinking, this is so easy, right? A drop shipping company, what could be easier? You don’t even have to have your own inventory. You just connect buyers to people with inventory in China and all of a sudden your life is just, you’re great. Like it just all works out.
And I did this actually with a good intention. I have, like I said, five daughters. So I bought the company, 100unicorns.com, Dave. Like, could you imagine a better business to introduce your daughters, to show them like how a business works? I mean, unicorns, like that’s a girl’s best friend. And so I’m like, man, this is amazing. I’m gonna buy this brand and I’m gonna show them how it works and it’s gonna be so easy.
And then I realized this is one of the hardest businesses to make money in. If you don’t understand digital advertising, Google ads, Facebook ads, Pinterest, like, by the way, I hate social media day. Like it is one of my least favorite things in the world. And all of a sudden this brand, I buy this and I find out all these things are dependent on me being good at those things that I’m terrible at.
and actually having to operate a business. Well, if you can imagine, it has sucked wind. It has been the worst investment I’ve ever made. And by the way, I’ve never taught my daughters anything about business because I couldn’t even figure it out enough for myself. Like, so I’m just telling you, I learned a lot from that. And it all of a sudden said, man, what is my investor DNA? Who am I as an investor?
Joey Mure- Wealth Without Wall Street (18:58.594)
And it started to reveal like we need to be matched up personally with the things that we invest in. It’s not just about return. It’s not just about tax efficiency. It’s not just about those components of an investment. It’s about the investment itself matching up with our personality. And that kind of led us to develop this investor DNA profile that anybody can take.
But it all of a sudden starts to really like filter down what the options are that I should focus my attention and my time on. And I know Russ had made some of the same mistakes that I did.
Russ Morgan (19:38.72)
Well, the thing about that, Dave, is just ultimately we all have a bent toward some gifting, right? Some skillset, some experience that we’ve learned, and that’s going to help us be more successful. You’ve heard the, the adage, you should do what you love. Well, you should do what you’re good at, regardless of you love it. You should do what you’re good at. Right. Or even better do what you’re great at. And I think up until this point, Joey and I, before we really understood that well,
had been investing in things that we saw other people having success in and had followed the old adage that success leaves clues, they’re having success there, I’m gonna do that. And we weren’t having the same success and we were wondering why. So how we develop our own investment thesis was by saying, hey, what was making it successful for them and why am I not having success in that? Oh.
They have skill sets, they have experiences, they have resources and relationships that I don’t possess. They have more reps in that specific area than I have. That’s why they’re having success. Okay, well what do I have experience in? What do I have skills in? What do I have relationships in? How can I use those things in order to create success for me? And so Joey and I realized that even the two of us as business partners were not.
built exactly the same. We had a lot of the same network, right? We had some of the same experiences, but we had different skillsets. And we looked at our investment opportunities and started putting together things where we would use each other’s skills to the highest level. One of those areas where we were looking at the short-term rental business, we’re seeing people having a lot of success, putting condos, apartments, homes on Airbnb. And we thought,
Well, how could we use the things that we have skills in, which is influence, right? We have the ability to influence, have a podcast, we have, you know, marketing arms of our business and we could do that. Well, who’s our network? Do we know anybody who would be a good operator to this business? So we had a guy who’d been running a business in the real estate world for 10 years, went through some hardship and was looking for a new opportunity. And we said, okay, well, what if we took this.
Russ Morgan (22:00.428)
guy who had entrepreneurial experience in chops and wouldn’t need a whole lot of leadership from the two of us because we’re terrible managers. And then we matched them up with some of our network of people who have been building out 40, 50, 60 units themselves. And so we bought a program with them. So we used our resources. We use our network. We use the person that we had. And so we literally built a short-term rental business from zero.
starting in the middle of 2020, right? Great time for travel. And we’re in a non-travel market in Birmingham, Alabama, and built it to, I think at our high, we had about 28 units. And we were using our skill sets. We were using our resources. We were using our network. And we were doing 20 to $30,000 a month net profit after all expenses paid. And Joey and I were using the best thing, which was our minds, because we were not using our time.
because we had a full-time operator running it. And so for us, that was just one example of how we took this investor DNA concept, applied it to us, and then started saying, well, what are other areas that we could get involved in? And we followed that approach. So it doesn’t matter if it’s investing through short-term rental business, whether it’s running a land flipping business, investing in another e-commerce brands, or doing private equity deals, whatever it is, we’re using the giftings that we’re already.
possessing and not trying to invent new ones just because someone else is having success in that area.
Dave Wolcott (23:30.63)
Yeah, Dan Sullivan refers to it as having your unique ability. So it’s really your instinctual wiring. Uh, plus what you had pointed out is what are you really not, not only good at, but what are you really great at? Right. And once, uh, you can define that, I think it’s such an important shift that you can make, right? Because, you know, it, it’s kind of clear, right? If you like real estate, real estate is a people business, right? It’s investing in people. It’s all a people business, right?
But if you want to be an options trader and click a mouse all day long, you know, you, maybe you’re pretty analytical and technical and you know, you like to do that, right. And I think there’s paths for both to your point, but really getting clear in your investor DNA. We also have an entire module in our mastermind group that we go through investor DNA as well. So I think that’s really spot on trying to identify that first, right. Before you get into any tactics of specific investments.
or whatever as well. So yeah, that’s really helpful. So why don’t we talk a little bit more and really jump into, I think, another key strategy that I know is near and dear to your hearts and to help kind of educate listeners a little bit. But let’s talk about infinite banking. Okay, let’s unveil that. And how did you guys really
come across it as a solution. There’s a lot of confusion in the marketplace as to what it is. I think it takes a lot of people a long time to really wrap their heads around this concept on what it is. But it’s been fascinating to me to see, every family office or ultra high net worth, individual that I know, this is a cornerstone to their strategy. So thoughts?
Russ Morgan (25:22.72)
Yeah, I’ll jump in first there says he keeps going first. I’ll let him correct all the mistakes I make this time. Well, the concept of infinite banking, I think to talk about what it is, first let’s talk about what it’s not, right? It is not a product as so many of us in the industry, the financial industry have tried to make it out to be like this silver bullet of approach that you can apply anywhere. And Joey and I,
We found out about this from a mentor of ours who wrote a book called Becoming Your Own Banker. And we live in Birmingham, Alabama, and we actually had a chance to spend a lot of time with this man named Nelson Nash. And he’s since passed, but he was an economist. He lived into his mid eighties. He wrote this book that talked about our need for access to cash. And the biggest obstacle to becoming financially free was often shared to us that most people don’t have access to cash.
And then they delegate the finance arm to third parties. And so what he shared in this book is how to use a financial product, which this is what most people talk about, how to use a dividend pay and whole life insurance policy as the place to where they store cash. But one of the things that we learned over time is that it’s the use of that cash, it’s the understanding of the cost of that cash is really what is the biggest pain point for entrepreneurs, investors.
and business owners. And we started building our own, what people would call their own infinite banking systems or they’re becoming their own banks or whatever they wanna call it. We started doing this in 2009 and 2010 personally. And between Joey and I, we’ve built our systems up to encompass our investing, our business, our personal, our legacy, all of these approaches have been put in there.
But it wasn’t until we realized that it needed to flow through some sort of operating system that made it easy for us, that we really took advantage of it to its fullest capacity. And when Joey was, and I were just sitting there one day with one of our, our mentors, we were sharing this strategy with him and he sold businesses for billions of dollars. He advised people for a number of years as a Goldman Sachs banker. And he was looking at a little scribble note, Dave, that Joey and I had written on a piece of paper.
Russ Morgan (27:44.936)
And he said, what is that? And we said, Oh, this is just the way that we use our infinite banking system to run our life through it. He goes, so that’s like your passive income operating system. I was like, well, that’s a fancier name that I would have ever come up with, but yes, and he’s like, well, walk me through it, show me what’s happening here. I said, well, what we do is we take all of our active dollars that we make. And we pushed down through this process, any dollars that we spend personally.
And the rest comes across this line over here and we use it to save, to invest and to pay taxes. And he’s like, well, does that require a whole lot of moving parts? We’re like, no, actually we use this tool and we have many different ways to set it up. And once we set it up the first time, it then starts running on autopilot. And it makes the, when I make a decision to invest, if it’s going to create cash flow, I know where to put it. If I know I’m going to have a tax bill, I know where the money’s going to come from.
I know I need to pay a new premium on the life insurance policy. You know, the 30th one we’ve bought, I know where it’s going to come from. And we’ve set all of those systems up in order to create a method that makes our life simple. And I think as entrepreneurs and investors and business owners, we don’t need the new jobs. We don’t want things that are hard. And for me, it was when I figured out all of these little tools, I’ve realized that it’s the thing that’s made everything else we do better.
How else would you say that Joey differently?
Dave Wolcott (29:16.458)
You know, can I just tag into that first Russ is so you started your conversation out around being product oriented. And oftentimes, you’ll you can speak to this really well coming out of a financial services institution. And a lot of those institutions actually provide some type of, you know, cash value, whole life insurance policy, right. But they may not necessarily be structured properly.
Nor are people utilizing the process that you articulated. So can you help people understand the differences there?
Russ Morgan (29:54.324)
Yeah, well, one of the things is that financial products are built by financial institutions. Financial advisors and planners work for those financial institutions directly or indirectly. And so the methods in which they’re sold or the message in which they’re taught are based upon what the financial institutions made them for. So that was a big fancy way of saying when an insurance company makes a insurance product, a whole life policy.
They have one method for it in mind, provide a death benefit, provide a profit for those who own it, that’s it. And so they teach their insurance agents how to sell it based upon those methods. And that’s how I was taught. I was taught a death benefit was a product that my clients would need to protect their families. And if they were of high net worth, protect their estate. And I was taught how to sell it to them.
give them as much as they can get for as little as they want to pay for it. Right. Like the Walmart approach. And that was the way I looked at all financial products. And that’s why most financial gurus, you know, the ones that get on the talk shows talk about it in light of that strategy. But when I learned about the infinite banking concept using an actual tool, like the insurance product, I learned about it from a guy that was an economist. And all he was looking at it was
He was trying to solve a problem of how do I have access to cash and how do I reduce my dependence on third-party banks? And he saw in all the financial products that he had been exposed to, that this one product actually possessed a lot of the functionality that he wanted. The problem was is he wasn’t putting enough money in it so he didn’t have a big enough pool of money to solve his problem. And so he started…
this process of putting way more money into his life insurance contracts than the average person would do, like five or 10 or 20-fold. So Joey and I, we put large six figures every single year and have seven figures of cash value in these life insurance policies, which is unfathomable for the average person, not saying that we’re better than them, but we think differently based upon his teachings. And so when we started…
Russ Morgan (32:18.696)
applying this to our own lives and then we started sharing it with other people, the natural reaction as you were sharing, Dave, is like, well, wait a second. I’ve always heard about it this way. We always heard about it from someone who was taught from an insurance company how to sell that specific product. But we’re just saying there’s a lot, a hammer can be used to create and destroy, right? A gun can be used to defend or kill or whatever, right? It’s not the
It’s in the hands of the user. And it wasn’t until we were given an instruction manual from someone who had a lot more wisdom of ways to grow wealth and how to do interesting things that we were like, oh, now I see its potential. And so when we see an insurance policy, and from time to time, there’s people that actually will say, hey, I don’t want this whole life insurance policy anymore. Joey and I will raise our hand immediately and say, let’s have a conversation about how we can buy it from you. And we’ve done that.
because we see its potential. We understand the value of it. And when you understand the value of how to use something, right? Then the tool becomes that much more interesting, but the process is the most interesting of all.
Dave Wolcott (33:32.89)
Yeah, education is key.
Joey Mure- Wealth Without Wall Street (33:36.05)
Yeah, Dave, I’ll just, I’ll make it super practical for me, at least my experience with this whole process of infinite banking. It came when I was at that kind of pinnacle of my career. I was making all this money, but I wasn’t actually seeing success. And I was in the process of thinking, okay, I need to start saving for my kids’ college. They were young at the time.
And I started looking at what are the financial products out there, like 529 plans. Well, I started thinking there’s all these things that are wrong with a 529 plan. Like what if my kids don’t go to college, which by the way, my oldest two are now 17 and 15 and they both have said I’m not going to college because they don’t have any reason to one’s an artist and one is just not going to be suited. She wants to actually be an entrepreneur and start an online business.
And so I started looking at 529 is like, well, if they don’t go to college, now I’m going to get potentially penalized. Um, I’m having to invest in things I don’t know or understand. And I can actually lose value in because it’s in a market based approach. Like there’s all these things I didn’t appreciate about it. And then enter this idea of infinite banking. And then once I read the book, I started seeing, wait a minute, I am constantly putting money.
into places that I don’t understand, that I can’t control, and that I can’t even access if a great deal that I do understand comes across my desk. So imagine you’re in the mortgage business. I’m seeing hundreds and hundreds of clients each year, many of which are in real estate related type of careers, some of them investors, and they would from time to time bring me a deal.
Hey Joey, I don’t know if you ever work with people, but man, I got this, this great opportunity and I just need, you know, a hundred K, you know, to flip this house or whatever the case was. And I would be like immediately, this is it. I don’t know if anybody else who’s listening right now can relate, but they’re just like, Oh man, I was just like, that’s a great deal for someone else. Meanwhile, I’ve got hundreds of thousands of dollars sitting in a 401k.
Joey Mure- Wealth Without Wall Street (35:54.518)
because I was told that was a benefit for me. I need to do that for tax purposes, for deferring this thing, for gaining a match from my employer, like all these reasons it was good for me. And in the meantime, I couldn’t take advantage of deals because I was constantly allowing someone else to manage that money for me. I was losing money from time to time. I didn’t understand why.
And whenever I’ve now coupled that with the fact that I really wanted freedom today, right? I wanted to be able to say no to that phone call at the beach. I want to be able to spend time like I am now with my five daughters, helping to homeschool them, investing in one of my daughter’s golf careers, like to help her take her all over the country for different golf tournaments. I want to be able to invest in businesses that don’t require my time.
I could never do that if I was constantly putting money away until I was in my 60s. Right? All those things I mentioned that I want to do today are no longer even an option for me in my 60s. So man, seeing the idea of infinite banking was a place I could pool capital.
that was going to constantly grow and I could leverage it into all these things that we’ve now, Russ and I have been able to build over $50,000 a month in free cashflow passive income outside of our regular active incomes, all because we had access to a pool of capital and take advantage of deals that we align with as investors, our own investor DNA profiles. That is the power of infinite banking.
is taking and putting all those things and aligning them together.
Dave Wolcott (37:49.214)
Yeah, 100% agree. That’s a great articulation. And you talked a bit about the 401k and also my journey as well. I think like many of us, right, we’re taught by our employers, our family, our peers, just, you know, max out your 401k, defer your taxes, right? And it’s the best vehicle that’s there. And, and frankly, I mean, let’s face it, right? Over 90% of Americans have.
The majority of their wealth tied up in these vehicles. It’s in the trillions right now. So what do you think is holding people back? Why are people investing in these vehicles?
Russ Morgan (38:28.664)
I think it’s the fact that they don’t know any different. Right? I mean, that person is not listening to this podcast. If they were listening to you and listening to your story, they would say, wait a second, there probably is a different approach. Or if they would have heard Joey’s story, they would have said, oh, there’s a different approach. I think the large percentage of us are busy. We’re busy, right? You’re listening to this podcast, you’re probably in the 1%. You’re in the 1%.
You’ve decided that you’re going to be actively involved in your financial outcomes. Everybody has the goal to be financially free, right? Everybody has that goal. The problem is, is we don’t rise to the goals, we fall to our systems. And most of the operating systems people have are to wake up, go to work, do the job, get paid for it, try not to get fired.
Go pick up the kids from school, go watch them in their extracurricular activities, come home, have dinner, watch a show or two with our spouse, go to bed and repeat the process. And on the weekends, enjoy it by going out to the park, watching a football game, whatever our hobby is. We don’t take time to do it. That’s what I would say most people, right? Now there’s a few that have just not been shown why, and we get asked that question because Joey and I make the…
Audacious claim that a 401k is the absolute worst investment, worst place you can put money for financial freedom. We do that on purpose for all those people who are lovers of them, just so they’ll say, well, why? And it’s very simple, right? If you know the formula, passive income greater than monthly expenses equals financial freedom. And so I will ask, and I know, Dave, that you’re on the same campus as us, but I would say, Dave, if your 401k
it’s either going to produce a passive income or it’s going to reduce a monthly expense. Otherwise it’s not going to be getting you closer to financial freedom. So does your 401k produce a passive income for you? And you’re going to say, no. I’m going to say, Dave, does your 401k contribution every single month reduce a monthly expense for you? And you’re going to say, no. And actually, technically it’s increasing my expenses, right? Like I have less access to cash. And so the answer, the question is,
Russ Morgan (40:54.252)
then is it getting you closer to, or is it getting you further from what you want, which is financial freedom? And your answer is always gonna be, well then further from. And we do this exercise on live stages and podcasts all over, and ask those questions, and we have these light bulb moments where people are like, whoa, I’ve never considered that. Because maybe they’ve heard someone talk about how your 401k defers taxes, they defer the tax calculation, maybe.
They’ve heard people talk about the fact that taxes are gonna go up in the future and they’re trying to buy in, whether that’s true or not. They’re trying to determine whether or not the stock market’s gonna earn six, eight, 12, 50, you know, or zero or negative 50, right? All of those things are distraction points because those are debatable. None of us know the outcomes of that. But when we can make it so simple to say, is it producing a passive income or is it reducing a monthly expense for you? And if not, then all it’s doing is getting you further from what you want.
then what do you want to do now? And people start to take action. They start to see the clarity in those simple decisions. It’s all about frameworks. With the right framework, most people, right, with the, you know, average IQ can make right decisions. They just aren’t given the frameworks and most of the frameworks aren’t coming to them because they’re just busy.
Joey Mure- Wealth Without Wall Street (42:17.014)
And I would add, Dave, one word is the reason why people love 401Ks, or just do it. It’s exposure.
It’s either a lack of exposure or it’s over exposure in two different ways one if People are listening to your show Dave and they know What you’re investing in and how your investment thesis is they start to see? That and a six or eight percent or whatever the lie is that Wall Street is trying to tell you that on Average your portfolio will grow by fill in the blank percentage You obliterate those
with the things that you invest in and you create cashflow and you have tax benefits. Like if people were exposed and understood that those things existed, why would they continue to just give that money away and hope that they get some arbitrary percentage number with no other benefits? Right? That’s a problem.
Dave Wolcott (43:18.358)
So here’s a potential, yeah, good point. So here’s a potential objection some people might say. So my employer is giving me a 3% match, which is free money. So how would you?
Russ Morgan (43:30.964)
Dave, is it producing a passive income or reducing the monthly expense for you? So then is it getting you closer to or is it getting you further from financial freedom? We have to have a baseline. So if the base, like we have to have a level of agreement when I or Joey or you or anybody defines what financial freedom is, right? So if we all agree financial freedom,
Is it allows us to do whatever we want, right? Everybody’s definition of it’s different, but the way we get there is by having more passive income, we have monthly expenses. Do we have that agreement? If that’s not our agreement, cause that’s where I’m going to base all my. You know, conversation off of, and if I get us to that point and we both agree on that, then the match doesn’t matter. Right. The match is a distraction. The return is a distraction. The tax deferral is a distraction.
Is it producing a passive income or is it reducing a monthly expense? And if it’s not, if we both agree to that, then is it getting us closer to, is it getting us further from? And that’s how I do it.
Dave Wolcott (44:37.498)
Yeah, simple, simple way to break it down. Yeah, for sure. I, yeah, I think there’s also, uh, really from a philosophical perspective, the thing that I really struggled with and, and kind of, you know, came full circle all the way around was this, you know, um, theory that Wall Street is putting out. Right. Which is really accumulation theory.
So we’re going to save every year in our life. We’re going to put money away. Like you said, it’s not increasing my passive income. It’s not reducing my expenses. I keep putting it away. I can’t access it till 65. Then we’re going to tell you how much you can take out each year. And oh, by the way, we’re the ones who control the tax rates. So if you think taxes today are what they’re going to be in the future, I mean, you know, you’re mistaken, right? And you get to this.
supposedly magical point at 65, which you can start doing those things with your family. You can start traveling because now you have financial freedom at age 65. But what happens, I think fundamentally that’s just completely incorrect is you start killing your golden goose. So you’ve worked for 40 years, you’ve built all this up and now every year, okay, 4%, which…
Joey Mure- Wealth Without Wall Street (45:47.214)
100%.
Dave Wolcott (45:55.034)
you know, they have the 4% rule, which is it’s even less than that nowadays. Right. So how are you going to actually live on that? I mean, if you saved 4 million, okay. You got to 4 million at 65, your 4% of that is 160 K and that’s on ordinary income tax rates. So it’s probably more like a hundred K that you’re living on. And then that gets reduced every year beyond that. And then you have to live with the fact of.
Okay, with technology and advancements and everything, what happens if you live to 105? Will you outlive your money? Right? So that entire philosophy of accumulation, I think is just completely incorrect.
Joey Mure- Wealth Without Wall Street (46:32.334)
Yeah.
Joey Mure- Wealth Without Wall Street (46:40.65)
Well, and I want to illustrate your point even further with the question, are you abundant or scarce? Are you abundant or scarce? And what is your strategy? Does it match up with what you really want to be? The lady, I was at the beach one time with my family. This is all my stories around the beach. I think I’m just going to move to the beach. I keep telling Russ this, but I was at the beach.
And I had my welted out Wall Street shirts. In fact, all of our kids have welted out Wall Street, like swim shirts. And so we’re all walking. It’s like this, like this, you know, you know, deluge. Yeah. Deluge of a cult run around the beach. And this lady kind of comes over to us and just starts talking. She’s like, what’s this all about? And I’m like, Oh, this is our company. What’s that Wall Street? She’s like,
Russ Morgan (47:16.352)
Great banner ad for us.
Dave Wolcott (47:17.722)
Sounds like a cult. Yeah.
Joey Mure- Wealth Without Wall Street (47:32.426)
Well, I’ll tell you what, we just retired last year and man, all I can say is I hope it’s enough. And we didn’t go into all the depths of what that actually meant. Like I did ask her some follow-up questions, but the thought process is more aligned with what you’re saying, this accumulation mindset. What does it require for me to accumulate a lot?
It requires me to live off of the least amount I can to save as much as I possibly can. Right? I have this scarcity of, I need to put as much away as possible, like, you know, putting away my acorns for the winter kind of thing. And then when I get to the point where I’m at the top of this mountain I’ve accumulated, I’m literally then saying,
How much blood do I want to let this year without dying? Right? Am I going to just, I need to let out enough, but not too much. Are you all of a sudden, after 40-something years, going to start living this extravagant travel, like heavy lifestyle that you’ve put off for 40-something years? Do you realize the like,
Those are absolute habits that you formed in the way you think. They don’t go away just because you no longer check in and check out of your W-2 job. You have built a scarce mindset for that long. It doesn’t become abundant just because you retired. And I don’t choose that for myself. And not to mention the fact of…
your health at age 65 versus at age 35 or whatever date that you become financially free today, there’s just no comparison. I’m watching my parents at age 63, I mean just fall apart physically and they have nothing, they would never live like they could have in their 30s.
Dave Wolcott (49:44.814)
Yeah. Russ, if you could give just one piece of advice to listeners about how they could accelerate their wealth trajectory, what would it be?
Russ Morgan (50:01.504)
I would tell you that the biggest wealth accelerator I’ve had to date is finding both community and mentorship from people who are in the position where I want to be. And I think that we, you’ve heard it said that you’re the average of the five people you spend the most time around and successful people spend time around successful people and broke people spend time around broke people.
And if you’re not as successful as you want to be, I would find a community. I’d find mentors and maybe they’re just on podcasts like this, right? Joey and I found a lot of mentors that they don’t know who we are and didn’t know who we were until down the road. But those have been the greatest accelerators to me. I would say that would be what my advice would be to you.
Dave Wolcott (50:54.11)
Awesome. Joey?
Joey Mure- Wealth Without Wall Street (50:57.534)
I have to go back to what we’ve been talking about on this show already is just getting clear on your vision to make sure that what you’re investing in is supporting that vision and it’s not going against it. If you just take, I mean, it doesn’t have to be very long. It could be an hour. It could be a couple of hours of your life that you do a really clear, like introspection.
about what it is you want to accomplish and then take an inventory of what you’ve been doing and seeing just as simple as Russ. I mean, Russ is a simple guy from Alabama. I mean, let’s just be real. If he can point out in 30 seconds, a 401k doesn’t support your way to financial freedom by asking two simple questions. Does it increase my passive income or decrease the liability or an expense?
If you could do that with all the things you’re doing, it is amazing the clarity that creates, and it will be the trajectory to get you there as fast as possible.
Dave Wolcott (52:03.738)
Yeah, sage advice. It’s been an honor having you guys on the show. I really enjoyed the discussion. I know we could continue this quite a while. But sadly, we do have to come to a close today. But if people would like to continue the journey with you, learn a little bit more about what you guys are doing at Wealth Without Wall Street, what is the best place to reach out?
Russ Morgan (52:29.824)
You can go to wealth without wallstreet.com forward slash wealth strategy secrets. You might recognize that name and we have all the access points to where you can connect with us at the simplest level. We have a free community. We have over 7,500 people in where Joey and I interact. Joey said that we don’t do social. So if you messages on social, we will get back to you using a week or two. That’s just not our area where we spend a lot of time.
But in our community, you actually can DM us and we do respond there. That’s where we spend our time and effort and encourage you to follow the things that we’re doing through that. WealthWealthWallstreet.com forward slash wealth strategy secrets.
Dave Wolcott (53:12.654)
Awesome. Gentlemen, thanks so much for coming on today. Appreciate it.
Russ Morgan (53:16.352)
Thank you, Mian, for having us.
Joey Mure- Wealth Without Wall Street (53:17.442)
our pleasure.
Dave Wolcott (00:01.573)
Frank, welcome to the show.
Frank Hanna (00:04.322)
Thank you. Thanks Dave. Appreciate it. Looking forward to talking to you.
Dave Wolcott (00:07.821)
Yeah, you bet. I know this is going to be an excellent discussion and the audience is really going to get some pearls of wisdom out of this one for sure. So as we kind of kick off for folks, you know, who might not know you, how did it all start for you? Tell us about your background.
Frank Hanna (00:25.246)
I grew up in the restaurant hospitality industry and my father had done that for a number of years at a point in time. We had 20 restaurants, so at an early age, I was told that was what I was gonna do for the rest of my life. And there was a lot of good lessons learned doing that for a number of years. But as I got through my 20s, I realized that I didn’t have the passion for that. And I…
reluctantly exited the business with really no game plan in place. And I got into real estate and got into kind of holistic financial planning and started in a kind of hybrid company or offering in that space to be able to create value for the high net worth individual or entrepreneur that was moving at a fast pace to give them comprehensive objective independent advice. So since about 2000.
10, we’ve built a business serving those kind of high end clients in a variety of different occupations and skill sets. We do everything from a high end estate tax trust planning. We do traditional and alternative money management. And I really think passionately, we have something that’s unique in this space, which we know is ultra competitive.
So that’s where we are.
Dave Wolcott (01:57.709)
Yeah, interesting. So let’s just unpack that transition that you made, Frank, right, in your business kind of, you know, growing up, being in the restaurant and hospitality business, and then kind of seeing an opportunity to kind of transition into some of these advanced planning type of tactics and strategies and everything. Was there a particular opportunity you saw that you were trying to go after? Was there a gap that
kind of struck you.
Frank Hanna (02:28.81)
Yeah, so I had kind of been on the sidelines. You know, my father had a lot of success in the restaurant business. So I, you know, he had kind of taken those wins and translated them to real estate, right? So he reinvested some of the capital he had in those businesses to real estate. So I got kind of a front row seat to seeing some of those deals, how he was doing that. I also had a little bit of exposure to his overall estate planning.
But ultimately when I realized that I wanted to get out of the day-to-day grind of managing our restaurants I didn’t really have a game plan. I had limited knowledge in that space, but what I did know from the council and people we had kind of interviewed to help support our family business and our entrepreneurial planning, I did feel that there was a gap and I really felt like there was more
that were pushing products versus processes. And they weren’t giving proactive advice. It was at the 11th hour, we would come to them with an idea and they’d say, hey, you know what? Yeah, that sounds good. We should pursue that. So I kind of said, hey, you know why, why are people like that, bringing them those ideas to us? So I was used to working 100 hours a week in the restaurant business. So I said, hey, you know what?
I can focus on a particular type of client, and I think I can build a business model that serves a variety of needs. And I used to joke that I’m good at tackling. And so for those fast moving entrepreneurs, I was persistent. And I like to say politely persistent, some people call me a pain in the, you know what, but I was able to track those people down and bring proactive planning ideas to them.
that could create value and ultimately save them money.
Dave Wolcott (04:31.081)
So being in the financial services industry for quite some time now and then kind of going on what you saw as the opportunity in that space, what did you think was really wrong with traditional financial planning from your perspective as you saw it?
Frank Hanna (04:52.878)
Again, I think there was a lot of people that, you know, were there that had solutions or products, but didn’t really give you the why behind, you know, where they fit into your plan. And I felt like the people we were coming across, you know, they didn’t ask, they didn’t do the due diligence or the discovery of, I felt, to really understand our situation. So when I got on,
you know, the other side of the table, I think that makes me unique too, right? So if you’re dealing with an entrepreneurial client, they’ve got, you know, a high stress situation, they’ve got employees, they’ve got family members, every decision is very emotional for them. And I felt like for me, you know, with my experience of the day-to-day operations of, you know, a dozen restaurants and my head constantly spinning, I could kind of sit on their side of the table and understand how they made.
decisions and I think that’s how we’ve been able to grow our business where people say, hey, you know what, ultimately at the end of the day, what would you do? What would you do in this situation? Here’s my situation and I think people respect my opinion because I’ve been in their shoes, so to speak, with some of that.
Dave Wolcott (06:10.637)
Yeah, it’s definitely a unique perspective, seeing how a family business is running. And especially for entrepreneurs, right? The way they set up their life, they set up their business, just so many different complexities. And when I was introduced to traditional financial planning, I mean, I became really frustrated, right? Because they started talking about like their tax strategy was to do, you know, tax lost harvesting or to defer taxes in a 401k.
I mean, that was kind of the extent of their tax strategy. They weren’t talking about, hey, you should be looking at ways to offset your taxes with different investment vehicles like real estate or the 1031 exchange, some of these more advanced kind of strategies. And I think to your point, the industry is really driven. It’s very productized. So people are selling you a basket of products that they actually represent.
Frank Hanna (06:57.492)
Mm-hmm.
Dave Wolcott (07:08.037)
you know, versus seeing the thing holistically and, you know, what do you really need as an investor, you know, as an individual, right, that’s trying to grow and protect your wealth.
Frank Hanna (07:19.49)
Sure. Yeah, it makes a lot of sense. I agree with you 100%. I think those kind of next-level ideas, even though they’re not ultra complicated, they just, for whatever reason, most advisors don’t want to give you that type of next-level planning advice. It’s more, hey, let me give you this vanilla tax planning strategy. Let’s make it easy. Then we’ll just invest your money after you pay a boatload of taxes.
And I really think like most money managers are following the kind of same playbook and it’s super vanilla, super boring. And at the end of the day, the clients or entrepreneurs are missing, you know, missing opportunities by not getting that advanced kind of guidance.
Dave Wolcott (08:11.401)
Yeah, 100%. So were you able to develop an overall wealth strategy or do you have a particular investment thesis that you follow, Frank?
Frank Hanna (08:22.446)
I don’t think we have an overall blueprint or playbook of our own, but I think it all lies in diversification. Again, I think tax planning drives a lot of it, but I’m big into real estate. We do a lot of privatized private equity and private real estate deals. And I think our fathers and our older clients lived in a time where that 60, 40,
model of investing proved productive. So you got bonds, they went through a historically high interest rate environment. Those interest rates came down and those bonds, if they were quality, yielded high returns and the market goes up over time. I do think that there deserves consideration for market or equity investments, but I think you’ve gotta get more creative.
And I think your firm and firms like ours that have kind of done the heavy lifting and the due diligence on putting together some of these sophisticated real estate deals that provide really favorable tax treatment, deductions, appreciation, and strong predictable income are really attractive for the right type of investor. Those tangible assets that they can see and understand what they own.
are really attractive and I think what makes us unique and probably you guys as well is you can take some of the lessons learned in different real estate deals that we put together and kind of package that to the smaller investor to get them access to sophisticated deals where we know as a traditional real estate investor there’s a lot of risk there if you don’t know what you’re doing.
Dave Wolcott (10:11.809)
Yeah, for sure. How are you feeling about real estate right now in this, you know, in this current timeframe that we’re in?
Frank Hanna (10:20.394)
I still love it. I mean, again, different asset classes are gonna perform better than others and that’s gonna constantly change. But we just kind of went through COVID and a hyper inflationary environment. So, real estate assets that performed well were short-term lease type deals, multifamily, self-storage, hospitality’s kind of come back into favor. And you see the primary
assets that have struggled a little bit are the ones that are more affected by those high interest rates, long-term, triple net lease type stuff. So again, diversification is probably an overused term, but I love diversifying into a number of different asset classes. So I definitely am still bullish on real estate in general. I would say it just depends on the asset class and geographic area that you’re kind of valuing.
Dave Wolcott (11:20.589)
Yeah. And do you have, I mean, from a portfolio allocation standpoint, do you have any kind of, you know, high level kind of allocation parameters to create much more of a, let’s call it an all weather type portfolio?
Frank Hanna (11:35.59)
Yeah, no, I think we do. I mean, we definitely have kind of incorporate that holistically into, you know, maybe some traditional investments. So any client that comes across, I tell them, hey, you know what, you may love real estate. I don’t think that you should put every dollar into a handful of real estate deals. You know, there is a market or an argument for equities. You know, interest rates have come up now. See if you can find some high quality individual bonds. You know, that.
that might deserve some consideration. But yeah, we’ve got, I think, a pretty sophisticated offering in a number of different portfolios that can give you a variety of exposure to all those different asset classes.
Dave Wolcott (12:23.176)
Is there specific criteria that you guys are looking at? Like, you know, outside of just yield, like, you know, cash flow, tax efficiency and such?
Frank Hanna (12:32.422)
Yeah, so we look at all those factors. I mean, I’d say the majority of the deals that we’re looking at are, you know, are kind of in that sunbelt region. So we’re looking at states that are pro-growth, pro-business, tax-favored states. So most of the deals I’d say we’re putting together are, you know, Texas, Florida, Arizona, cities like Nashville, Richmond, you know.
those kind of space. We do a lot of deals in Charleston. So I think we do a lot of due diligence on, where people are moving, where jobs are being created and try to build a storyline where we think, hey, there’s a high probability for success. But then ultimately at the end of the day, the financials matter. And we are looking at yield, appreciation, all those different things, taxes as well.
Dave Wolcott (13:29.285)
Sure, sure. So do you think that, I mean, are you guys using really an institutional, like when you are purchasing these assets, are you guys actually the direct buyer or are you going in on an institutional asset or is it like a private syndication?
Frank Hanna (13:45.642)
Yeah, so it’s a little bit of both. So we participate in all of our deals as a firm, as a family. So some of those are with a private institutional buyer. We’ll take a piece of the deal ourselves and then we’ll go out to our clients and partners and ask, hey, is anybody interested in this? So typically we are partnering with an institutional buyer to bring a deal to market.
or will the deal already be to market and we’ll basically take a sliver of equity to kind of help them divest to move on to the next deal. But then we’ll do the due diligence, go through some heavy vetting process and then go to clients that we think this would appeal to and see if they want to participate as well.
Dave Wolcott (14:36.093)
Yeah, yeah, makes sense. How about on the tax side, Frank? It’s almost middle of November. I know this is first, you know, foremost on basically every investor’s mind right now, looking at different strategies to really offset any key ones that kind of come to mind or also considerations that we should be thinking about in this current environment.
Frank Hanna (15:02.806)
Yeah, I think there’s a few. I mean, we touched on the kind of vanilla or first level planning and everybody that’s, perhaps a business owner or a high paid executive wants to look at, hey, let’s look at our qualified plans that are available to us. Does it make sense to put dollars in those plans and lower your taxable income there? If you own a business, there’s all the different types of evaluation on.
you know, purchases and different things that you could write off into year end. But I’d say, you know, kind of next level, you know, there’s different deals that we would put together that provide tax deductions. So, you know, we’ve got a couple of different deals that are, you know, convenience store gas stations and the tax laws are changing and part of Trump’s Tax and Jobs Act of 2017.
There’s a phase out of that accelerated depreciation. So most high level real estate people, you know, can buy an asset themselves, do some cost segregation studies to be able to take that depreciation that you would typically take over a long period of time and fast forward that into year one or the first few years. So we’ve had got some opportunities like that for investors that they may already be doing that, but if they still have some income tax exposure.
they can participate in a deal like this and get an immediate loss to offset that taxable income. So we’ve got some opportunities there where I’m telling a lot of our clients, hey, this is the last year of 80% bonus depreciation. It’s supposed to phase out and go from 80 to 60 to 40 to 20 to zero unless Congress acts on that. But they can’t agree on anything. So I’m not optimistic that that’s gonna happen.
So for somebody that’s either a real estate professional, it can be any involvement in the real estate field or somebody that has enough passive income, which could be dividends, rent, a variety of different things. These are opportunities that we’re bringing to clients’ attention and say, hey, look, this is something that could be impactful. It’s probably not gonna look as good as it does this year, next year. So you may wanna swing the bat, take an opportunity and look at this.
Frank Hanna (17:27.39)
So that’s probably two out of three conversations I’m having all day long is in regards to that. Above and beyond that, we do a lot of 1031 exchange consulting. So people that are looking or considering selling real estate right now, because we’re still in a market that’s fairly hot, depending on where you are, and you can still get a premium on that real estate, people are considering selling that.
they may have reluctance to pay the taxes or reinvest in something that’s not kind of in their sweet spot. So we have a lot of passive real estate deals that meet the 1031 exchange criteria where they could sell the asset, defer the taxes and reinvest in an attractive, passive, diversified deal that we might put together.
Dave Wolcott (18:22.609)
Are you also helping folks out with setting up DSTs?
Frank Hanna (18:27.07)
Yes, so DSTs are probably the only passive real estate opportunity that meets the 1031 exchange criteria. So the 1031 exchange has been around for 100 years, the DST has been around for many decades, it’s evolved over time, but we have our own proprietary platform of Delaware Statutory Trust or DST programs.
that people can do 100% tax deferred exchange and reinvest in one or several of our deals that accomplish a lot of the same things that we both enjoy about real estate now, right? You get an attractive, favorable monthly income that’s predictable. You get favorable tax treatment, being able to participate in pass through depreciation and amortization on loans if there’s there, different value add components.
And I think for the right type of client, these type of deals are really attractive, right? And I think the statistic is, I think there’s 10,000 people in the US that are turning 65 every day. So the transition of wealth from those baby boomers now down to the kind of next generation is a monumental movement. So we’re really trying to get ahead of
a lot of those people and educate them on their options because there’s a lot of misconceptions on, you know, do I have to pay the taxes? What are the taxes? What happens if I never sell, step up in basis? You know, how that involves in overall estate planning. So yeah, the Delaware Statute of Trust or DSTs are one of the more popular things that we’re doing right now.
Dave Wolcott (20:16.261)
Yeah, no, it is a massive shift that’s happening and not only in real estate right now from boomers transitioning, but also in businesses, right? And you come from family businesses too. So I think that creates some major opportunities for other investors to come in and purchase these assets at a favorable price.
Frank Hanna (20:25.386)
Yeah, absolutely. Yep.
Frank Hanna (20:37.847)
Yeah, absolutely.
Dave Wolcott (20:40.097)
Interesting. And how about from a succession planning standpoint? I know that’s kind of one of your focus areas as well and advanced planning. Any particular strategies that you really like that you focus on?
Frank Hanna (20:49.256)
Mm-hmm.
Frank Hanna (20:56.214)
I think it ultimately comes down to education, right? So having a succession plan in place is critical, right? And your succession plan is never gonna be perfect, right? So you might have kids in the business, you might have some key employees, you might wanna sell to an outside buyer. Ultimately, that could evolve or change hand over fist. But our goal again is to get…
you know, some type of plan in place where, you know, all your, you know, blood, sweat and tears that have been put into the business is one, prepared if God forbid something were to happen to the client in the short term, but ultimately to provide them with like flexibility, you know, down the road, you know, should they get to the point where they, you know, they do wanna sell the business or gift the business or, you know, whatever they.
whatever they choose at that point in time. But I think the big thing is protect against the unforeseen that something bad could happen tomorrow, buy-sell agreements, insurance, whatever the case may be. And then ultimately look at how that factors into your estate planning. So Dave, you probably have a lot of clients and we do too that there’s never been a more favorable estate planning environment than we’ve seen right now.
Dave Wolcott (22:05.722)
Yeah.
Frank Hanna (22:21.51)
and the way the tax laws are currently written, a husband and spouse can pass roughly 25 million to the next generation before they trigger a federal estate tax. And starting in January 1st of 2026, that law is set to sunset, again, unless Congress agrees on something, and it’s gonna go back down to…
you know, somewhere between five and seven million per spouse. So there’s an opportunity on the table for your high net worth clients to really look at this opportunity because there’s a good chance it’s not going to look this good for a long period of time, depending on who has control of the House and Senate and the next administration to look at that over the next two years and say, hey, listen, do we want to gift sell transfer assets out of our taxable estate? And
and ensure that they’re not subject to this new tax, exemption status that’ll be coming. So that’s a lot of our conversations with clients are around that right now too.
Dave Wolcott (23:31.405)
Yeah, really great insight, Frank. And I think, you know, sadly, advanced planning, estate planning is often overlooked component for people, right? And the more you can be proactive about this kind of taking control early on, you know, even if you’re healthy, you’re young and things like that, but just start thinking about the future proactively can really pay, you know, big, big dividends for sure.
Frank Hanna (23:52.013)
Mm-hmm.
Frank Hanna (23:55.882)
Yeah, absolutely. And I don’t think there’s too young an age to start considering that. I think if you’ve got a successful business or assets that you think have a high degree of appreciation, it’s important to get ahead of that and look at the different planning opportunities that you could utilize to, again, accomplish everything you’re looking to accomplish today. But if that asset grows to substantial figures down the road,
you’re not subject to tens of millions and unnecessary estate taxes.
Dave Wolcott (24:30.741)
Yeah, sure. Frank, let’s transition to the market, right? You know, how do you see next year shaping up? Is there going to be you know, you thinking there’s going to be an impending recession? You know, what is the potential impact of that? What should investors be cognizant of right now?
Frank Hanna (24:49.63)
Yeah, I think, you know, I get that question a lot and I wish I had a crystal ball to give you the perfect answer there. But again, I think that, I think that where these interest rates are and the fact that they’ve kind of paused them for, you know, a couple spots in a row, I think if, I think if they give us the message they’re going to keep interest rates.
at that level or close to that level without substantial more heights, I think there’s a good opportunity where the market will respond to that favorably. Now, that doesn’t mean that there couldn’t be some other recessionary components to what’s going on in this country. It seems like every bit of news we see is negative. But I do think there could and will be an opportunity to reap the benefits of that. But again, I would fall back on and say,
wherever your dollars are, do not allow fear or panic to dictate your decisions. And if you’ve got a diversified plan and a relatively long-term timeline, I think it’s important to stick to your guns, look at favorable tax planning and diversify your dollars and a variety of different asset classes. And I think at the end of the day, it’s gonna be hard to
go wrong with that strategy long term. But I would say, I think if we can avoid World War III, I think there’s some degree of optimism for what the market’s going to do next year.
Dave Wolcott (26:28.781)
Yeah, you know, that is such a great point, Frank, right? It’s not being, you know, controlled by fears, right? And, you know, listening to what’s going on in the media, right? And it’s fascinating because I spent a lot of time in family office circles, you know, private equity groups. And that was why, you know, one of the early questions I asked you was, do you have a specific, you know, wealth strategy, right? Uh, or investment thesis that you follow, because the folks that do
are able to weather the ups and downs, right? They’ve thought through their capital allocation strategy and they are well diversified, right, across different assets, different return profiles. It’s correlated to their investor DNA and their risk tolerance, right, and what makes sense for them. So there’s really no need, you know, to react to all the things that are going on. I think you should be cognizant.
Frank Hanna (27:13.441)
Mm-hmm.
Frank Hanna (27:16.791)
Yeah.
Dave Wolcott (27:24.461)
of different changes and different sectors, right? And we might need to adjust some allocations kind of here or there, but just, you know, the key thing is just having that strategy in place is what’s gonna get you through on the long haul.
Frank Hanna (27:37.59)
Yeah, absolutely. And every plan’s a little different because your clients are different. And that’s why I think it’s important to have those conversations on the front end to really understand them and build that game plan. Again, you’re gonna tweak and modify that as things change, but I think it’s important to lay that out. And then when things get a little rough, you can re-remind the client and say, hey, listen, here’s the game plan. This is why we did it. We’ve got your risk profile laid out. We’ve got…
the allocation set to where we think there’s a really strong probability we’re gonna hit our goals or objectives, so don’t worry about it. You’re gonna be fine and I think that’s the, if you explain to the clients why and re-remind them of that kind of game plan, it puts their mind to ease pretty quickly.
Dave Wolcott (28:32.385)
Yeah, and also, I think trusting, you know, your data sources that you’re checking, right? It’s always really key to try to get these non-biased, you know, data sources where you can make objective decisions that fall into, you know, your own thesis, right, versus some of the stuff that can be very, you know, controversial. And, I mean, let’s face it, right? I mean, the media’s job is to sell headlines and get you to click and go in, right? So, the more shocking they can create the news,
Frank Hanna (28:49.262)
Mm-hmm.
Frank Hanna (28:59.82)
Yep.
Dave Wolcott (29:02.417)
That’s what they’re actually looking for. But as an investor, you need to stay the course and be very steady. And it’s about making linear gains over a long period of time is how you’re going to
Frank Hanna (29:15.51)
Yeah, absolutely. And look at those, you know, when everybody’s going one way, you know, typically people go the other, I think that’s Warren Buffett’s line, but I think, you know, I feel guilty, but when the market pulls back, my nature is to look at it as a buying opportunity, and I get excited to put money to work. I’m not excited for my clients because I know they’ll get a little nervous, but I think if you have that methodology.
You stay calm. And if you’ve got a little bit of dry powder on the sidelines, when you get those type of pullbacks, that’s where your big time returns are gonna be.
Dave Wolcott (29:56.333)
Yeah, for sure. Frank, if you could give the audience just one piece of advice about how they could accelerate their own wealth trajectory, what would it be?
Frank Hanna (30:08.034)
I would say just defer the taxes. Do everything you can above board to find competent tax counsel and or advisors that know what they’re talking about. Do everything you can, because it’s not about what you make, it’s what you keep. And I think if you reinvest in real estate and other vehicles to be able to soften that tax burden today, whether it be…
you know, accelerated depreciation on real estate, 1031 exchange planning, you know, maxing out your qualified plans if you have access to them. All those different things are gonna be ultra impactful over 10, 20, 30, 40 years. So I think, you know, taxes drive everything, I believe. And then whatever’s left over after you do those proactive tax planning, like how we allocate those dollars.
are critical. But I would say that’s probably the thing we focus on most is, hey, let’s figure out what proactive tax plan and can we evaluate and let’s not wait till December, 30th to start talking about that, bring ideas to the forefront, be proactive, evaluate those advantages, disadvantages, and then wherever we stand after that, we can guide them into some really attractive.
avenues for investments.
Dave Wolcott (31:38.273)
Yeah, yeah, that’s spot on. I think it really should be part of everyone’s wealth strategy, right, is targeting tax mitigation, right? Because we’re all always programmed to be thinking about yield and what can we get, right, based on our assets. But, you know, let’s focus on reducing our number one biggest expense. If you can reduce your taxes by 10%, right, that’s 10% more you have towards asset allocation, right, which is going to boost your returns even more.
Frank Hanna (31:57.451)
Yeah.
Frank Hanna (32:00.941)
Mm-hmm.
Dave Wolcott (32:06.381)
Right. And some of these strategies go for, you know, indefinitely, right. Once you get them figured out.
Frank Hanna (32:06.742)
Yeah.
Frank Hanna (32:11.338)
Yeah, yeah. And a lot of times we introduce a strategy and the client’s reluctant to throw dollars at it, but yet they’ll pay a hefty, hefty income tax bill. And then only to come find out they’ve got dollars stockpiled and then another account that they’re doing nothing with. So a lot of times it’s just, you gotta educate the client and really, you know, show them or illustrate the impact of some of those options for them.
Dave Wolcott (32:41.345)
Yeah, for sure. Frank, really appreciate you coming on the show today. It’s been an insightful discussion. I know the audience is really going to enjoy this. And if they would like to connect with you and your team, what is the best place?
Frank Hanna (32:57.39)
So our website is www.revxwealth.com, so revxwealth.com. And my email is frankhanna with H-A-N-N-A at revxwealth.com. Happy to talk, no strings attached, answer questions, give you guidance and confident we can help you out.
Dave Wolcott (33:21.365)
Awesome. Thanks so much for coming on the show, Frank. Yeah, appreciate it. All right.
Frank Hanna (33:23.414)
Thanks Dave. Yeah, appreciate it. Thank you.
Gino (00:00.11)
By the way, I do know Riverside, the problems it gives you, so I know how to upload, I know the whole Wave thing, we use it ourselves, so.
Dave Wolcott (00:06.056)
Okay, alright, good to know. It’s got a few quirks to it.
Gino (00:09.798)
does.
Dave Wolcott (00:11.3)
Gino, welcome to the show.
Gino (00:12.918)
Dave, thanks for having me on my friend. How you doing?
Dave Wolcott (00:15.264)
Yeah, doing awesome today. Really stoked to have you on the show. I know the listeners are absolutely going to love the discussion, uh, which we already started, um, uh, going, going at it, uh, before in the green room. So really looking forward to this. And for folks, um, who might not have heard of you or your background in your community. Um, can you share a little bit about your background? You know, how, how did it all start for you? How did you get in the game?
Gino (00:42.638)
Well, Dave, before we started recording, we had the pre-podcast and this is the podcast, right? So it was a lot of fun jumping on and getting to know you a little bit. And one of my favorite topics, honestly, is money. I mean, my parents were both immigrants and I was raised at a young age to save. I mean, we liked talking about money, but there was scarcity around money. It was more of like save for the rainy day. I got into the restaurant business because my dad owned the restaurant. I was eight years old going to work with him. And I thought,
Dave Wolcott (00:47.747)
Hehehe
Gino (01:09.982)
every eight-year-old went to work with their dad at the restaurant. So it was ingrained in me. And one of the things that the restaurant taught me over the years, I opened up my own place in 1994. I was 23 years old. I’ve been making payroll since 94. That’s a scary thought, actually. But I’ve been doing it for a long time. And when we opened it up, it was phenomenal. I mean, back in the 90s, you could literally own a small business and make a phenomenal living. I think all of that changed in 2007, 2008 with the Great Recession and also with technology.
Once all of a sudden all these different apps come online, we have to start delivering food, we have this competition, things start changing, get expenses like healthcare and all this unemployment and all these other expenses start popping up. I say to myself, this is not sustainable. I can’t live on one stream of revenue. I had four kids at the time. I need to find something different. And for me, luckily, I had done a couple of bad real estate deals and I just gravitated towards multifamily because my parents, they did do one thing right. They did have a few properties that they owned.
They own the restaurant where I was working and I was paying my mom rent and she had three apartments upstairs. I’m like, huh, it’s snowing this week. I’m not getting paid, but mom’s getting paid. Mom’s still collecting the rents. So that mindset of working really hard, saving my money was a precursor and I didn’t even know that was a couple of muscles that I needed to start to be able to build wealth.
Dave Wolcott (02:30.368)
Yeah, 100% Gino. It totally resonates. And I think a lot of us right in this country, we’re born into a scarcity mindset, right? That’s where our parents kind of came from that generation and look at their parents, right, even going through the depression and different things. So there was just a whole different way about how we approach things, everything from food and energy and everything was, you know, very limited, right. And it was all about sweat equity, you know, how much could you
you know, put into on the weekends, you know, I was always working on the weekends. I was always working multiple jobs. I was working at nights and, and you just pat yourself on the back and say, Hey, this is sweat equity, right? We’re putting it in, right? But when you kind of can transition into an abundance mindset, you know, you realize that your talents can have, you know, a bigger impact. You can make more of a difference, right? When you’re thinking kind of in abundance.
But let’s transition Gino into kind of what we were talking about earlier, which I think is really, it’s ironic, right? We were talking about wealth strategy secrets and one of the initial secrets to building wealth is really not that much of a secret, but yet so many of us struggle to actually achieve that. So why don’t you break down that concept that we were talking about?
Gino (03:45.847)
Mm-hmm.
Gino (03:50.502)
So for me, I realized that saving was a good thing. But if I’m saving for an event, I was taught the middle-class way of saving. Use a 401k, use a 529 plan. The problem was when my children got to the age of going to college or when I retire, there’s a certain amount of money there. As the event occurs, that money gets depleted and it’s no longer replenished. When I realized that I need to save
to buy an asset and that asset will pay for the event. Everything changed for me. And I’ll give you a perfect example. In 2013, we bought our very first deal, Jake and me. We bought a 25 unit, it was our first deal. And over the years, rents went from $350 to where they are currently $1,100. The asset, we bought it for $600,000. It’s worth over $2.5 million today. We’ve owned it, it’s been 10 years. The benefits that we’ve gotten, the principal pay down.
The tax benefits are all galore. But the kicker is the cash flow that I get every month. We get an average of between $8,000 and $9,000 a month. This month, I got a check for $2,500 from that property. Well, that first property has put my first child through college, my second child is about to graduate, my third one’s up to bat, all from one property. I still own it, and it’s still producing money every single month.
And that was the complete switch and the complete change for me. I think what happens when people are trying to create wealth, they need to have an understanding of their spending habits. You will not be able to create wealth no matter how much money you make. You can make $18 million a year. If you spend 17 and a half million, well, you’re going to be go complete completely broke because you don’t have any money to pay your taxes, but you need to be able to be diligent enough to save some of that money and have an understanding that you need to allocate that into assets.
that will be able to pay you today and down the road.
Dave Wolcott (05:46.484)
Yeah, I couldn’t agree more. And the best book that really encompasses that topic is The Richest Man from Babylon, right? Where you have to, you know, trust, just try to save and, and I know this is an important lesson, we all try to teach our kids, right? You know, try to always kind of, you know, pay yourself first, try to invest and buy assets, you know, for the long term. And then that will kind of support you. But I know it can be challenging, right? We always have things in life that come up.
Gino (05:53.763)
Yes.
Dave Wolcott (06:14.448)
We’ve got things for our kids, maybe with a career, or you’ve got a vehicle that breaks down and some of these unexpected expenses. But now more than ever is really critical. We’re kind of coming into Q4 right now, so I think it’s a great time for investors to kind of work on, I wouldn’t call it a budget, but I would call it a forecast. What does the next 12 months look like? And actually start by looking at your goals.
Gino (06:36.967)
Mm-hmm.
Dave Wolcott (06:42.264)
right, in creating your vision and what do you want to get to in terms of, you know, a certain cash flow goal you might have or a net worth, you know, how many investments do you want to do in 2024? And then figure out, okay, now how can we get there, right, by, you know, saving some additional money and different things. And the other thing that I would add to that as well, Gino, that I think is like, you know, super powerful.
Gino (06:54.253)
Mm-hmm.
Dave Wolcott (07:07.444)
Um, it’s, you know, and that’s why we do this show and you know, your show as well, it’s educating investors to realize that even if you feel capital constrained, it’s amazing the opportunities that you can come up with to actually generate new capital, right? It could be a new partnership or a new, uh, collaboration you have with someone or side hustle or something. Um, any, any thoughts on that?
Gino (07:22.796)
Mm-hmm.
Gino (07:32.19)
Yeah, before I get to that, that’s a great idea. I really need to bring it back to and finish that thought about the savings and all. When you have young children, what do we do with our kids? We tell our kids to save for a rainy day. Hey, you’ve got money from a Bermuda or a baptism. Let me take that money and put it into the bank. Well, all of a sudden a child is.
denoting savings as painful because you’re taking money away from them and putting it away somewhere for them for a rainy day. So you’re already setting them up for failure and I don’t think we even understand we’re doing that. I give you a perfect example of how I helped my son understand this. When he was 16 years old he comes to me and he says, dad, I want to buy an amp for my guitar. I’m like good Mike, how much is it? It’s 1500 bucks. I said Mike, you have $5,000 in the bank. You already have two amplifiers.
you’re gonna spend 25 to 30% of your net worth on an amplifier, I said, I’m not gonna let you do that. And hemming and hawing and hemming and hawing, and after six months he gave up, we actually had a deal come up at that time. I took all of his $5,000, it was painful for him because he actually sought, leave the bank, go to zero, but I put it into an asset. That asset over the next five years has gone 100x. He’s blown up, but more importantly, through the journey,
He’s understood what an owner draw is. He talks to me about seller financing. Dad, when you get your next deal, can you seller finance your next deal to me? He’s gonna want us to dilute me. He’s talking about economic and physical occupancy, which actually helped on one of our deals, but he understands now that he put that money aside to work and now every month those properties are paying him. And we’ve had like four or five refinances in the last four years from that one deal because he keeps putting into it. Instead of getting that money and buying something with it, he’s…
saving that money to put into the next deal. And now we’ve just got another deal coming up and you know, he loves guns, he loves firearms, my son. He’s like, I was about to buy a gun dad, but guess what? We’ve got this deal, I know you need 50 grand, I’ll hold off on the gun purchase. That’s what you’re trying to teach your children. And that is adults, it’s very hard for us as adults to come through that concept. It’s really about the psychology of money. I would-
Gino (09:40.426)
recommend that book 100% for anybody, written by Morgan Halsell. It’s the relationship that you have with money. It’s a dopamine hit. It’s really easy to go out and buy something real quick and you get that dopamine hit. It’s a lot harder to train your mind to get that dopamine hit to wait to save money. Now my son, I think, feels really good every month the draws come in. He gets that dopamine hit from seeing the draw come in from that savings account getting bigger and he’s working towards that. And every time a deal comes,
he’s working towards that, that brings him happiness. Not just buying the guns, you have to understand what brings you joy, that brings him joy. But I think if you can balance yourself by understanding your relationship with money, if you get it and all of a sudden you feel the need to spend it, that makes you feel good, it’s gonna be really hard, Dave, for you to create wealth that way. And that’s what a lot of us get trapped. It’s called Parkinson’s Law. You make 100 grand, you spend 90. You make 200 grand, you spend 180. As you’re starting to earn more money, you tend to increase your lifestyle.
Well, if you can take a look at that and say, well, we were okay with 100, why do we need 200 now? It’s time to look at your account and to figure out how to manipulate it and to say, I need to put that little extra on the side and then start feeling good about it. And then all of a sudden your brain starts associating saving and investing as a good feeling and going towards that. I hope that helped because to me that was, it’s been weighing heavily on my mind for the last six months wondering, why do people have seven figure incomes? They’re making a million dollars a year plus and they’re living paycheck to paycheck.
I think this is the reason why, to be completely honest with you, and they’ll always be stuck in that rat race, and that hamster will, if they don’t adopt this new mindset and these new habits where they can allocate some of their money aside and start putting that money towards assets.
Dave Wolcott (11:20.undefined)
I couldn’t agree more. I think basically investor psychology is so important, right? Because money is just the tool anyway, right? Why are we buying this asset, right? Maybe you’re buying this asset because you’re trying to create cash flow, which is going to give you maybe it’s more financial security so you can make different decisions in your life. Like I know looking at my kids, if they had, you know, a few hundred K and the bank, they might be making different decisions right now about their career.
Gino (11:26.776)
Mm-hmm. Mm-hmm, yes.
Gino (11:48.022)
Yes.
Dave Wolcott (11:49.836)
right? But getting crystal clear clarity on what your goals are, what your vision looks like, and then starting to put a plan in place to be able to get there, right? So whether that’s saving more, coming up with more capital creation types of opportunities to get there, that is really at the heart of this, right? Because the investments are just the technical piece of how you’re going to actually get there. But if you don’t have it really wired in your mind, you know,
You’re going to miss the target if you don’t have one every time.
Gino (12:22.926)
You asked a great question. I really want to answer the question. For me, I think you said collaboration. In real estate, it doesn’t come down to whether you have money or not, because most of us start without money. Jake and I, in that very first deal, it was a total of $87,000. Me, Jake, and my brother each put $27,000 into that deal. We used seller financing on that deal. And guess what? Seller financing is back. It’s raging back, because deals are harder to finance right now. There’s more opportunity with seller financing. I think the other thing that you need to figure out
is you hit it with goals, but as an investor, as a person, what are your values? I think if you can figure out what your values are, that comes back to the psychology of money, are you more of a risk taker? If you have a long-term mindset and you’re willing to defer it, multifamily is the best vehicle because within the next five years, if you start investing now, I can almost promise you within the next five years, if you do all the right things, you will be able to retire.
because that five year cycle will allow the assets that you’re buying to be able to matriculate where you’ll be able to pull that equity out and resource that equity. It takes a little bit longer, but figure out what your values are. And if you’re the kind of person who likes adrenaline, who’s a real junkie and all that, multifamily may not be the venue for you early on because you may need to be doing transactions, you may be getting into crypto. That’s why you have to understand what the makeup is all about. But to your question,
Syndications are an amazing way to start scaling up and getting into multifamily. If you don’t have the credibility, go out and find an operator who does. Try to partner with that operator. Try to bring value to that operator. See how that operator can use your help. Are you boots on the ground there? Can you help them asset manage? Can you help them raise capital for it? And get on a team. Or if you have money, capital sitting around, you as a limited partner, invest in somebody else’s deal as a limited partner. Understand that you have to know how to underwrite the deal and…
do it as if you’re doing it yourself. But there’s so many ways to get into real estate that I think people just think of them doing themselves and there’s so many functions and so many different facets of the real estate space that you need to have a team. I mean, multifamily is a team sport because you have investors, you have asset managing, you have property managing, you have deal sourcing. There’s so many different avenues and venues to get into this business that if you can find one that you shine in and you can start partnering up with other people, great way to start scaling up in the business.
Dave Wolcott (14:42.584)
Have you created an overall wealth strategy for your own investment thesis?
Gino (14:50.03)
I call it the baby money soldiers. And basically what it is, this is my wealth thesis, I have a dollar bill here, right? Every dollar that comes into your life is what I call a baby money soldier. Now, a part of that dollar is operating expenses. You have to live with operating expenses, you have to deal with it. Part of it are luxuries. You go out, you have a good time, go to dinner, go partying, part of that dollar needs to be saved to buy assets.
Part of that dollar you can use for education. Education is an investment in yourself, right? Part of that dollar needs to be put into reserve because you know what? At one point you may have a problem, you may have an opportunity. The way you allocate your baby money soldiers, your dollars will indicate how you become wealthy in life. The goal is to procreate and let those baby money soldiers continue to multiply. Most people early on use too much of the baby money soldiers towards luxuries. When you do that, they’re dead.
They have no shot. They’re using for operating expenses, like having cars, right, you need a car, but do you need a thousand dollar a month car payment? Do you need to have a $4,000 mortgage bill? Do you need higher? You want to cut them back. The goal is to have enough in reserve. I like to use whole life insurance, to put my money in reserve, because it’s a savings vehicle. It’s a life benefit and it’s also a death benefit. It’s part of a state planning, right? That’s really, really important for me, but I can have access and I have liquidity from day one.
So part of my money in reserves, part of my soldiers, I’m not gonna bring them out to the battlefield. But the other part are gonna go onto the battlefield. I like the game of risk. They’re gonna conquer a property. Once that property is conquered, it’s gonna create little baby money soldiers. I don’t kill them by buying luxuries with them. I take those and I save them to go out and conquer another property. When that first property that I bought refinances, all of a sudden I’ve got bunch of baby money soldiers here that I’ve got, they procreated.
Don’t kill those baby money soldiers. Put those into another deal. Then the second deal, when it refinances or it sells, you’re creating more baby money soldiers. The problem is people kill their baby money soldiers too early in life. They don’t give them a chance to procreate. And that’s the problem. And what I call mercenaries in my game are just using other people’s money. When you’re borrowing money at the bank, 80% loan to value, 70% loan to value, you’re borrowing mercenaries from the bank and using them. If you can use mercenaries wisely in your game,
Gino (17:12.054)
you can become super wealthy, but the goal is really to continue to let these baby money soldiers procreate, and at one point, the cash flow from these properties, you’re living off of that cash flow. You can use that cash flow to buy your luxuries, right? To live a great life, but let these properties continue to matriculate.
Dave Wolcott (17:30.756)
Makes sense, creating massive passive income, always taking your income, reinvesting that right into the future. And this is all about delayed gratification as well, right? Because when you can, when you can have clarity on that goal and where you’re going, you know, it’s much easier to actually invest, right? Your existing, you know, assets into something else. Um, Gino, tell us about, um, you know, certainly interesting times, uh, we’re in talking about impending.
Gino (17:41.614)
Mm-hmm.
Gino (17:49.317)
Mm-hmm. Yes.
Gino (17:53.388)
Mm-hmm.
Dave Wolcott (18:00.336)
recession. Multifamily market has been very challenged, right, with the current debt environment. Equity is down on the capital raising side this year. What are your thoughts in terms of where we are in the cycle and what are you thinking about for 2024?
Gino (18:17.442)
Dave, that’s a great question. Jake and I were just talking about it this morning. He sent me an article from Forbes, and Forbes was comparing 2008 to 2022. And they think 22 is where the recession occurred, and we’re already coming out of the recession. You look at the stock market was down, real estate was down. There’s some differences between them. Back then, inflation, there was no inflation. Now there’s inflation. The weird part about where we are right now are asset prices are at a certain level. We still have inflation.
they’re gonna continue to raise asset prices up. The cost of capital has gotten high. So if you haven’t had to sell your property, you’re okay. You can always buy real estate. You can always sell real estate. And this is one of those areas right now that if you need to be a motivated seller, you’re gonna get a haircut. And they’ve been able to pushing off, pushing off, but there’s a lot of distress in the market right now. You saw in October, all those maturities coming due and a lot of new partnerships, a lot of new general partnerships. There’s where the opportunity is. And I think with the cost of capital where it’s gone to,
The Fed didn’t do a good job. They raised rates too quickly. They should have raised them sooner, slow this thing down a little bit sooner. But there was an election back in 2022. Let’s not kid ourselves. They didn’t do it because they didn’t want to affect the election. But you know what? They did it back in 2019 when the other guy was in office. So we can’t say it’s one or it’s both parties. It’s just the system itself. Understand how the system works. They’re gonna have to lower them before the next election. That’s just how the system works. That’s my opinion. I think it will happen because it’s already slowed down.
I mean, you see a single family homes, what, at a 30 year low of where they’re trading? I mean, it’s ridiculous what’s going on. They’re talking about supply and demand. To me, I think long-term multifamily for myself, it’s a basic human need. You can’t buy it on the internet. There’s certain commercial assets that I would not wanna be around. I don’t wanna be on office right now, specifically in certain markets. I think self-storage is doing okay, but I’m not really up on the self-storage. But what happens if you get into a deep recession? Are people gonna keep their?
their garages, their self-storage units. They may because they’re addicted to junk. But I think for me, multifamily going long-term, there’s an opportunity with the seller financing with you got to use recourse debt in some of these loans, but credit unions are an amazing place right now to be looking for financing. Community banks are a little bit more challenging, but that’s how credit unions have stepped in. And for us going forward, rents have stagnated, they’ve slowed, which is a good thing because they were going up 20% a year plus.
Gino (20:40.722)
I think the key right now is to find markets that you feel comfortable in that are going to be, I don’t want to say recession proof, but that are going to continue to grow. You want jobs to continue to come down into the markets that you’re invested in. You want people to continue to come down. If you’re in a market where you’re losing a lot of jobs and you’re losing population, well, what follows is rent loss and basically your supply, your demand for your asset is not there, so rents are going to drop. So just be careful.
you’re investing in. And people are talking about secondary and tertiary markets right now as something that’s hot. We’ve been investing in Knoxville. I don’t want to call it a secondary market, but there are secondary markets outside of Knoxville that we’ve been investing in. And we think they’re phenomenal. Price is a little bit cheaper. It’s still an infill because you can still get into that tertiary primary market by commuting. But look at the markets right now. It’s very important to be in a market that is not losing jobs and losing population. And if it is,
are going to fall in those markets. That’s what ends up happening. Price prices are going to reset. Can you buy that asset today with fixed rate long term financing and weather the storm ahead?
Dave Wolcott (21:49.472)
Yeah, that was going to be my question, right? Because, you know, in October, right, jobless claims have been increasing, right? So you’ve got unemployment on the rise, right, which is, which is a major early indicator of what’s to happen in some of these markets that have been overheated, right? If people just, they start to lose their jobs, they can’t pay the rent, right? That could be the, you know, potentially the biggest risk that those assets are facing.
Gino (22:16.727)
Yes.
Dave Wolcott (22:18.588)
And then if you can’t keep up with the cashflow, right, your NOI is going to suffer and then, you know, you’re going to start to see some assets that need to be traded pretty quickly. So I think there’s going to be opportunities in 2024. But as you pointed out, some of getting into some of these markets, right, that are a little bit more, I would say we’re not recession proof, but maybe recession resistant.
Gino (22:26.07)
Yes.
Gino (22:44.094)
And Dave, what’s interesting is in 08, 09, unemployment really took a big hit. A lot of people were unemployed. This part of the cycle, this market cycle right now in the last couple of years, unemployment hasn’t been affected. And it’s funny because the Democrats want low unemployment because low, I mean, they want low interest rates because low interest rates have really low unemployment. Republicans want low interest rates because they want private equity and all these assets to go up in value. There’s a lot more speculation. So they both want the same thing.
But at a certain point, it becomes harmful. And that’s how you create bubbles by having low interest rates for so many years. There’s a lot of speculation, cost of capital is cheap, and that’s what’s happened. And I think once the Fed gets that unemployment up, it’ll take pressure off of inflation. Inflation will drop, or increase in prices will drop because less people have money to go out and spend, right? That hasn’t been the case. But once these jobs go away, as they should, because there’s a lot of jobs out there that, especially in tech.
They’re just hiring people just to keep them on the payroll and you see what’s going on, getting rid of them. But once unemployment does take a hit, then we’ll see, okay, wow, they’re gonna think themselves, there’s a recession coming on, let’s drop interest rates to spur the economy. I mean, it’s been going on for the last 150 years, that’s the cycle. Hot, let’s raise rates, we’ll slow the economy down, okay, economy’s in recession, let’s drop rates. Let’s raise rates, let’s drop, that’s what’s been going on for the last, what, 150, 200 years?
And I think that’s where we are right now. They want to get unemployment up a little bit to slow things down. Once they think they have inflation on the control, then they can say to themselves, we can drop interest rates.
Dave Wolcott (24:19.888)
Do you think now is the right time then to invest in multifamily?
Gino (24:23.326)
Ah, it’s always the right time. I mean, if you’re ready to invest right now, I’ll give you a perfect example. Two years ago, brokers were not calling Dave Walcott and Gino to put in an offer. I’m sorry, they’ve got six offers. I had the deal, I’m not gonna put it on Loopnet. You’re finding deals on Loopnet now. That was non-existent two years ago. You’re having brokers call you. Please put in an offer. There’s a call to offer on Thursday. That means there’s less demand out there. Like the people who are having problems.
with their properties, they’re having capital calls, they can’t raise money for this next deal, so there’s less people out there. Plus, when you’re watching the news, everything’s negative all the time. So you’re having shots of cortisone on your body, and you’re feeling negative, because like, wow, there’s a war going on, we have inflation, we have a recession, I’m getting wary. So people constantly hear the negative news, and you have more or less people that want to invest, there’s less euphoria, and on top of that,
People see that interest rates are higher and they’re saying to themselves, I’m gonna hold off because interest rates are higher. To me, if you can make a deal work with where the interest rates are right now, wait till the interest rates drop and you can refi. The party’s gonna start. So I think for me right now, getting into it and actually creating relationships with brokers because they’re gonna call you back, understanding the market, becoming an expert where you are in that market is phenomenal now. It’s been challenging the last couple of years because…
You haven’t been able to get calls back from brokers if you’re brand new, if you didn’t have any assets. But now, if you’ve got a plan, you can speak the lingo, you have a process or a framework, you have some capital, and you can go out and speak intelligently to brokers. They’ll love to do property tours with you. They’ll love to send you any kind of deal. So for me, now is the time, and these next 24 to 36 months, I see a big window of opportunity of deals coming on and people actually having a chance to buy these deals at a discount.
Dave Wolcott (26:11.596)
And what would you say is your philosophy around the debt side of the equation right now? I mean, interest rate caps, right, are quite pricey. And, you know, when you look at the overall cost of trying to do a deal in today’s environment.
Gino (26:20.138)
Yes.
Gino (26:23.93)
Yeah, our process three step framework is buy right, manage right, and finance right. We always look at a deal from those three lenses. No one likes to talk about manage right, you know, Jake and Gina, we teach the manager at systems, we’re vertically integrated, we have a property management company. But from finance, right, Jake and I’ve been saying for the last five years, long term fixed rate financing, we have done zero deals with bridge debt, because we saw back in 2021, you couldn’t get labor.
You had supply chain shortages. So if you’re doing a deal with 24, 36 months of bridge, it’s coming due right now. And not from any fault of your own, but you just couldn’t pull it through. There wasn’t enough help. These workers were working at Amazon, making more money. They were staying home collecting whatever, unemployment or PPP, whatever kind of money they were collecting. You couldn’t get people to work on that side. So for us, we’re looking at longer term fixed rate financing. That’s why we like community banks or credit unions with a five year term. So at least you have five years to get that.
that deal up and running. And within five years, you should be able to be able to stabilize the property. So that’s what we’re looking at right now. And you know, Freddie and Fannie, their rates are a little bit higher, but if you’re underwriting for 6.5, 6.9% and the deal makes sense, I mean, that’s what you gotta do. You just have to understand what your exit strategy is. If you’re looking at a deal and you’re gonna get out in the next three to five years, maybe you don’t go with what we call yield maintenance. Maybe you go with something on a step down basis where it may cost you a little bit more on the front end with higher interest rates.
but it gives you the flexibility to be able to refi or to exit or sell in that timeframe.
Dave Wolcott (27:54.656)
Yeah, we’ve been saying no to the majority of the deals that come our way. And you know, it looks as if, you know, there’s still a gap between buyer and seller. You know, you’ve got this interest rate cap cost, you know, that’s in there. And you know, it also depends on kind of really what that financing is like, I’d like your three step approach. It really makes sense. What other ways are you employing to mitigate risk for your investors getting into these assets?
Gino (27:59.148)
Mm-hmm.
Gino (28:24.578)
So for us, when you’re looking at it, to mitigate risk, for us, it comes down to, we like to manage our own deals. So that’s one way you mitigate risk. I’ll break it down as simple as having a buy-write criteria, understanding what assets you’re buying. I mean, what market, what price points, what median incomes, what year of the build, what year builds, the 80s build, 90s build, what kind of unit mixes do you like, what kind of amenities. So understanding that.
crystal clear for every investor is so important. We even go so far as to say the 1% rule. I mean, if you’re buying an asset that’s 100,000 a unit, you’d like to get renovation, you know, rents that are post-Reno at $1,000. I mean, that deal on the surface makes sense. Now, it’s been hard the last couple of years to find deals like that, but we’ve closed two deals and we’ve got a third deal that we’re closing in 30 days that have all surpassed the 1% rule. So for us, it’s as simple as that.
looking at our buyer criteria, understanding it. But then obviously it’s not just the 1%. You wanna dive in and do some more calculations with your underwriting. But also our strategy is to buy and hold these things for the longer term. Some investors may not like that, but we wanna buy and hold these things and then we wanna continue to manage these properties. So that’s how we mitigate our risk. Because when you have time on your side, you can tend to make a couple more mistakes. If you pay a little bit more, it’s okay, because you’re owning this asset eight, nine, 10 years. And to mitigate risk for us in this part of the market cycle where pricing is,
we’re buying assets that are a little bit newer. We started out buying assets in the 50s and 60s with a lot of deferred maintenance, but when you’re paying 30,000 or 40,000 a unit, you can spend another 10 or 15 a door to make that up. But when you’re buying an asset at a three cap, that’s a 1960s build, I mean, with tons of deferred maintenance, that’s an issue. There’s a lot of risk with that. So that is going by the wayside right now. And I think C properties are gonna decompress those cap rates. They’re gonna have to go up because
There’s a lot of old properties out there. So beware of buying these properties that are older because you’re getting them for a better price. Understand the budget, put in a budget in place and make sure that budget is realistic and always looking at where you can bring this property to. You’re buying, always buying a property on a pro forma. Don’t buy it on the broker’s pro forma, buy it on your pro forma.
Dave Wolcott (30:43.096)
Makes sense. And what would you say in terms of the markets? You talked about tertiary markets that you’re looking at, Knoxville is one of those. Any other particular markets that you like right now?
Gino (30:55.99)
Well, we like the Southeast. I mean, for our students, a lot of our students are in the Carolinas. A lot of them are in Florida. Although Florida can be challenging with the insurance, but that’s gonna take care of itself. If you bought a property in the last two years in Florida, it may be challenging, but now you’re underwriting deals at what insurance is, so you have an advantage if you’re buying a deal right now. Insurance has been up 100% in some of these markets. Look at Houston. Houston insurance doubled in two years. So if you’re a good operator and you bought that,
on actual numbers, you’re going to be in trouble. You’re going to be hurting in those markets. But I still like parts of Texas. I like parts of the Midwest, believe it or not. I like the Kansas City markets. I think those are some really good markets. You know, everyone says Phoenix. Phoenix is just got a lot of assets coming online. Longer term, people are moving there. People are moving out to parts of the Midwest as well. So don’t be shy. Believe it or not, there’s one market that I really love. I like the Omaha market in Nebraska. Don’t know why.
other than it’s slow grower, 1%, middle of the country. Its cost of living is so cheap there in relation to what people are paying for rents. It’s not a boomer bus market. You may not make a ton of money on capital appreciation, but you can buy assets for the longterm that’ll cash flow. The problem with those markets is, you know, five years ago, they were so much cheaper. People who live there are like, this thing is so overpriced. Yeah, in your paradigm, when you were buying them five years ago, they were.
But on a cost-adjusted basis and going forward with the cash flows, they really aren’t that bad. And I think people are gonna continue to move to Omaha and looking at any markets that have infrastructure projects going on. I hear they’re gonna be building an airport in Omaha. You look at any of these markets that have really exploded over the last 10, 15, 20 years, Nashville with the airport, Charlotte’s airport, Atlanta’s airport, South Florida, looking at those markets, making sure that they have infrastructure in place.
to be able to take care of the growth. But I would stay in the southeast of the country and I like the Midwest of the country as well.
Dave Wolcott (32:54.436)
Gino, I’d like to go back and unpack one of the comments you made earlier on and really try to make this full circle in terms of a strategy for investors, right? Because that’s what we’re all about is kind of putting this strategy in place, so that you have something that’s much more all weather in terms of allocating capital. And you’re not just looking at that shiny object, right? That kind of comes along your way. But you talked about the value of whole life insurance policies.
Gino (33:12.014)
Mm-hmm.
Gino (33:18.742)
Mm-hmm.
Dave Wolcott (33:24.024)
I’ve been such a strong advocate of myself that we actually got licensed and we help our clients with that as well. And I’ve been using it for over 10 years and it’s just been such a phenomenal tool to be able to basically, you know, to your point earlier of like, okay, if you’re saving capital, right, where do you wanna put it that’s most efficient? Well, when you put it in this vehicle,
Gino (33:49.439)
Mm-hmm.
Dave Wolcott (33:52.032)
It’s compounding tax free, right? You have creditor protection around it, and you have access to it. You have that liquidity option to be able to go invest when that next deal kind of comes around. And it’s always for me, it’s always been like a rinse and repeat strategy. And then I also had, you know, during the course of building several businesses over the years, you know, sometimes you don’t always have the greatest quarter.
Right? So you want to be able to be in a position to protect your downside and what better place to kind of keep your capital, right? That’s, that’s working for you on the sideline. So how has your experience been with it in terms of your business and personal wealth investing?
Gino (34:34.242)
there’s yeah, there’s a few things I could say about this. The first is people always look at whole life and they look at the price versus the value. All these agents are getting wealthy. Well, what are the agents doing a fidelity with your 401k? If you look at it on a cost basis going forward, your fees and your stuff in a 401k going long term are a lot more than what you’re paying for your whole life. The whole life may take a few years for it to seed and to grow. But it’s not an investment. It’s an asset. And you’re not chasing yield. Remember that baby money soldier?
that big money soldier, not every dollar needs to be at risk. We’ve been told that cash is trash and you need to make as much money on every single dollar. You need to have some of that dollar put aside. For me for a whole life, I bought my first policy back in 2000 and my mindset back then was, but this is an expense. I’m putting money into a dark hole, five grand every year and I’m not getting any money back. That’s how it felt to me. And for me,
20 years later, I’m putting 5,000 a year and is returning 14 and 15 now. It takes years for it to see, but like I said, it’s a long-term mindset. I used that policy back in 2008 to buy a couple of duplexes. If I had that money in a 401k plan, I would have been penalized, I would have been able to take it out. The opportunity cost is so massive, it’s so important, and I think people don’t understand that. We called it the dual asset strategy.
Basically, you buy an asset, you have the asset of whole life, you’re borrowing the money out. And a concept to me, I have to borrow my own money? That’s not fair. But you’re earning interest on one end, it’s an uninterrupted compound, you’re taking the money out, you’re borrowing that money to buy a multifamily property. A multifamily property starts generating income, you tend to pay the loan back. When this loan is paid back, guess what? You have two assets now. You have the whole life policy with the death benefit, the cash value, the protection.
all of those benefits and you have the multifamily asset. And if you do that a couple of times, guess what? It’s just very difficult for people who are trained to buy term and invest the difference. Well, for some people that may be great starting out, but I’ve interviewed countless eight figure net worth individuals. Every single one of them has whole life in their portfolio. They tend to have real estate, they tend to own businesses and they tend to have whole life in their portfolio. Every single one of them. Seven figure net worth earners, they tend, I’d say 75 to 80%.
Gino (36:55.03)
people who have six figures and less, they don’t really look at it as an asset. They rather say to themselves, I’ll buy term, and then, you know, the problem is 99% of term policies expire, which is a good thing, but when you’re 52 years old and you have to re-up it, it gets to be prohibitively expensive when you can have locked it in at a younger rate. It’s just that thing where you have to try to justify borrowing money and paying for my own money, which is a painful thing for people, and it is expense early on, because early on it does take a few years for it to get going.
But man, once it gets going and you have that money sitting there, it’s guaranteed you know how much money you’re gonna be making every year. It’s such an amazing way to put money aside and have that asset there. And you can forget about it one day when you need the money or you need to collateralize that cash value because you need to put it somewhere but you don’t need to take it out. What a wonderful benefit that was. I needed $75,000 back in 2014. I was broke. We had just done a $4 million deal and my banker said he needed a letter of credit. And I’m like, where am I gonna get 75 Gs? I don’t have any money.
I said, oh, I’ve got a whole life policy. He goes, collateralize it. You don’t have to take it out of the policy. I’ll just collateralize it. I collateralized it for a year and guess what? Game over, life-changing opportunity. If I had a 401k, I would have had to borrow the money out, pay penalties, and then put the money back in. This was such an amazing thing. So it’s just really about opportunity cost and about buying and continuing to put your money into assets.
Dave Wolcott (38:17.356)
Yeah, it’s really a brilliant strategy and most sophisticated investors that I know have this as part of their overall strategy. Gino, if you could give just one piece of advice to our listeners about how they could accelerate their own wealth trajectory, what would it be?
Gino (38:24.93)
Mm-hmm.
Gino (38:35.882)
You said it early on, delayed gratification. If there’s one piece of advice, if you can delay the gratification, put the money in to buy assets that generate the cash flow and the passive income and continue to do that. And then at one point, that cash flow and that passive income will pay for your lifestyle, will pay for all the things that you want.
Dave Wolcott (38:54.132)
Excellent. It’s been such a pleasure having you on the show, Gino. I know the audience is going to enjoy this. If they want to connect with you, learn more what you guys are doing at Jake and Gino. What’s the best place?
Gino (39:05.474)
just go to jacongeno.com. If you wanna learn more about multifamily, just apply to work with the team, jacongeno.com forward slash apply. We’ve got the buy right, the manage right, the finance right. That’s our three-step framework. That’s our process. And it’s for anybody who’s either actively investing or passively. Cause if you’re a passive investor out there, willing to put $150,000 with the Gino or a Dave in a deal, you should know the business implicitly. You should know how to buy that asset, finance it.
and manage it, even though you’re not going to, you should still have that level of knowledge to be able to do that. So when you do give your money to somebody, you understand that they’re the fiduciary, they’re taking your money, but you understand their plan and you understand that plan fits with what you’re trying to accomplish.
Dave Wolcott (39:46.76)
Awesome. Thanks again for coming on the show, Gino.
Gino (39:49.858)
Thanks Dave.
0:00
We talk about money and investing and assets and all this good stuff. And we should and I love to and I can talk about it as people can probably tell for hours an hour, but if you fear that everything is happening to you, and not because of you, I think you’re going to be stuck in that for a long time unless you change. Welcome to the wealth strategy secrets of the ultra wealthy podcast where we help entrepreneurs like you exponentially build wealth through passive income to live a life of freedom and prosperity.
0:32
Are you tired of paying too much in taxes, gambling, your future, the stock market, and what to learn about hidden strategies for making your money work for you.
0:42
And now your host, Dave Walker, serial entrepreneur and author of the best selling book the holistic wealth strategy. Hey everyone, welcome to today’s show on Wall strategy Secrets. Today we have a truly fascinating guest with us Mr. Axel Meyer offer actual journey from a retired German air force officer to a successful business owner and real estate investor is truly inspiring. He started his entrepreneurial journey in 2005, focusing on consulting employees skill development and program management, showcasing his passion for education and helping people become successful. And this episode we talk about the key aspects of actual journey. Specifically his transition into real estate investing, and axles research indicating that owning tangible assets like residential real estate, was the most advantageous path for building wealth and securing a comfortable retirement. He also shed light on what turnkey real estate investing means, and how it can be a game changer for investors seeking a more hands off approach to real estate. In this episode, we cover the potential for long term wealth accumulation through residential real estate, the benefits of a hands off approach to real estate investment, and his personal experiences and strategies and the residential real estate market. And without further ado, Axel, welcome to the show. Yeah, thanks for having me. Yeah, you bet. Appreciate your time today. And I know this is gonna be quite insightful for the audience. And for those that aren’t familiar with you, tell us about your unique background and story how you got into investing how it all started for you. Yeah, how far back? Do you want me to go?
2:22
It’s up to you. If it’s entertaining, then go for it. Right? Yeah, well, I mean, maybe I hope it’s entertaining. So in a nutshell, I tried to be concise, I was flying for the Air Force retired from that when you know, the body said, hey, no more of these high G’s anymore. I don’t like that anymore. And I went into corporate America for about four and a half years. And in during that time, I should say I was also studying because people were telling me if you don’t really have a business degree or something like that, it’s going to be hard, long, longer to, to have a career. So I was studying of all things leadership and working for a company that literally I went at night to the classes and during the day, I saw exactly what not to do.
3:11
And so ultimately, there’s a long story that I’m going to spare you and your audience but ultimately there was an was an incident where the leadership team, which I was part of made a suggestion on how something should be changed in the company to make it sustainable and growing in the future. And the owners didn’t want that. So I guess you can imagine, if you and five other people say this is what we think is needed to make this successful. And the owner say no, we really don’t have a place much longer anymore. So for me, then the question was, Okay, do I want to stay in corporate America? finishing my degree and seeing this kind of bipolarity? Or do I do something else? And so I in 2005, I started my first company in the consulting business. And what I learned from being self employed and having my own company is that unless you grow really rapidly and start having, you know, like staff and all that kind of stuff and funding, there isn’t really much of any kind of retirement plan for small business owners. And for me, if you think about it, you know, so I was thinking, okay, how can I do something, and I still vividly had in my memory that the market had crashed in 2003, in a.com, bust and all that kind of stuff. So I really felt stock market is probably not the right thing. I never really felt that I should give the power of what happens to my money away. So 401 K was really not the thing. And so then I looked at what can I do directly and then basically found real estate investing. And
4:46
it is, I think, to some extent, also been triggered by the fact that in the military, when you’re basically moving in your career in the military, you move in quite a bit and sometimes you have housing from the military, sometimes you’re renting sometimes you’re owning
5:00
Then when you get moved again, you sell it and move to the next station. So there was a little bit of okay, how is it live when you’re moving and every two or three years or something like that? So I started real estate investing purely to build basically a retirement leg, so to speak for my family. And I had said, Okay, well, there’s probably another 2025 years of like my second career in life to cover and that should be enough to build a nice portfolio. And over the years, I mean, honestly, they when when I meet or met people, but even to say today, but at the time, I met people and move just hey, what are you up to? Like, just when we started our conversation, right? You said, How’s life treating you? What’s going on and stuff? So I oftentimes answer while I’m in the process of buying another house, and people get like, perked up.
5:51
And you know, did you do this last year already? And yeah, and so I started talking about it, I guess, I got either annoyed them or fascinated them, or a little bit of both.
6:01
And they kept encouraging me to say, hey, you should not just keep this to yourself, if it actually works. And obviously, it seems to be working for you, you know, can you help me? Or can you help others? And at some point, I basically said that was like end of 2015. Maybe you shouldn’t make it official. And as you can see in the background, we found it idea with grower, and systematize stuff and started a mentoring program and all kinds of resources, newsletter, podcasts, all those kinds of things. So that’s how this all evolved. And yeah, and now we have people doing basically just the same thing that I do. Yeah. Wow. Really interesting, Axl. And where are you from? Originally, I’m originally from Germany, I was, I originally joined the German air force. And I’m one of these completely weird people who got the unique opportunity to work for the US Air Force for like, six years, a little more than six years. As part of that year, I came over to the US as an exchange officer. So a guy from the US Air Force went to my unit and started flying the plane, I was flying, and I got to learn how to fly at one elevens. And then, that was all originally supposed to be two or three years and ended up to be more than six years. And then after you’ve been six years in another country, and your daughter kind of grew up in that environment, and the weather is way better than Germany.
7:26
With that, okay, well, if anybody is going to be willing to hire us, that’s why, you know, that initial thing that I mentioned, I always call it my mutiny story. And it made me feel bad for quite a while because that organization helped me to get a green card.
7:42
But then I wasn’t the only one. And we were a team of like, six, director level executives, who said, We need to change this company, if it has once you have a chance to survive. So I’m so grateful for that. But I’m also glad that we ultimately got to be business owners. Yeah. Yeah. What an interesting story, I always find it fascinating that, you know, folks from other nationalities who come to the US, they just have such a different viewpoint on the US and a lot of things that we kind of take for granted here. And, you know, maybe have complacency around other people find a lot of, you know, excitement and vigor. I mean, especially to be an entrepreneur to be an investor in this country with all of the faults that we have out there. It’s still one of the best countries in the world. But I do like German beer and food. Yeah, absolutely. And you never want to lose that. And we still practice that. The one thing and I think this aspect of appreciation that you just touched on, also has a little bit to do, I would say with curiosity, right? Like when you get to a new environment, even though on first glance, you would say, well, things are not really that different on you know, you’re driving on the same side, and, you know, the roads look the same. And yes, the electricity is a little weird, we had to leave all our appliances at home because they needed to 20 and uss 110, and little things like that. But initially, it felt or very similar, but when I’m building a short, quick bridge here to investing, I’m pretty sure not very many people are, for example, very aware that the United States has this huge and tremendously massive advantage when it comes to lending.
9:32
In almost every other country, I know pretty well how it is in almost every country in Europe. And to some extent, it’s similar in Canada as well. You cannot get any more term than 10 years fixed.
9:47
Right? So if you take the scenario real quick for our current situation, and let’s say after the big financial crisis sometime in 2015 or so, or 2013, or 2012, or something
10:00
In the period after 2010, you got yourself a house, and you got yourself a mortgage and maybe that mortgage was 4.5% interest, we would have probably living through the last 10 years in the United States at some point, refinance our mortgage, because we could get it down to like somewhere in the threes, right? Well, let’s say somebody hadn’t done that. And here we are in 2023. And you got your house in 2013, you go from 4.5 to 8%.
10:33
Just because the fixed timeframe that you could do maximum in the UK, in Germany, and most places in Europe and Canada is can Yes.
10:43
So you’re in the house, nothing has changed, the house is the same, but suddenly your monthly payment jumps by 6070 80%. Just because the interest rate jumps up, you could do anything, you know. So
11:00
this whole thing that we can get a 30 year fixed. And we as the people who borrowed the money have basically the right to refinance, almost at any point. And without any penalty. That’s the other thing in Europe, for example, if you want to refinance, anytime, within that 10 year window, you have to pay the bank a fine for the privilege of refinance. Wow. And those kinds of things, and not just a little example. So when somebody comes from a certain system, that, for example, in lending is way more restrictive, into a system in the United States. That is much more open. There is more appreciation. I mean, the other thing is, you know, like a funny little side story for your audience, they have such a thing called a credit card in Europe tool. But in the vast majority of the countries in Europe, when you have what’s called a credit card, you have to basically pay the balance at the end of the month, every month. So it’s no credit line and your credit card.
12:05
Debit Card, yeah. Well,
12:09
in a way that you know what the argument of the banks and lenders in Europe is they say we’re basically giving you credit until the end of the month. Yeah. 30 days. That’s it. Yeah, exactly. And that’s basically the same with us, too, right? Like, I mean, if you buy something, and you pay it off your balance on the card, at the end of the month, you don’t pay any interest, right? What the Europeans don’t know, and most other places in the world don’t know that what we’re doing like, we’re basically getting a 10 or 20, or $30,000 line, then we max that out. And then we get another credit card to pay that lines, and so forth, and so forth, until finally we can pay anymore, right? But especially now, when rates are 25% on credit card, that whole thing, you might say is he whining or the audience and I’m not whining about I literally and most people will say creative financing taking up to the hilt, we bought a house on credit cards,
13:02
that we found a guy who had access to credit cards, where immediately after opening the credit card, you got 30 or 40 or $50,000 line. And that house was not the super expensive house, I think it was like 180 or so. So we just opened six credit cards and maxed out all lines immediately. Why? Because we bought the house on a contract and we said okay, within two years, we will have the money to pay basically the price of the house. And in the meantime, we just pay the existing mortgage. But when those two years came to the point where they were almost up, we didn’t quite half the money. Yeah, so we asked what can you do in Europe completely impossible, because your credit card is only good to the end of the month.
13:47
So those are just a few little things. It’s a great
13:51
in the context of lending, investing and stuff like that, there are a number of awesome things that Europeans would just say one day for now, you
14:03
know, I I really love in the world of investing, right? All the creativity that you can have. And really a lot of this is around financial engineering and your mindset of where you can go with some of these things. And I think a lot of people don’t realize that is that, you know, as if you create a business, the business can take out these credit cards, and you can actually fund I mean up to hundreds of 1000s of dollars for your new business venture. It doesn’t show up on your personal credit. And now you have access to capital to get something going. And I think that’s such a big opportunity for investors who are looking to you know, they want to put more capital to work, they’re hungry to invest but they just might not have the capital. So if you could create some kind of side hustle around something that you do, whether it’s real estate investing or something that you’re good at, you know, you can get
15:00
wanting to do that, you know, quite quite quite easily. So yeah, exactly. Well, I mean, right now, I would probably not suggest that approach because the interest rates on cards.
15:12
Yeah, they’re much better things like SBA loans and stuff like that, that you could do for that purpose. But fundamentally, what I wanted to point out, like you said, you know, like, when you come from a different culture, a different environment, different set of rules, you come into a new environment, one of the things and I believe this is natural, and this is maybe part of the reason when you look today, who are the CEOs of like the top 200 300 companies in the United States? I wouldn’t be surprised. I haven’t looked recently, but 50% of them are immigrants, right? And part of it is, when you come into it, the new system, even if you speak the language, you want to at least I would say anybody who comes to the legal route, and once to kind of find out how does this system work? And how can I find my place within it? Right. And so I mean,
16:02
a little anecdote that goes in the other direction when I was proud, holder and showed everybody that at some point, through my service and work and making money in Germany, I had reason to the state of German go at MasterCard, with a bank loan, not really on the card, but the bank loan of 30,000 euros at the time, sitting in the background. So the bank basically said, if you cannot pay off the card, at the end of the month, we floating you up to 30,000 as a separate loan, I go in it was in Texas, we get to Texas, we want to buy a used car, I think $9,000 or something like that. And you know, like I puff up, your chest out straight up, Air Force officer, and I’m giving with all the prior my going MasterCard, and he runs it and it says rejected, like and it was the car was $9,000. ranting again, two or three times he said I don’t know what’s wrong with this car, but it’s rejected. So it’s impossible after 30,000 line against it’s a gorge car, it should be covered. Right. So I call it was timezone stuff work. So I call the bank. And they said, why this is admittedly like 9096 or something like that. So they the bank says, yeah, sorry, you cannot make foreign currency charges on this card. I’m like, this is a credit card boycott. I can’t go out of country and, you know,
17:34
yeah. And then I learned very quickly, this goes also to this thing, you know, like, now we know that in the US, it doesn’t matter how old you are, if you don’t have a credit score, you’re nobody. Right? And so when they put in social security number I had received with the military, I had that, but I had no history. Nothing, right. I had no credit cards, I had no loans. I had no CDs, I had nothing. So I’d also basically credit score when they looked for his credit score and said, None found.
18:04
Wow, is this like 35 year old guy just popped up?
18:09
Yeah. So yeah, I think that’s a perfect segue to really the focus that you have on your residential real estate model, which I think listeners are gonna find quite intriguing. So why don’t we kind of jump into, you know, your current business model? And how that looks it? unpack that for listeners? Yeah. One of the thing, most of our clients come and join the mentoring program, one of the two versions of the mentoring program we have, because they either live in areas where is so expensive, even to get your own house, then any notion of wanting to buy a house for investment, is kinda like looks like impossible. Right? So I would say right now, if you go up and down the coast, west coast, or east coast, the big cities across the country or down, you know, like us know, Miami or those kinds of places, it’s, you might be able to get your own house, but you typically won’t be able to make investments because the houses that you could invest in will not perform, at least not to what we call a good performance. So what I found and like I said, in the intro, and in the history, I found out pretty quickly living in California, that there is no way that I could invest anywhere. And we picked a nice spot, the Santa Barbara area to live in, which was awesome, and still is awesome. But investing just didn’t make any sense. So the strategy that we have for idea where to grow and that I did and now invite people of whatever he has to do the same is to buy properties, let’s say in the Midwest, somewhere in Illinois, Ohio, or Tennessee or even Florida and so forth, and buy them with the help of what I would call full service turnkey providers. So the strategy starts out
20:00
With the term out of state, then residential real estate investing with turnkey providers, that’s kind of like the long version of the strategy. And a turnkey provider is a company that makes it their business to go out find like what I call the ugly duckling in a good neighborhood,
20:17
buy it as cheap as possible, then basically take it completely apart, typically with a renovation team that they have and renovate it completely to modern standards, like new windows, new plumbing, new electrical, you know, new paint, new floors, new bathrooms, new kitchen and stuff like that. And then these companies put this now renovated property on the market, some put it on the market with already a tenant identified and lease agreement signed, some say, Okay, we want to sell it for us, and then we find your tenant. But the really important thing of this particular four service kind of turnkey provider is that they find the property they renovated, they put it on the market for a price and praises, which is very important, right? If you wouldn’t get the lending if the appraisal doesn’t come in for the asking price, and then they manage it for you. So they have in one arm of their businesses, property management. And the beauty of that is all you really need to do is work with somebody like me who has these relationships to these particular kinds of turnkey providers. I mean, if you’re lucky, you might also find them yourself. But why would you if I can help you find them. And then so you basically just go through the process of purchasing the property, sent your down payment, and then from then on every month, you get basically what’s called an Owner Statement where they show you the rent, any kind of repairs, sent you the money into your bank account, and you pay the mortgage, and you keep the rest. And in a good performing property right now, if you buy it right now, cash flow is a little lower, maybe in the area between 150 and $250, when the times were better, and interest rates were lower, it wasn’t that uncommon, like in a duplex, you could get four or $500 cash flow, meaning like after everything that you paid, you have that in cash flow. Now people might say, Okay, what so now I have $500 More, and I own an investment property. But the concept is to go on a journey, as we call it, to reach the time freedom point. And the time freedom point is that point on the calendar somewhere in the future, where you have identified right now in today’s dollars, let’s say I need $5,000 A month to pay for all my life expenses, travel kits, what have you. So that’s when you’re trying freedom point number that you’re aiming for. And if we just stay with this easy to calculate example, of $500 cash flow, you would need 10 properties of that same kind through those turnkey providers to make $5,000. And that’s the starting premise. Now, when you ask yourself, how long is something like that going to take for most people eight to 10 years, until you would really get to those 10 properties. And we’re also finding now that we’ve been doing it for a while that in most cases, you don’t really buy 10 properties, because during that time, why are you buying one and then the second one, and the third one, the ones you have, they don’t all stay at $500. Because you are locked in we mentioned this, this is why it’s such a beautiful segue that you just create a day, we mentioned that the mortgage is 30 years and it stays like this, you pay the same thing every month. But what tenants pay in rent is more or less inflation related and a little bit of supply and demand. So if you start with this house, let’s say you buy a house in Ohio for $150,000, you put $30,000 of your own money down and the rest comes from the bank. And so now you’re making these $500. Well, in at least a year or two, the rent will not be $1,000 anymore, it will probably be 11. And another year or two later. So if one of those additional 100 or $200, and so forth acid increases, the majority of that is purely going to your cash flow. So $400 More in rent from me something like 85 of those go in your cash flow. So instead of really having to get 10 houses in the end to get to those $5,000 you probably only need seven or eight. Now in 10 years, you might say okay, but I probably need more than $5,000 in 10 years, yes. But you always have the option for one to buy more houses. I’m just giving an example of how does the system basically work. And number two, you reach that point, let’s say in eight or nine years, but the properties will still keep increasing and read. It’s not just because they’ve actually reached the time freedom point. We’re not going to ask for more rent, if there’s inflation or if people have left in the house or you get new tenants or whatever. So anybody I give this example of my first rent experience in Santa Barbara was for a little apartment I paid $2,200 And I talk talk to the owner. And I said how did you become the you know, my landlord and he said I bought this property for $67,000 in 1965. I lived in it for a while
25:00
And then when it was paid off, I found another place and ever since I’m renting it, I started with 700. Now it’s 22. Right now, that’s a very long period of time. But our investment horizon is not to say we want to just get to this time freedom point in eight or 10 years, and then we sell everything. No, we don’t, we actually going to keep the properties and let them just keep paying us. And obviously, I mean, over time, depending on how the economy is going, you will also build equity in the property. So some of your listeners might say, okay, but that sounds like I can somehow buy a house every year. Well, kind of, yes. But keep in mind, you’re making these $500, you know, so that’s $6,000, a year that you don’t have and normally don’t need to consume right now, which helps you to get to your next 30,000 down payment. And at some point, you can also say, buy that house that I bought for 100,000, it’s now worth 120,000. So the bank is willing to give you a loan on those
25:58
20,000 equity gain, if you wanted to do it, I’m not necessarily recommending it. But if somebody really aggressively wants to grow their portfolio, they can do that. And we even now we have something super, super new. And amazing, in my opinion, that we can actually help people lower their downpayment down to as low as 5%. Right. So instead of you having to put 30,000, you might only have to put 6000, that means you can buy twice or three times as many houses with the same amount of money, a lot of a lot of really good benefits to doing that strategy axle. And my point I wanted to make was that I think this is an excellent solution, we have a lot of folks out there that are non accredited. So they can’t actually access some of the passive types of opportunities. So this is an excellent way to get into the game and start putting some pieces on the chess board, if you’re non accredited, right and building up kind of some of that equity. And I also think from the accredited standpoint, to me, there’s something that’s interesting is, you know, a lot of accredited folks tend to shift to passive investments, because they don’t have time, right? They’re, they’re busy professionals, kind of doing work. And it’s kind of harder to manage some of these rentals. But what’s interesting is, you could get into a couple of these properties. And let’s say you turn your spouse into a real estate professional. And, you know, now, you would have, you know, much less risk by working with a turnkey player to identify a couple of rental properties, you know, using the approach that you’re talking about, and then have this small portfolio here, qualify, you know, as a real estate professional, which has, you know, massive benefits, you know, from a tax standpoint. So, so I think there’s some, you know, interesting angles, right, whether you’re non accredited or accredited to pursue this approach. Yeah, absolutely. I totally agree with you. One other thing that shouldn’t be understood is, if a non accredited or even an accredited investor does like an investment in a syndication, just as a comparison example, one thing that you have not anywhere nearly as much as you have in our approach is control over your assets, because you are the owner. And I’m part of what I’m teaching our clients and tribe members, as we call them, is, how do I act as an owner as a business owner, basically, your real estate investments, basically under the umbrella of an LLC, that we teach you how to create that, and maybe ultimately, really even develop a structure that can become your estate plan and your family trust and so forth. That’s kind of like a little bit advanced and later in the picture, but the point about it is in this process, regardless what your normal day to day job is, you either learn or you can apply these property managers as part of the turnkey organization, they work for me, the company that actually gave me the lending to pay the mortgage or get the mortgage and pay for the house, they worked for me. Right? So you’re burning? I mean, this this is also why I think your point about real estate professional makes complete sense your CPA better is smart about how do you actually use the depreciation and the real estate, professional status, and all those kinds of things, every repair that any of your properties has to go against your income, initially in your LLC, and then as an S corp, it transfers over to your 1040, regular return, all those kinds of things. Basically, not only develop a portfolio of assets that will basically sustain you and your family forever, if you want to, but it also in a sense secondary kind of like a cherry on the icing of the cake. Kind of benefit is that you learn how to position yourself how to develop a mindset of
30:00
I have this team of people, like property management, they get an eight to 10% of your rent, when they work for you, that’s what you’re paying for. And if you don’t like him, or if they don’t do it, then you are absolutely entitled
Trevor, welcome to the show.
Coach Trevor McGregor (00:03.013)
Well, thank you for having me, Dave. It’s absolutely an honor and a pleasure to be here with you.
Dave Wolcott (00:08.406)
Yeah, really grateful to have you on the show, Trevor. I’ve been looking forward to this discussion for a while, and I know the audience is absolutely going to love this one. For folks who don’t know you, haven’t heard about your background, let’s start things off with your journey. Tell us how you got here.
Coach Trevor McGregor (00:26.461)
Well, thank you so much. And it’s an interesting story. And when I share it, I’m always fascinated by you know, where we start out, and where we get to and I’m no different. I am Canadian. So I’ll just get that out of the way. Born and raised in Canada. And as any Canadian boy is born, you know what my dad had my brother and I on skates at the age of three. And I always you know, thought I’d be an NHL hockey player, Dave, because
Canada synonymous with hockey, as you know, and we all, you know, want to grow up and be the next Wayne Gretzky. And so, you know, that’s really what I excelled at in, you know, my early years, it was sports, I was often, you know, playing at a high level, was often captain of the team, and I had the speed, but I didn’t have the size. So as I, you know, became a teenager and started to figure out, okay, maybe this NHL thing isn’t gonna pan out. You know, I went to college, went to university, got a business degree, and then obviously went to work in
corporate like most people do, I became the executive director operations for a fairly large size hospitality company. And that’s kind of where I cut my teeth in business. Does that all make sense so far? You bet. And it was around that time that the owners of the business came to me and they had a big expansion plan. And they said, Trevor, we love what you’re doing. We’re growing this across, you know, five major cities in Canada, would you be interested in investing in, you know, our growth plan? And I thought, wow,
Dave Wolcott (01:32.031)
Yes.
Coach Trevor McGregor (01:49.357)
I’d love to and I started to think this is my big chance to start making some real money. I was married, I had two kids at the time. And so what I did, Dave, is I took all my money, and I cashed in my savings, I cashed in my 401k. And I even convinced my own parents who loved and believed in me to take out a six figure second mortgage on the family home. And I dumped all of that money into this expansion plan. And for the first couple of years, things went great until they didn’t.
And to make a really long story short, we were expanding way too fast. We were too aggressive. And all of that came down like a house of cards. And I lost all of that money at the age of 30. All of it was gone and it became a very low point in my life. And I wasn’t even sure where I was gonna go from there. Does that land with you?
Dave Wolcott (02:35.519)
Yes it does.
Coach Trevor McGregor (02:37.157)
Yeah. So what does anyone do when they’re down and out? Well, you seek guidance. And thank goodness, I found a coach. And that coach was an amazing man. He was in Vancouver. And he said, What’s happened to you, Trevor is unfortunate, but you’re still a young man, you got to get up, dust yourself off and keep finding a way to move forward. And I said, I’d love to but I don’t know what I’m going to do. And he said one thing to me that changed my life forever, Dave. He said, Have you ever thought of investing in real estate? And I said real estate.
I don’t know anything about real estate. And he said, Well, you can use other people’s money or OPM buy a property, fix it up, rent it or rehab it or refi it and then take that money and keep doing it. And really, at the time, my back was up against the wall. So I scraped together a little bit of money from family and friends and literally bought my first property. That was a great experience because Vancouver, Canada was seeing a massive upheaval in, you know, appreciation.
took the money out of that bought another property took the money out of that and I bought my first duplex. And I don’t know about you, but man, I discovered what cash flow was at that time. And so I started doing all of this stuff and bought another duplex, another one and then some four plexes and then you know, kind of really built an empire. And in just two and a half years, not only did I have a wonderful cash flowing real estate portfolio, but I literally paid back all of my failed loans, including my parents.
So that’s where the story gets really interesting because it was at that time that other people started to come to me as well and say, “‘Trevor, how are you buying these properties? “‘How are you doing this?’ And I’d say, well, buy me a drink. I’ll sit down and share my blueprint with you.” And that’s exactly what started happening with my son’s baseball coach and my son’s soccer coach. And as I started to show them, you know, how I was doing it, I kind of felt like I was coaching them. And I think that that’s when the coaching bug bit.
because they went out there and started to achieve some success in real estate. And shortly after that, I was working with my own Tony Robbins coach at the time who was fascinated with me and my real estate and my background in corporate and my passion for people. And he said, Tony is literally hiring part-time coaches to come in and support Tony’s business division. Would you consider putting in an application? And I thought, well, I don’t have any formal coaching experience, but he said, don’t worry about it. And I threw in an application.
Coach Trevor McGregor (04:56.709)
And when you literally do that, you don’t just become a coach. You literally have to read all the books, go to all the seminars, listen to all the CDs at the time. Right now, they’re MP3s. And I did all that. And I was shortlisted from 500 applicants down to 250, 250 down to 100, 100 down to 50. And that’s when you go and you do your practicum. I flew to Florida, you know, where you are. And I literally did my practicum with Tony’s team. And when the dust settled, you know, I graduated.
as the number two guy in the class, and they offered me a full-time position. So that’s when I jumped at the chance to go work for the man, the myth, the legend Tony Robbins. And since that time, I’ve now done, you know, somewhere close to 40,000 coaching sessions. And that’s with people all over the world who are in business. They’re entrepreneurial, they’re real estate investors, they’re doctors, attorneys. And it literally has become my passion. And I hung out with Tony for half a decade, and then I went out on my own and started Trevor McGregor International.
And now I work with people like yourself and other people who are at that level where they know that there’s absolutely more to go in their careers, the finances, the real estate, their health, the relationships, traveling the world. And that’s ultimately, you know, what I do on a daily basis now. So that’s a long story, but it really is, you know, a complete snapshot from where I was growing up in Canada to where I am today.
Dave Wolcott (06:19.498)
Yeah, what an amazing journey, Trevor. It’s so interesting how life kind of, you know, unfolds in chapters really, you know, and you get these different choices and one thing kind of leads into another. And I wasn’t, I wasn’t exactly sure of, you know, how you, you know, was it, you were into real estate or coaching first, but, uh, it’s really cool how those two, you know, really created a synergy for you and then ultimately shaped your massive transformational purpose, right?
Coach Trevor McGregor (06:27.089)
Yes.
Coach Trevor McGregor (06:47.337)
that’s absolutely true. And I would have never been able to see it back then, but it’s almost like when you’re defiantly committed to something, the universe starts to bring the right people and the right opportunities and that sort of thing. And since that time, obviously, and I think as you know, we’ve gone on and invested in many different asset classes throughout the US and around the world, whether that’s multifamily apartments all over say Texas or Florida, the Carolinas or Nashville.
to self storage in Key West, to agricultural land in Colorado, to retreat centers in Costa Rica. And my wife and I have even invested in a, a startup here in Australia, where I’m coming to you from today, that literally builds modular housing. So it’s really been able to, see what allows people to achieve phenomenal levels of success, as well as, what holds people back, but it’s really powerful when, I’ve kind of had this process and this roadmap with.
business, real estate and coaching to help other people, you know, climb what I call the ladder of success and have tremendous fulfillment, wealth, freedom and joy on the other side of it.
Dave Wolcott (07:56.346)
Exactly. That’s what it’s all about, right? I mean, it’s all about creating those freedoms in your life. And I love how you have a focus around high performance and mindset. And that’s the first phase in my book, the holistic wealth strategy, you know, it’s all about it’s all about your mindset, right? I mean, just think of the difference between someone you went to high school with, who’s probably in the same town, same set of friends, same job.
And you look at Elon Musk’s, you know, what he’s doing, his book, by the way, that just came out is absolutely phenomenal. But what’s the difference, right? It’s all about mindset.
Coach Trevor McGregor (08:37.749)
in. And I love that because that’s what they call me. They call me the mindset master. And obviously, a lot of it comes from Tony. But a lot of it comes from reading books like Think and Grow Rich or Rich Dad Poor Dad, or listening to the audio The Strangest Secret in the World by Earl Nightingale because again, where focus goes energy flows. And we look at your success or my success or Tony Robbins success or Richard Branson or Elon Musk. You know, they weren’t just interested. You know, they were
committed, if not what I call being defiantly committed to doing whatever it takes to keep you know, climbing the mountain because I’m a big believer that for all of us, you know, it’s a series of peaks and valleys, peaks and valleys. And I think Elon Musk is a great example. I mean, when he started PayPal, right, he had to, you know, really take on the mindset that he was going up against all the other payment systems in America and the world, or start SolarCity, he’s going to take on all the power companies.
or start Tesla, he’s got to take on GM and Ford and Toyota and Honda, not you know, that easy unless you condition your mind to be able to do it, or SpaceX. And now he buys Twitter, right? And he’s taken on social media. So all of these things would not be possible for anyone without really understanding what Tony teaches, which is success is 80% mindset, and then 20% mechanics or what you do with it. Would you agree with that, Dave?
Dave Wolcott (10:00.142)
100% Trevor, I’d like to actually unpack this a little bit more, right, and talk about investor psychology and mindset because I think this is such at the core of investing and where, you know, frankly, most of America has got it wrong, right? And it took me so, you know, when I started my journey was back in 2000, the tech bubble was happening. I had, you know,
Every time I put money into the stock market, I lost. I mean, it was it was awful. It was a terrible feeling. And I felt that it was so rigged at the time. And it’s really fascinating. In my journey, trying to uncover all these different rocks about, you know, investing in syndications and multifamily, like self storage, you talked about some of these other asset classes that we have. But I’ve really had to look under rocks, I’ve had to look really hard, I’ve had to build
you know, amazing relationships in alternative space. And I’ve had to change my thinking to make that paradigm shift to do that. And really, you know, when we talk to new investors, I mean, 90% of the people are still under the old paradigm of, you know, I’m not smart enough to manage my own money. So I’m going to have a financial planner do that for me. It’s too risky to invest in real estate.
because my financial planner doesn’t think it’s a good idea. So I think there’s a lot of limiting beliefs people have and things that we’ve been taught by our parents, our peers, our colleagues, you know, why aren’t you investing in your 401k? Right? So what do you think is really at the core of holding people back, Trevor?
Coach Trevor McGregor (11:44.733)
Well, you’ve teed up the ball perfectly for a guy like me because we’re gonna have some fun with this and you’ve opened up three loops. So the very first thing that I think of with your story and you know, you lifting up the rocks and you investing in the stock market and that money goes bye-bye. I always have said, and this comes from Napoleon Hill from Think and Grow Rich, that there is no failure, there’s only feedback, right? There is no failure, there’s only feedback. And as entrepreneurs or startups or real estate investors,
or human beings that want to leave the corporate world and maybe have a W-2, but really long to, you know, become an entrepreneur. I’m telling you, I’ve never met anybody, including myself, you know, that didn’t have some ups and downs and some loop-de-loops, almost like a roller coaster along the way. So the very first thing I would say to anyone before is be very careful that you’re not labeling something you’ve done or seen somebody else do as failure, because as entrepreneurs, there is no failure. There’s only feedback.
Any comment about that to kick off the first of three loops there.
Dave Wolcott (12:47.87)
Yeah, Joe Polish talks about that all the time as well. It’s all about learning. As an entrepreneur, you’re constantly in a learning phase. And if you’re not learning, you’re not innovating, you’re not making progress, right?
Coach Trevor McGregor (13:00.061)
That’s exactly right. And Joe knows his stuff. And again, good friend of Tony Robbins as well. And Dan Sullivan from strategic coach and all of it. But that’s really awesome. Because that leads us to number two, that we literally are all people who rationalize. And if you break that word into two, we often tell ourselves rational lies. We lie to ourselves that we’re too young, or we’re too old, or we’re not educated enough, or we’re educated too much.
or I’ve got it good in my W-2, I should be happy with what I’ve gotten. And I’m telling you, this is the work of our saboteur brain instead of our wise sage, because the saboteur wants to hold you back and throws all of these limbing beliefs at you because it doesn’t want you to get ahead. It’s like a thermostat. If we’re set for 72 degrees and we wanna get up to 80, we might do some things that can take us up to 80, but we’ll sabotage that success and come right back to 72.
And for average people, they kind of just say, you know what, 72 is not that bad. It’s not too chilly in the room. It’s not as hot as I want it. But, you know, it’s better than nothing. At least I’ve got a roof over my head. So if limiting beliefs are, you know, the work of the saboteur, we also have to remember that there’s a polar opposite to everything on the planet. It’s called the law of polarity. Right. I’ll give you some examples, Dave. You can’t have day without night or you can’t have black without white.
or you can’t have masculine energy without feminine energy, and you can’t have the North Pole without the South Pole. So what’s that got to do with anything? Well, you can’t have the saboteur limiting belief brain without the polar opposite of that being available for all of us as well, which is what we call the wise sage. And it’s the wisdom, it’s not just you thinking in your head, but also in your heart and in your gut about what it is that you’re trying to do and why do you want it.
because I’m telling you, and that kind of opens up loop three, that when the Y is big enough, the house starts to present itself. So if you really wanted to be successful in the stock market, in real estate in cryptocurrency, or in whatever asset class you’re in, you’ve got to go out there and believe that somebody out there has already achieved what it is that you failed at. But again, you haven’t failed, you just got some feedback. So that’s where coaching or mentoring or
Coach Trevor McGregor (15:19.401)
masterminds or meetups or conferences are literally the thing that I would recommend to anybody who wants to go further faster. Because again, this is really all about turning what we call Dave, decades into days, I don’t want it to take 10 years for somebody to have to figure this out. I want it to really, you know, be something that they can do easily and effortlessly to be able to, you know, quantum leap where they are to start moving in the direction they want to go.
So that’s really number two is that the saboteurs and the limiting beliefs of all these rational lies we tell ourselves are in play. And before I, you know, talk a little bit more about the why any reflection on loop number two, Dave.
Dave Wolcott (16:01.362)
No, that makes perfect sense. And I guess just the only thing I would kind of, you know, interject there that can help people, right, and really helped me as well is, you know, it’s really understanding your why, right. And I know Tony talks about that a lot as well, right? It’s really when you can understand, you know, that the purpose that you have in that, you know, have crystal clear clarity on what the vision is that you have for your life. I mean, you can bust down walls.
You can create things out of nothing. But if you don’t have that, and you’re not expanding your mind, you’re just kind of really making linear progress at best.
Coach Trevor McGregor (16:40.061)
That’s exactly it. And that’s really what loop three is, is what is your big fat compelling reason why you want it. And it’s not the money we want. It’s what we can do with the money, right? Whether we can use it to live a better quality life or give some of it away or do some charity work, travel the world, right. And I think that that’s what’s really, you know, sparked my wife and I to really, you know, step up and work hard and play hard, and really, you know, share what we’re doing with other people because how you do anything is how you do everything.
So once you stop telling yourself the rational lies, and once you access the powerful sage, and once you go back to the powers in the why, and not just a surface level why, Dave, but big fat compelling reasons, like number one, I wanted it for this reason, number two, number three, number four, number five, I encourage people to get to at least seven deep layers of the why, and then not just forget about it, but make sure that they’re revisiting that why on a daily basis, because I’ll tell you this,
I’ve seen it working with so many people around the planet that when times get tough, or you get tired, or you hit a roadblock or an obstacle, when you go back to the why and you reread what it is that you wanted in the first place, again, kind of like me, when I was married with two kids and I wasn’t sure what I was gonna do, when the why is big enough, you get up, you dust yourself off and you keep on keeping on. Does that make sense?
Dave Wolcott (18:03.406)
100%.
Coach Trevor McGregor (18:04.945)
You betcha.
Coach Trevor McGregor (18:08.445)
So those are the three loops and there’s many different things that we can, you know, sprinkle in to support anyone who’s listening to really, okay, well, what’s the first step to all of that? So where would you like to go with that, Dave?
Dave Wolcott (18:09.494)
So do you want, okay.
Dave Wolcott (18:21.194)
Yeah, I was trying to break this down for folks, right? So they can put it into some actionable steps. And I’m sure you’ve got a myriad of kind of thinking tools and strategies and everything. So if someone is trying to really get clarity on their why and some of those steps, do you have something specific for them to kind of break down?
Coach Trevor McGregor (18:41.885)
Well, I do. And before we get to that, I guess, you know, being a bit of a brain, you know, guy, and I’m fascinated with how the human brain works and why humans think and behave the way they do. You know, I think it’s important for people to really understand that, you know what the human brain has anywhere from 60 to 80,000 thoughts a day. Now get your head around this 60 to 80,000 thoughts a day. Now some of us are conscious, like, you know, what are we going to do for dinner? And are my kids safe to
You know, all of these unconscious things where the heart beats and the lungs are taking in oxygen and the eyeballs are growing new cells and all of these things. But I can also tell you that science has found that roughly 75 percent of those thoughts are negative or are survival based. So when you think about three quarters of what we’re thinking a day is negative or survival based, we’re already behind the eight ball in terms of, you know.
really trying to find the positive given you know what that this is a world of noise and craziness going on all over this planet. But it’s not what happens externally, it’s what we’re doing internally. So you got to really ask yourself, you know, what are my thoughts, because your thoughts really lead to feelings, and your feelings lead to emotions. And this is the first part of this, where I’ll kind of share the, you know, the kind of the key six things that really help people achieve success is
You know, it’s kind of like you brought up Elon Musk and we’ve talked about him, what he thinks, right, or that thought becomes the feeling that feeling becomes an emotion. And our emotions do something called motivate us. So if your thoughts and feelings and emotions aren’t motivating you to get out and do something, they’re probably motivating you to sit on the couch and watch Netflix. And that’s not what high performers do. Because if your thoughts lead to feelings and your feelings to emotions,
and you elevate your emotions and you get fired up about what you could be do or have, right? And you get motivated, I guarantee you, you’re going to go out there and want to take action. And if we all go out there and take action, we’re going to get a certain result. So I’m going to recap that your thoughts are to feelings, feelings to emotions, your emotions motivate you. And if you get motivated, you’re going to go out there and take action that gets a certain result. So what’s great about that is if you want to reverse engineer it.
Coach Trevor McGregor (21:00.549)
and you know you wanna buy real estate, you know you wanna travel, you know you wanna start an e-commerce business, you know you wanna diversify asset classes. If you want that result, you gotta take action by getting motivated, by elevating your emotions that get elevated by the feelings and the thoughts that we’re having. So again, at the end of the day, there’s a roadmap and a recipe, and it really starts with this three pound mass between our ears called our brain.
that oftentimes isn’t thinking the right thoughts. So I’ll bring you back in for any reflection on that. And then I’ll give them, you know, kind of give the keys to the kingdom on where we go with that.
Dave Wolcott (21:39.498)
Yeah, love it, Trevor. And yeah, just to go back on that, I think it’s really interesting once you can really make that connection that understands that the human species, our brains are hardwired to do only two things. It’s procreate and sense danger, right. And the majority of people in this country, sadly, do not move away from sensing danger. They’re always looking for danger. They complain.
They surround themselves around friends, they create drama around all of that. Uh, but the brain is also the neuroplasticity of your blank brain is amazing that you can actually condition, you know, your subconscious, as well as your conscious to kind of move past that. So that’s why we like to talk about, you know, uh, your values, your habits, your goals, uh, who you spend time with all of those things. And secondly, Trevor, I’d really like to just
kind of take us on a little bit of a diversion right here, because I think it’s just so relevant to this conversation that we’re having that’s fascinating is if you turn on the, you know, CNN or any of these media outlets, or, you know, even take your financial, you know, networks and everything, you know, what is the thing that sells? It’s all about sensationalism. And right now, every day you go on, there’s something about, you know,
impending recession, the jobs markets were horrible. There’s a wars going on. There’s all of these things. You have to realize that these people are trying to sell and influence you. Politicians are trying to influence you, the media. But I think as investors, we become very scared when you hear about all this news. So you just say, well, I’m just going to
convert everything into gold and then go hide in my bunker. Right. But I think this is such an opportunity to push past this with your mindset and kind of create really an all weather portfolio and not get really sucked into all that drama. Thoughts?
Coach Trevor McGregor (23:53.005)
Well, my goodness, you’re singing from my song sheet here, Dave, because I’ll tell you, you know, media’s job is to distract you. Media’s job is sensationalism. Media’s job is to, you know, get you to not pay attention. And you know, it brings up a great quote from Jim Rohn, who was Tony Robbins coach, I’m sure you’re familiar with Jim, where he said that it’s not the winds that blow on you that will determine where you end up. It’s the set of the sale. And I love that quote. It’s one of my favorite quotes. In fact, it’s the header on my Facebook.
page. But he said it’s not the winds of change that blow on you that will determine where you end up. It’s the set of the sale. And who’s responsible for setting your sale? Well, you are I’m responsible for mine and the listeners responsible for his. And I’ll tell you this, we got a lot of wind blowing from CNN constant negative news. Or anytime you turn on anything, you know, Tony Robbins calls the television, the electronic income reducer.
because it’s absolutely true that if you get caught up in what they’re saying, you’re in trouble. So again, we got the economic wind, we got the interest rate wind, we got the cap rate wind, we got these, you know, storms in California and Florida, we got fires in Hawaii, we got President Biden and Trump and all of this craziness going on around the world. Well, I’ll tell you this for high performers, it’s not those winds that are blowing that will determine where they end up. It’s the set of their sale.
Dave Wolcott (24:52.19)
Yeah.
Coach Trevor McGregor (25:17.969)
So when you go back to the mindset, Dave, you’re spot on about who’s responsible for reading the right books, listening to the right podcasts like this excellent show. What rooms are you in? What conferences? Who are your coaches? Who are your mentors? Who are your accountability buddies? Are you getting some thinking time so that you’re not running around like a chicken with your head cut off, but really getting some time to really, you know, kind of sit quietly and get crystal clear on who you are, what you want.
why you want it. And then the most important thing is, who do you need to be to pursue it? Because oftentimes, you know, we don’t think that we could have it. And there’s this great quote from Tony as well that says, people often overestimate what they can do in a short period of time, but they underestimate what they can do in a longer period of time. But I’m telling you, if you’re listening to the news, and you’re reading the paper, and you’re hanging out with the wrong people, there’s no way you’re going to optimize and maximize this brain.
for what’s possible. What do you think?
Dave Wolcott (26:19.542)
100% couldn’t agree more with that, Trevor. It’s just amazing what happens with the people you hang out with. And that’s another great Jim Rohn quote, right? You’re a product of the five people that you spend most of your time with. So are those people elevating you towards your goals or are they actually taking you back, further away from your vision, what you’re trying to achieve?
Coach Trevor McGregor (26:41.705)
That’s so good because it also boils down to just four little words that I use with my clients. And I’m sure you’re familiar with these four words and they all start with the letter S as in superhero because it doesn’t matter if you’re a man or a woman, doesn’t matter if you’re in America or Australia, doesn’t matter if you’re young or old, educated or not educated, these four things, Dave, are universal. So if you’re open to it, I think we should share with the listener four key areas they need to zone in on.
to continue to optimize and maximize the brain and its performance. How does that sound?
Dave Wolcott (27:14.955)
Let’s do it.
Coach Trevor McGregor (27:15.897)
All right, well, again, these come partially from Tony and partially from me. And again, all of the work that I’ve done with high performers all over this beautiful blue planet. And the four words are as follows, and then we’ll unpack them. The first one is your state. And that refers to your state management and how you’re showing up in your mind in your body. The second one is your story. And your story is what you continually to tell yourself. And it really is, you know, your identity of who you are in the moment.
So state is number one and story is number two. The third one is your standards, because I can look at anybody, Dave, and tell that the quality of their life will be in direct proportion to the standard that they set and hold for themselves. And then that fourth S is really your strategy. It’s what are you doing to go from here to here, right? And are you winging it or are you following a blueprint, a blueprint or a roadmap or a recipe? So really with all of those things, as we look at your state,
your story, your standards and your strategy, that really shows me how you’re gonna do it because ultimately most people are walking around in an unresourceful state, right? They’re in a poor physiology, they’re tired, they’re overworked, they’re putting up with their grouchy spouse and their misbehaving kids and getting yelled at by the boss and getting stuck in traffic. And all of that is turning into an angst where…
their physiology or their focus or their language is not where it needs to be. In fact, when you look at, you know, let you know, focus and language. And if I walk down any street in America today, and I’m not picking on Americans, we could pick on Canadians or Australians or anyone. But if I really listen to where people have their focus and what language they’re using, I hear things like, you know what, why am I so broke? Or why am I so fat? Or why am I so lonely?
And so all their brain here’s Dave is broke, fat and lonely. Instead of shifting that focus from, you know, disempowering to empowering where they say, you know what, how can I become abundant? Or how can I get into great shape? Or how can I have a great relationship with my significant other? So again, we know that we’re focused goes energy flows, and most people are focused on why it’s not going to work, why it’s going to be too much, why they’re going to lose money if they try.
Coach Trevor McGregor (29:35.753)
what people are going to think about them because criticism is a big thing these days with social media, and everything in between. So if you guys want to change your state, you got to change your physiology. That means you got to get up and move, you got to hydrate, you got to take care of the body, got to take care of the mind, you got to focus on what you want, not what you don’t want. And you have to become what I call your own language police. If you catch yourself saying things like, I really should do this, or I ought to do that.
or tomorrow, I’ll try this should ought to and try our weak forms of commitment in my world, where you got to stop that nonsense. And you got to start saying, you know what, I’ve got this, I’m doing it today, I will I own this, I’m going to reach out for help from my, you know, colleagues. And again, your word is your wand. So the more you start speaking in empowering language, the more you start thinking about what you want. And the more you move the body, the more you move the mind. What do you think of that, Dave?
Dave Wolcott (30:35.274)
No, that I think that’s spot on Trevor. And I would like to unpack the state a little bit, right? And what you do in order to keep, you know, your state up. What is your morning routine, for instance, I mean, you know, for myself, creating a really solid morning routine has been just instrumental on how I can own the day and setting me up. So it’s always about, you know, exercise, I used to I remember reading Tony
Tony’s books years ago and I always thought he was crazy for, he jumps in a pool at 55 degrees. That’s nuts. And now today, I’ve been in my cold plunge, that’s 44 degrees every morning, but I got to tell you, you are just on fire for the day and what it does to you mentally and to kind of change your state. And then also just how powerful meditation is to get clarity of your thoughts.
Coach Trevor McGregor (31:15.113)
Yep. Awesome.
Dave Wolcott (31:32.658)
Um, you know, have intentionality with what you’re doing. Um, journaling is another one, right? That’s really key. And I think people can just so, you know, kind of set themselves up. I call my morning routine, my morning success routine, uh, you know, for the day, but any thoughts in terms of, you know, your, uh, morning success routine.
Coach Trevor McGregor (31:38.952)
Yes.
Coach Trevor McGregor (31:47.013)
Mm-hmm.
Coach Trevor McGregor (31:53.077)
Absolutely. First off, congratulations to you, because you’ve got a wonderful morning routine going on. And it’s the same with me. I get up every morning at 444 am every morning, seven days a week, even if it’s a holiday or weekends, because I’ve conditioned my mind and body and identity to say that high performers get up and do things that average people are not willing to do. So everybody that thinks they’re a rock star because they’re in the 5am club, how about you kind of raise the bar and get up 16 minutes earlier, right 444.
I get up, I use the restroom, I have a glass of lemon water to alkalize my body. And then it’s right into the meditation chair for 20 minutes. And again, it could be, you know, transdental meditation, it could be a guided meditation, it can be a quiet meditation. I’m big into Dr. Joe dispenses meditations. But whatever you do, you’ve got to start by conditioning the mind. From there, it is literally either reading something for 10 or 15 minutes, or watching some motivational stuff on YouTube.
and then it’s immediately into the workout. I have a home gym. So whether I’m doing cardio or weights or whatever, that’s usually a 20 to 30 minute workout. Then it’s boom into the shower, boom, ready for my bulletproof coffee because I love coffee early in the morning. And then man, I sit down at my desk and where most people sit at their desk and go, gee, where do I start my day? I’ve already kind of planned it out the night before so that when I sit down at my desk, I know exactly.
what I’m doing with emails, what I’m doing in real estate, you know, what my coaching calls look like for that day or my consulting calls or my speaking or what, you know, some, it’s, am I at all of those things are pre planned and then it’s really rinse and repeat seven days a week. How does that sound to you?
Dave Wolcott (33:34.174)
Yeah, that sounds awesome, Trevor. But tell me this, you know, how do you manage I mean, you know, being a coach, you know, you’re living on two sides of the of the globe right now, right? And, you know, travel is really taxing, right? And the schedule that you keep up with. So how have you been able to manage your state right with intense bouts of travel, work, things like that?
Coach Trevor McGregor (33:56.953)
It’s a great question and it’s not gonna be the answer that you think it is, but really it boils down to your identity. It’s really your story. And most people write a story that is, well, when I travel, I get jet lag, or when I travel, I don’t eat that well, or when I travel, the gyms are crowded and they insert excuse here. But for people like Elon Musk, Tony Robbins, Richard Branson, Oprah Winfrey, the people that have achieved phenomenal levels of success, it…
all boils down to that second s, which is your story. What story are you telling yourself? And is that really true? Right? Is it really true that your workout has to suffer? Is it really true that all jet lag is created equal whether you’re going east or west, it’s different for different people. But I’ve got to that point after traveling around this beautiful blue planet, quite regularly with my wife and my three boys.
that ultimately I let my identity dictate what I’m gonna get up and do and what I’m not gonna do. Does that make any sense to you?
Dave Wolcott (34:57.726)
That’s so powerful, Trevor. I mean, you know, really conditioning your mind to be able to do that. So love that.
Coach Trevor McGregor (35:03.973)
You bet. And that does take us to the second S Dave, which is your story. And I’ll basically just kind of bottom line it for all of the listeners out there, that sometimes we’re going to be in the story and the identity of being a victim to what’s going on out there. Or we can choose to step out of being a victim and into Victor on our way to victory. Because again, at the end of the day, your glass is either half empty, or it’s half full. Whereas I don’t even like that analogy. I like to think of my glasses plum full.
As I keep pouring on it, it creates a meniscus of water that spills over the sides. And I don’t let that water spill. I have a bowl underneath my cup where I catch it. Whereas if I keep pouring into my identity and my story, and then that water that spills over gets into my bowl, I call that bowl the giving bowl, where then I go give it to my clients, I give it to my tenants, I give it to my investors, I give it to my wife, Lisa, or our three boys, Matthew Mitchell and Maxwell.
right? Anybody that will listen can really take that identity water and start to really look inside and see that you know what we’re all entrepreneurs at heart. We all want to make more money. We all want to make more, you know, time freedom. We all want more travel freedom. We all want more impact. We all want more time hanging with people. And I call those the five freedoms. And I absolutely love them. Because if you really think about any client that I’ve coached or anybody in your network or tribe,
I’ll bet they’re after those same five things. So number one again is financial freedom. Are you telling yourself a story about why you can’t have it or why you’re moving towards it? Number two, time freedom. Most people say, but I’m different, or you just don’t understand, or I’ve got four kids, or I don’t speak the language. I was born in India. Relevant but irrelevant if that story is holding you back.
So you’ve got to remember if number one is, you know, financial freedom, number two is time freedom. Number three for most people is geographical or location freedom. You know, if you’re in Florida or you’re in Italy or I’m in Canada or Australia or Hong Kong, you know, I really believe that high performers are meant to travel because that also leads to four and five because once we have financial freedom or time freedom or geographical freedom, we move to number four, which is I call freedom to impact.
Coach Trevor McGregor (37:25.117)
freedom to impact because when you’ve got money, time and the ability to go anywhere, you can make more impact with charities or mission trips or organizations or, you know, mastermind somewhere on this beautiful blue planet and really make a meaningful difference. And then that takes us to number five, which is what I call freedom of relationships, not freedom from, but freedom of where you get to hang out with awesome guys like Dave, or awesome guys at strategic coach or awesome guys in go abundance or tiger 21.
because I’m telling you again, you know, and it’s not to make your family or your friends good or bad or right or wrong, but let’s be honest, if you wanna live your best life, you’ve gotta surround your people, yourself with people that are already living or moving towards their best life. So those Dave are again, what I call the five freedoms and your story is either consistent with you moving towards that or declaring all the reasons why, you know, something’s different for you and you can’t. What do you think about that and how does that resonate with you?
Dave Wolcott (38:22.059)
Yeah.
Yeah, totally resonates, Trevor. You know, just kind of going back a little, I’ve got something unpacked for each one of them. But you know, one, for number three, that comes to mind for me, that’s been really impactful is really developing a gratitude practice. And it’s, it’s sad that so many people, you know, can be struck with fear, or anger in their lives. But I’ll tell you, when you have gratitude,
Uh, you, you know, you, you can’t be angry. You can’t be fearful. Right. So, uh, developing a deep gratitude practice, I think is super powerful. And then that really leads into this abundance mindset as well. You know, that, that was the imagery I got, as you were describing, really the water, you know, kind of tipping over at the cup, right, but, you know, having so much abundance and then that really moving into
Coach Trevor McGregor (39:13.798)
Yes.
Dave Wolcott (39:20.394)
It’s so interesting, Trevor, I think it’s really counterintuitive. And it was never taught to us in schools or anywhere else. But, you know, it’s like Zig Ziglar’s quote, right? Ziggy saying, you know, if you help enough other people get what they want, you’ll get what you want. And it’s like it’s so counterintuitive. And, you know, the corporate world, the machine, nothing really operates that. But I tell you, I jump out of bed early.
because I love helping people. I mean, it is so rewarding. And then to see other people make progress. And look what you know, Tony’s done with the meals for people. You know, that’s why he says, you know, he’s never worked a day in his life, right? Because he’s on a mission. He’s completely driven by a mission, right, which is just so, so much bigger than him. And I think if more people kind of understood that and had that, you know, that purpose and that
Coach Trevor McGregor (39:58.854)
Yes.
Coach Trevor McGregor (40:12.201)
That’s right.
Dave Wolcott (40:18.219)
I mean, wow, right? What a difference.
Coach Trevor McGregor (40:21.257)
I love it, Dave, you’re singing again from my song sheet. And I’ll stack on what you said even more because I like to think of gratitude as part one of what we call the trifecta. So if you think about a triangle or something that has three sides, there’s no question that gratitude is the foundation of that triangle or that triad, because I’m telling you the human brain cannot be in a state of gratitude and a state of fear at the same time. As you know, it’s physiologically impossible.
So when you have an attitude of gratitude, when you thank the universe for all of the good in your life and you do that daily, there’s nothing better that resets the central nervous system because it’s the foundation of everything we’re on. Part two of that triad is what I call forgiveness, right? Forgiveness, because if we’re gonna do gratitude, let’s go up a level and start to really have a forgiveness practice where…
I’ll bet people like you or the listener or even myself are still harboring ill will towards somebody or something. Who’s wronged you that you’re still hanging on to it? When did you lose money that you’re still blaming and shaming and justifying? What did your ex spouse do that really has hurt you? Or a previous boss member or somebody in your community or some gossip that went on? Because ultimately for you to hang on to that, it creates what we call an acid ash in the system.
And that’s where dis ease or disease comes from. It comes from a disturbance in the mind. So if we’re gonna do gratitude, let’s all commit to having a little bit of time to have a forgiveness practice as well. What do you think of number two?
Dave Wolcott (41:57.45)
Yeah, totally love that Trevor. And I mean, just, you know, to give listeners an idea, I mean, how simple this is to, you know, impart in your life is, you know, one of the practices that we’ve created is, you know, we talk about gratitude every time when I have a meal with my family or we walk the dog with my wife, you know, we talk about what were we grateful for that day, you know, what are our wins, we start also at work, we start every meaning that we have in the company.
with the same thing. We talk about gratitude could be personal, professional wins, your gratitude and things like that. And wow, what a game changing difference so that we’re all coming from the same space of, you know, positivity and gratitude and now anything is really possible versus the opposite, right, which is focusing on well, this didn’t work out well, that didn’t work out well, how are we going to fix that problem? Right? It completely makes the shift.
Coach Trevor McGregor (42:56.301)
Absolutely. And again, can kudos to you and your team. Because again, there’s a great quote from the big man, Tony Robbins, where he says what’s wrong is always available. But so is what’s right. And for me, I try to do at least 50 that is 5050 gratitude reps a day. Right? So what’s a gratitude rep? Well, I’ll be grateful, you know, to have clean drinking water in my glass, or I’m grateful for the ink in the pen that allows me to take notes.
or I’m grateful for the stickiness on the back of a Post-It Note for goodness sakes. So it’s the little things and it really only takes me two or three seconds to say thank you. Maybe I’m biting into a crunchy apple. You know, maybe I’m, you know, thanking the gardeners for taking care of the the, you know, the yard or the guy coming to come service the pool, whatever it is. But I’m telling you if you challenge yourself to have gratitude and you forgive, and you practice having these small gratitude reps every day.
I’m telling you your whole physiology changes for the better. What do you think of that, Dave?
Dave Wolcott (43:58.318)
couldn’t agree more. And I’ll throw out actually one more example, you know, folks can try as well. That’s really funny. Fun is to, you know, express gratitude towards the people around you. So try every day to tell someone at work or your family, how much you appreciate them, or what they do, and just see the amount of difference that makes in that person’s day.
and the respect that they have for you and the mutual respect, it’s really a game changer.
Coach Trevor McGregor (44:33.105)
I love that. Yeah, high tide lifts all boats. It really does. So, you know, share it. So that takes us to the final side of the triangle. So if we’ve got gratitude at the bottom, forgiveness on one side, what goes on the other side? Well, that’s what we call total self care. Total self care. That is, you know, you’re running around helping everyone else, but what are you doing for you? You know, are you, you know, taking care of your body or your temple? Are you hydrating? Are you, you know, getting some quiet time?
Dave Wolcott (44:36.395)
Yeah.
Coach Trevor McGregor (45:02.021)
Are you getting a massage once in a while? Are you, you know, spending time doing a sport or a hobby that you love, like cycling? You know, are you really lighting a gratitude candle and being grateful, you know, for all of the good in your world that you’re working on or you’re striving to become? Because I’m telling you, the world is sped up so fast and we’ve got people that aren’t anywhere on this triangle. They’re not doing gratitude. They’re not practicing forgiveness and they’re not taking care of.
you know, what ultimately is the most important person, you know, to yourself, which is you. And that creates a better version of you to then take care of your family, your spouse, your kids, your community, your tenants, your employees, and everyone in the community. So as we get ready to, you know, kind of move back to the four S’s, your state and your story will be radically affected by this triad of gratitude, of forgiveness, and of total self care. Are you ready for number three?
Dave Wolcott (46:01.41)
Go for it.
Coach Trevor McGregor (46:02.341)
All right, the third s in these four s’s was your standards. And I’m just going to bottom line it, that I can tell the quality of someone’s life by the level that they commit to play at. So if you are somebody that gets up at 730 in the morning, and you rush off to the office, and you know, you’re not kind to your spouse or your kids or your employees, maybe it’s time for you to really raise the bar and raise your standards. If you’re not working out if you’re not donating to charity.
If you’re not, you know, reading the right books or getting in the right rooms or listening to great podcasts, when would now be a good time to raise your standards because I really believe that we are all here on purpose and with purpose to do nothing but grow. And that includes really believing that there’s another level for us to play at. So think about something in your life right now where maybe it’s time to draw that line in the sand and step over that line to a higher standard, never to return to the lower standard again.
Is it easy? No. Is it possible? Yes. And that’s why working with an accountability partner, a coach, a mentor, a facilitator, a trainer or somebody can help you not only get to that level, but literally, you know, feel the juice and the joy and the passion and the fulfillment that comes from staying and playing at that level. Similar to what you do, Dave, how would you speak to number three, and that is your standards.
Dave Wolcott (47:27.562)
Yeah, couldn’t agree more. Obviously, I was in the Marine Corps as an officer. So, you know, standards and I equate that really to values as well, Trevor. And it’s really interesting, even in, you know, the world of investing and real estate. You know, the first my first filter for, you know, working with partners, it’s all about that standards and that values alignment.
Coach Trevor McGregor (47:39.592)
Yes.
Dave Wolcott (47:57.426)
I won’t even continue the discussion because it doesn’t make sense. And then that ties back to what you talked about earlier, which is having that freedom of relationship and only working with people that you choose to work with. That’s going to be mutually beneficial. You’re aligned with the values. So yeah, that totally hits home. And I love the context of creating that really that triad and then how that supports the other factors. Really great thinking tool there.
Coach Trevor McGregor (48:26.817)
Absolutely. Thank you for that. And again, yeah, it’s, it’s definitely something that you’re either going to go, well, these are interesting concepts, Dave and Trevor, thank you very much. Or you’re going to do what I call taking a personal inventory. You know, where are you showing up in your state most of the time on a scale of one to 10? Where’s your story most of the time on a scale of one to 10? What level of standards are you committing to play at? You know, traditionally on a scale of one to 10, because those three things precede David.
number four, which is your strategy. You never want to get to number four, without first saying, you know, where’s my focus? What language am I using? Where’s my body? Where’s my spirit? Right? Number two, where’s my story and my identity? Am I a victim or a victor? And am I really singing from the song sheet of being a true entrepreneur like Elon or Tony or Oprah or, you know, Steve Jobs or Richard Branson, right? You can do some character trait integration there.
And then ultimately it’s your standards because those three things are ultimately what’s important for you to then choose a strategy and execute on it. Because a strategy is really simple. It’s again, like you said, finding somebody out there that’s already done what it is you’re trying to do, whether that comes from a coach, a book, right? An entrepreneur, a company, an e-comm course, whatever. I’m telling you there’s very little that hasn’t been achieved before.
So you’re really looking to think of a strategy as having a roadmap, a recipe, a blueprint, or in today’s world, a GPS that takes you from where you are to where you wanna be. And there’s a seven step process that I teach. And again, it comes partially from Tony and partially from me where you gotta know and you’re talking about your strategy, you gotta know step one, which is what is your outcome? That is, what are you really, really trying to achieve? Right, you gotta know your outcome. You gotta know the end game.
Number two is why do you want that outcome? What is your why? Again, we’re going back to that when times get tough or you get tired or you hit the wall, the why is gonna keep you moving forward. So if I know what do I want and why do I want it, step three is what are all of the things that can help me move it forward? We call that the map or the massive action plan that you’re gonna jot down on paper to get ready to go make it happen. So if I know what do I want, why do I want it?
Coach Trevor McGregor (50:49.989)
really, what are the things that can help me get there? Steps four through seven are really simple because step four is to prioritize it. Step five is to timestamp it. Step six is to help yourself get leverage. And leverage simply means, you know, who can help me? Right? Is it Dave? Is it Trevor? Is it an accountability partner? Is it chat GPT? Is it a travel agent? Right? Oftentimes we think we’re the only people that can make things happen when, you know, we’ve got access to all of these other fabulous people.
So that’s step six. And then I think you know what step seven is because that is execution along with course correction. And that’s when you go out there and you take what I call intelligent and inspired action. Because intelligent means smart and inspired really means because you get to, not because you have to. So if you think of real estate, right? And does it matter what asset class you’re in? Does it matter if you’re new to real estate?
or maybe you’re an intermediate or maybe you’re an expert at it. When you think of where you are today and where you want to go, I’m telling you, you got to know what you want, why you want it, all the things that can help you get there. You got to prioritize what’s the first, second and third thing you’re going to do. You got to timestamp it, you got to leverage it and you got to execute on it and then measure, am I on track or do I need to course correct? And that is really the fourth S and what we call strategy. What do you think, Dave?
Dave Wolcott (52:15.858)
I got to say, Trevor, we’re definitely on the same sheet of music. I wrote a book on that. It’s called The Holistic Wealth Strategy. It’s really completely in line with that, so really resonates. One of the things that I love about having a strategy and then how you articulated that, I also see it a bit as a framework because everyone has a little bit different circumstances, maybe where they are on their journey.
Coach Trevor McGregor (52:23.586)
Awesome. So good. So good.
Dave Wolcott (52:45.25)
things that they’re working through. So when you have enough flexibility, right, within that framework and within that strategy, you can all, everyone can make progress there. So I think that’s really excellent for people to have something to lean on, have an approach or a blueprint if you will, so that they can grow.
Coach Trevor McGregor (53:05.905)
Yep. That’s awesome. Yeah. So to recap it, the state, the story, the standard and the strategy are really things that the listener can really think about, you know, where you’re at, and where do you want to go and then start using some of these tools and mindshifts shifts to start, you know, climbing the ladder of success.
Dave Wolcott (53:08.984)
Well.
Dave Wolcott (53:24.374)
Really awesome, Trevor. So many pearls of wisdom in here. Really appreciate all these insights. If you could give just one piece of advice to listeners about how they could accelerate their own wealth trajectory, what would it be?
Coach Trevor McGregor (53:41.161)
Well, I love that question. And I’m going to over deliver because I’ve got two things that I’ll stack on that. And the first one is number one, check in with your hunger. I mean, how hungry are you for success? Really? Do you want to settle for the appetizer? Or do you want to settle for what’s on the value menu? Or are you really ready to have the full meal deal? Because I’m telling you, for the committed, there’s always a way but you got to check in with your hunger and you got to refuel it.
Dave Wolcott (53:46.626)
Ha ha ha.
Coach Trevor McGregor (54:08.413)
to really remind yourself about the five freedoms and what’s available to anyone who’s defiantly committed to moving towards it. Again, that’s number one, check in with your hunger. And number two is passion. I often find that with my clients and the high performers that I coach, whether they’re Fortune 500 executives, real estate investors, doctors, attorneys, Olympic athletes, I mean, I’ve really had the pleasure to coach some amazing people. You know, they really, really check in with their passion.
right and really allow themselves to become childlike, not childish, but childlike and going after it and pursuing it and knowing that they can gamify and play a game and really go after it and enjoy the journey. But again, where there’s passion, there’s purpose and where there’s passion and purpose, Dave, there is profit because money becomes the byproduct of you checking in with your hunger, unleashing that passion and going out there and using the four S’s.
to climb the ladder of success. What do you think of that?
Dave Wolcott (55:10.81)
Awesome. Yeah, that is that is words to live by for sure, Trevor. So can’t thank you enough. I’m grateful for you. Grateful for this time together and sharing all these insights to the listeners. I know they’re going to get a lot out of this. I know I’m going to listen to this a couple more times. And really take action, like you said, right, because it’s all about taking action. And, you know, it’s so great that we’re able to really talk about mindset, right? Because
You know, we can talk tactics and strategies about real estate all day long and syndications, and there’s enough people doing that all the time. But if you don’t get the mindset right, you know, whatever business you’re in, whatever, you know, investing asset classes you’re doing, it’s all you’ve got to have that the mindset right to start.
Coach Trevor McGregor (56:00.301)
Absolutely. And that’s why I give you a huge shout out. I give you a huge shout out, Dave, for, you know, you doing this work and writing books and putting this out there and continuing your growth trajectory. But again, we have a lot of people that run in a very similar circle. And a lot of people that have been on your show are amazing human beings. So again, you know, don’t just be interested, be, you know, committed to listening to more of the show and, you know, really, you know, unleashing your power, as Tony would say, but it’s available to anyone.
Dave Wolcott (56:01.73)
So Trevor.
Coach Trevor McGregor (56:29.317)
again, who’s defiantly committed to it, but keep up the great work.
Dave Wolcott (56:34.822)
Thanks. If people would like to learn more about your coaching Trevor or connect with you, follow you, what’s the best place?
Coach Trevor McGregor (56:43.225)
Well, thank you. Yes. The easiest way to do that is really head over to my website. It’s simply trevormcgregor.com, or you can find me on LinkedIn and other various social media. But I would say the website and LinkedIn are probably the easiest and fastest ways to connect. And again, if anyone is, you know, interested in doing a discovery call or finding out a little bit more about how my coaching structure works, I’m happy to support that as well.
Dave Wolcott (57:11.43)
Awesome. Thanks so much for coming on Trevor.
Coach Trevor McGregor (57:14.129)
Well, thank you, Dave. And again, keep up the great work.
Dave Wolcott (57:18.274)
You bet.
Dave Wolcott (00:01.131)
John, welcome to the show.
John Casmon (00:02.792)
Hey Dave, thanks for having me today.
Dave Wolcott (00:05.31)
Yeah, you bet. It’s great to have you on the show. And I know listeners are really going to enjoy the discussion. So why don’t we get started and talk about your journey. I know you kind of transition from corporate America, kind of got into real estate and really interested to hear kind of how you made that transition for yourself.
John Casmon (00:24.284)
Yeah, so I spent 15 years in corporate America doing marketing and advertising. So I worked at General Motors at one point. I worked for different advertising agencies and I loved what I was doing, but I kept running into this issue where job security was a concern of mine. So I was at GM when we went through bankruptcy. So I saw that firsthand and that was really, I mean, I’ve had some, I had a fellowship program before
out of college, but that was my first like real like corporate job, right? Settled in. I’m working with a bunch of lifers. So like for me being at that kind of, you know, that company at that time, it was important because you didn’t see a lot of young people period, and especially someone who looked like me. So I enjoyed my time there and actually really, you know, enjoyed working at the company. But I watched us go through rounds and rounds of layoffs and
My father was blue collars. They come right. He worked two jobs in his life, right? He’s, he worked for a Buick dealership. Ironically, I ended up working at the, on the Buick advertising team. And he worked at a Buick dealership in the parts department. And then he worked for a steel company. So he’s had two jobs. He’s, you know, that’s what he instilled in me. It’s hard work. You get a good job. You keep it, you work it until you retire. They get to go watch. That’s the mentality. So when I’m watching all these people get let go prematurely or being forced to retire early.
They didn’t have a plan B and that made me realize that as much as I liked stability, the only way to truly create stability was to take control completely over your own financial future. So that got me interested in real estate. I would say I was already interested. That kind of forced me to say you better figure out something else. So I started learning about real estate. I was still in Detroit at the time, so Detroit was not the.
uh, best market or, you know, depending on how you look at it, it was a great market to invest in back in 2009, 2010, but I certainly didn’t have the confidence to think that I was going to go out there and do well investing in Detroit. So I moved to Chicago, 2011, uh, got a job at a small advertising agency. Um, that company grew and I was a part of the growth of that company. And then I started investing on the side and I slowly started building up my own personal portfolio. Um, and then right around the time when I was ready to scale.
John Casmon (02:42.508)
and started working with investors and really grew on this business, the company I was working for also went through bankruptcy. And that was scary. But it also pushed me to say, you were on the right path. This is the conviction you need to continue to pursue what you’re doing. And that really kind of got me not just comfortable, but really helped me focus on not just investing in.
real estate and apartments, but going larger into apartment syndications and doing larger deals.
Dave Wolcott (03:17.95)
Yeah, what an interesting story. I know, you know, for most people, there’s always some kind of right epiphany that you have kind of along the way, right? That, you know, gives you that insight to say, hey, I’ve got to move forward, I’ve got to really take action. And that really resonates with me, John, you know, I came out of corporate America, after the Marine Corps, and had similar frustrations, right in terms of, you know, just being in this massive machine.
that you really didn’t have all that much control over. And we think, we falsely think that we have this job security, but in reality, there’s a lot less, right? And so when you can kind of make that paradigm shift and transition over to having more control over your own destiny through entrepreneurship as well as passive investing, it’s really a massive shift.
John Casmon (04:12.404)
Yeah, David, I think too, like even if you, like I loved my job, you know, I know some people, they just wanna quit their job and they’re miserable. That wasn’t me, man. I had a great job. I was doing fun stuff, great activations. I enjoyed what I was doing, but I also was very conscious of the fact that at any moment that job could be taken away. Or even if it wasn’t taken away, they may ask me to do something that I don’t enjoy doing.
Right. And in corporate, you know, especially at a big company like GM, like you have to sometimes check a box and make lateral moves in order to move forward. So I might have to go into the field and be a sales rep or things that I didn’t enjoy. Right. I didn’t go to school for that. I didn’t I wasn’t passionate about that. And I started to realize, like, oh, like now I have to play the game and do certain things that I actually don’t want to do and do them for two years or whatever it is.
And that just started to weigh on me, right? And I think that’s the important thing too, is that you can love your job, but at any moment you may not love it, or you may be pushed to do something else, and you want to have that flexibility. And as you stated, passive investing, passive income, that doesn’t mean you gotta quit your job tomorrow, but it does give you options, and it does allow you to focus on the things that are important to you, and get kind of that clarity that you need, so you can build a whole life, you know, not just.
Real estate, I know you talk a lot about, you know, the holistic investment strategy and the holistic self, but that’s what you’re targeting, right? You want to be a great father, you want to be a great husband, you want to be a great, you know, son. All these different assets or facets of who you are. It’s hard if you’re just focused on the W-2, which is grinding and grinding and grinding, you know. So for me, I think it was really important to create options to be the best version of myself or at least a better version of myself.
Dave Wolcott (05:50.998)
Yep.
Dave Wolcott (06:00.586)
Yeah, absolutely, John, I think you really create this, you know, it’s this freedom of purpose, you know, that we’re after and having that purpose in your life. Because when you have purpose, you’re not actually working. And you can have purpose in corporate, but you have to be, you know, careful, you know, as you do it. And then as you say, if you can kind of create this passive income that’s coming in, it totally changes how you think about things, you may not necessarily have to be forced.
into doing something by knowing, you know, what you have options, like you say. So it’s powerful.
John Casmon (06:37.932)
Yeah, if I could share a quick little story, there’s a when I was at GM and we were going through bankruptcy, everyone had high anxiety, right? Like all of us from the, you know, the leader of the brands that I was working on to, you know, the junior analyst every day. It was just, you know, it was tense, you know, everyone was on eggshells except one guy. There was one guy who every day this guy had a smile on his face. He came in. He he worked from 730 to 430. Right. And.
He did a good job, but he wasn’t trying to get promoted. He wasn’t worried about any of the political stuff. He just came in, did his job, had a smile on his face. And he was one of my favorite people at the company. His name was Jack. And I remember just talking to Jack and just kind of, you know, off to the side. I was a young guy, right? I was literally my mid 20s. So, you know, they, when you’re young like that, the older guys, they, they’re happy to pull you to the side and mentor you a little bit. And we would just chat and just have good conversations. And the one thing Jack told where I learned about Jack.
is Jack had other investments. You know, he had property in Utah. He had other things that he did. He had a snowmobile, so he would take his family out and just spend a couple of weeks a year, you know, just skiing and on a snowmobile. And real estate was the thing that gave him that flexibility. So the reason he could come to work happy every day is because he didn’t need it. He was there because he enjoyed the work he was doing. But if they told him, hey, your time’s up, he’d be like, all right, cool, I’ll go do the other stuff I wanna do. And that was the thing that really struck with me.
It wasn’t his boss, his boss’s boss, the people who were making the big salaries, the big bucks, because they had all the stress of this house crumbling down. If something happened. And I watched that happen to a senior executive who moved from California to Detroit, and then within a year or a year and a half, they, they moved her and her family to Shanghai and she had, you know, high school kids. And I’m just picturing like, man, do I really want to reach that level where
my kids may be forced to move states or countries, you know, and not be able to make friends just because I’m chasing a promotion or a dream. And obviously you can say no and all of that, but it just made me really come to grips with like, which path do you want? You want to live like Jack, or do you want to live like this person who makes more money and has maybe the nicer things, but you know, doesn’t have that control of the time, the financial freedom, the flexibility that they’re looking for. And that really kind of put me on that path to say, you know, let’s,
John Casmon (08:59.316)
Let’s try to see how real estate can help us live the life we want to live.
Dave Wolcott (09:03.026)
Yeah, 100%. And did you develop a particular investment thesis or a wealth strategy as you kind of transitioned into the investing world?
John Casmon (09:13.884)
I did. So I studied a lot. And, you know, when you don’t come from that place, you don’t have a lot of folks who can teach you early on. You have to use all the resources available. And for anyone listening now, I mean, we are, we’re kind of blessed because you can Google pretty much anything you want to know. Right. And you may need to double check sources, but the information is abundant. Right. I mean, back in, back in that time, man, I’m sounding like the old guy back in my day.
But, but you know, it’s not that long. It was like 15, 20 years ago, right? So there, you can still Google, but you know, it wasn’t like everything was out there. But you know, at that time we still went to the library, right? To go get information. So I would, I would get books and I would check out books and I would, you know, buy some books, but sometimes I would just go to the library and check on a book and read it and it was from personal investments or, you know, personal development, budgeting, like all these kinds of things. Because first I had to figure out how to make the money I had work.
Dave Wolcott (09:44.282)
What year is this? What year is this John? Okay, yeah, yeah. Right.
John Casmon (10:13.2)
then how do I grow the money I have, and then ultimately how to invest. And that was a path that, you know, I had to go on and it was very helpful for me. But from an investment standpoint, real estate just made sense to me. I thought about, you know, the people who I thought had money and all of them basically had real estate, you know, and there’s that famous quote that 90 percent of the world’s billionaires at least either make it through real estate or hold some of their investments in real estate.
Um, so real estate was something I wanted to learn early on. And once I got into real estate and started learning more about that, then I, everyone I read or at least talked to, they talked about commercial real estate and multifamily. So I knew multifamily is where I wanted to go. Um, and that’s why we started with kind of a duplex and not the biggest, but, uh, it worked because like a house hack, I lived in one unit, I rented out the other unit, then we bought a three unit building. Then we bought an eight unit building and each investment.
was continuing to test this theory, right? The two unit, okay, I was living in one, renting out the other. For me, if I could have someone pay the bulk of my rent, because that’s kind of how I looked at it, I was renting before, well, someone else is paying the bulk of my rent, I’m up, right? I was paying $1,500 in rent, I bought this two unit, the person on the first floor paid $1,400 in rent, my note was around $2,000, so.
my portion of rent was $600. So in my mind, I just saved 900 bucks, right? With this investment. Even if it didn’t appreciate or nothing else, I cut my rent down by $600. Obviously it did appreciate and go up in value. And at that point I’m like, oh, this thing really works. So then I did it with the three unit. Now I’m actually cash flowing. So I’m not just getting my rent cut down. I’m actually getting money and making money every month off of this. Then with the eight unit, it was a matter of
being professional and seeing if I can make this a real business. Right now it’s commercial multifamily. I have a professional property management company, which was mandated by the lender, by the way. But I have this professional property management company. So now I’m testing out these theories. I want to make sure it’s not luck. Right. I want to see like, OK, is this repeatable? And that when we ran to a few more issues, but it was great because I was able to confirm.
John Casmon (12:32.596)
the things that I believed in. And at that point, that’s when I decided to start scaling into much larger apartment deals.
Dave Wolcott (12:39.786)
Yeah, and you’ve got quite a portfolio today, correct?
John Casmon (12:44.828)
Yeah, we’ve I think our current portfolio is around 400 or 500 units. We’ve been invested in over 1200 units, over a hundred million dollars worth of apartments. Again, we’ve gone full cycle on a number of those assets. But the stuff we have in our portfolios is doing well. We’re excited to expand. I know a lot of folks are nervous about the current market cycle, but we’re actually pretty excited and, you know, cautiously optimistic. But but we’re excited because we felt like.
The pricing guidance is coming back down to where our underwriting kind of naturally fits. We think this is a great time to add to the portfolio, especially as some folks are sitting on the sidelines. This is a great time for some of the, I’m going to say smaller, quote unquote, smaller players, but this is a great time for some of us to get in there and add to our portfolio.
Dave Wolcott (13:32.926)
Nice. And are you seeing increased deal flow right now?
John Casmon (13:37.undefined)
We are, you know, and the thing that’s incredible is that conversations we’re having with brokers are almost 180 from the conversations we were having 12 to 18 months ago, you know, 18 months ago, you know, they had all the juice, you know, I mean, they had all the power. They had 20 offers on a deal. They didn’t need you, you know, you were going to have to jump your number to make something happen. And now I think both brokers as well as owners recognize
where the market is. And we were waiting on this realization to catch up, right? I mean, for the last year, at least the last six to nine months, we’ve all been like, there’s still this imbalance of where, you know, sellers think the market is and where their prices are and where buyers think the market is. And now we’re seeing that come a little bit more in line. And the reality is if you don’t have to sell today, you’re probably not selling. It’s just not an ideal time to be a seller. But there are a lot of people who have to sell. We’re seeing stuff where people, you know, maybe came in a couple of years ago.
with their deals, they’ve got a rate that’s expiring. So, you know, the loan’s maturing, they’ve got to do something. The new loan won’t match. Interest rates over the last two years have hurt their ability to implement their value-add strategy. So we’re seeing opportunities now that, you know, we probably would not have seen at all over the last 12 to 24 months. So we’re definitely seeing more deal flow. We’re excited for that deal flow.
But we also want to make sure that we’re being conservative and taking a look at the market and understand the worst case scenario as well as what the upside could be.
Dave Wolcott (15:11.03)
Yeah, sure. And are you doing anything to really mitigate risk in this environment?
John Casmon (15:16.82)
The biggest thing for us is making sure we focus on cash flow first. I think for us, that’s never changed. That’s been one of the challenges we faced is a lot of groups will go in and even if a deal has a negative cash flow out of the gate, they believe they can create the value over time to, to make that up. We’ve never really looked at it that way. We always want to find deals that do have positive cash flow where there is a clear path.
for us to add more value to that property and extract that value either through a refinance, a sell, or simply have that equity built into the project and then sell whenever it makes sense. So for us, that really hasn’t changed, but I think that philosophy and that approach is becoming more and more popular. And I think not everyone, but a lot of people are thinking about it that way now. So we’re seeing that where we’re coming in on some of these deals is more in line with kind of the market. I think in the past,
people are treating it almost like flipping a house, right? Whereas who cares what I pay for today as long as I can make some money, I’m good. And now people are saying, wait, what’s the going in cash flow? What’s the going in DSCR? So we’re spending more time actually make sure the going in DSCR is positive. It’s gonna cash flow day one, but we still want that path to create value for our investors. Because to me, that mitigates the risk, especially if you’re buying these assets at a higher interest rate, because if it works today and rates stay high, well,
You know, you still got a good cash on the project, right, especially if you’re going to add value. But if rates come down, well, you’ve just built an even more equity for that next for yourself. And then obviously an opportunity for that next buyer.
Dave Wolcott (16:54.538)
Yeah, we’re seeing the same thing, right? Where operators, if they’re focused on actually doing that value add, and you can start driving up that value as soon as you take over, ownership of the property, it really increases the value of the asset, right? But I think in the past five years, I mean, since the market was so strong, there was a lot of people probably just betting on appreciation, right?
John Casmon (17:19.124)
Yeah.
Dave Wolcott (17:20.066)
But some of those people, like you say, are now kind of upside down right now, or it doesn’t make sense based on the underwriting that they put in place three years ago. What do you, from a debt perspective, how are you approaching the debt markets right now? Rate caps are very expensive in terms of the acquisition, so how are you playing that out right now?
John Casmon (17:45.576)
That’s a great question. I think it’s really important to select the right loan based on the business plan for that product. I know a lot of people are of the mindset of we only want to use fixed rate or hey, we you know, you don’t hear as much today, but some people, they want the flexibility. So they’re only using bridge debt. I would say that for us, we want to understand what the business plan is for that property. And I’ll give you a clear example.
If you have a clear path to add value and a substantial amount of value, and you can validate that based on comps in the marketplace, then there’s still an opportunity to use Bridge because you don’t wanna lock in a 7% interest rate for 10 years where you’re gonna create a ton of value and you can do nothing about it for 10 years. So in that scenario, I think Bridge may play a role. I would push to say,
you have to really be able to validate that you can create that value. So and it’s not just 50 rent, you know, $50 rent bumps. It’s got to be substantial, right? It’s got to be a substantial amount of value that you’re going to create. If you’re not going to create that level of value, then I do think, you know, fixed financing makes sense and give yourself some flexibility. Maybe you, you know, pay down the prepayment penalty. Maybe there are things you can do where if the market does heat up and you want that flexibility to sell early.
you have that ability or even to add a supplemental or to have an assumable loan. So there are things that you can do there that give you some flexibility. But I would say for us, Elise, we’re trying to make sure that we understand what the business plan is for that product. And then we want to match the loan with that business plan.
Dave Wolcott (19:25.034)
Yeah, that makes sense. And what would you say, John, is your philosophy around hold period? Because it is kind of interesting. Some operators have different models where, you know, some will exit, say a three to five year exit, build the value, right, but others are actually really in it for the long term, they might do a refinance in the future to get some of the investor capital back out. But they go in with a lower LTV, and they look to just, you know, cash flow at long term.
John Casmon (19:55.112)
Yeah, it’s great point and great question there. So for us, I go back to the business plan. If you’re looking at a particular property, I would say generally speaking, newer, nicer assets, we are comfortable holding longer term. For older assets, we are typically looking to exit those deals a little bit earlier. If for us, a five year hold is kind of our standard.
And then we adjust accordingly. There’s a deal that we’re getting ready to do. And on that deal, we have an eight year loan, which is unique. This entire loan is actually unique, but it’s an eight year loan. It’s a similar, it’s a crazy low interest rate. But on that deal, we are projecting a five year hold. But at the back of our minds, we’re going to explore a sell at year three, because we want the next buyer.
to actually have the ability to come in, assume this loan and have five full years to keep this really low interest rate loan for themselves. So stuff like that, I think comes down to it. And I think you’ve got to factor that into your plans as far as the length of the holds, how much upside you have. It’s also for us, we try to take the long view and then we want to be opportunistic if the market affords us that.
Right. So we don’t want to sell just to sell just so we can say, oh, we got a 20% IRR for investors. Like we’re not really trying to play into the vanity metrics or just check the boxes to say we did something. Um, if we’ve got a deal that’s performing and we don’t have a another deal or a better solution or another opportunity, we’re going to keep our investors in that deal. Right. If we’ve got a deal that maybe it’s not performing as well, for whatever reason, then yet we may decide, you know, Hey, this is
It’s performing, but it’s not maybe achieving the standards that we’ve set. Then we may say, hey, maybe we trade this one out and see if we can, you know, find a deal that better suits our investors’ needs. So I think some of that comes into play as well. But generally speaking, we try to take a little bit more of a longer term view and then be opportunistic if the market’s in our favor versus going in and assuming we’re going to be in for two or three years. Because I think that’s I think that’s fairly risky, because who knows where the market’s going to be in two to three years.
John Casmon (22:11.932)
I’d rather have the ability to be flexible and let’s just see where it makes sense for us to sell.
Dave Wolcott (22:12.343)
Right.
Dave Wolcott (22:17.19)
Yeah, agreed. I think there’s really pros and cons, you know, to both scenario, right? And looking at it from the investor perspective, you know, sometimes if you have to redeploy capital, right, you’ve got to go find another deal, right, and get that, you know, capital to work for you. And if it’s been performing well in an asset, why do you want to disturb that, right? But on the flip side, one thing I think a lot of people don’t really think about from that investor perspective is that
If you transition in five years, you start the clock again on your bonus depreciation. From a tax standpoint, it can be better to be turning that capital versus holding on to it longer term.
John Casmon (23:02.452)
Yep, absolutely. And the other thing that is, and this is something that a lot of you don’t really think about, take what you just said about being able to start the clock on bonus depreciation. Well, for a lot of the depreciation, it’s five year depreciation. So if you wait five years, you don’t have to recapture that portion. And a lot of folks don’t think about that. So if you sell in two years, you’ve got to recapture a lot of that depreciation. But if you sell it five or you’re six, a good chunk of that, you won’t have to recapture. So there are
some perks in doing that and not to get into the loan pay down, right? If you’re if you’re not an IO only loan and you are making the principal payments, well, you’re also building equity from operations. So there’s I want to say safety, but there’s some security in having an asset that is building equity just from making the monthly mortgage payments, because now you have that paydown on the principal. So whenever you do go to sell.
Dave Wolcott (23:43.853)
Right.
John Casmon (23:59.68)
there’s more value there for the investor. So there’s definitely some perks in holding on longer, but I think to your point, you know, some investors certainly want to, you know, rinse and repeat and there’s the time value of money and that’s what IRR is calculating. So we certainly want to make sure that we are keeping all of that in mind and being, like I said, opportunistic, taking all those inputs and then deciding when it makes sense to either exit or roll into a new investment.
Dave Wolcott (24:23.218)
Yep. John, tell us a little bit about your market. You know, typically the sunbelt kind of gets all of the noise, right? Everyone’s in the southeast, southwest. So tell us a little bit about your market.
John Casmon (24:35.728)
Yeah, so I’m based in the Midwest and I’ve got a lot of love for the Midwest, right? The Midwest is misunderstood. You know, people just they don’t understand it. You know, I talk to people all the time, your friends, you know, friends that I know. And they think the Midwest is only cash flow and there’s no appreciation. And I think some folks, when they hear Midwest, they think, you know, Toledo or Detroit or, you know, accurate or these places where all you can get is, you know, a 10 percent cash or cash return. And that’s what they’re looking for.
And certainly there are markets like that, but I would argue of markets like that in every major metro. The Midwest has some of the strongest growth markets in the country. Columbus is a very strong market. Indianapolis is a very strong market. Louisville is good. Cincinnati is good. What I would what I would implore people to think about is the balance of cash flow and appreciation, particularly at a time like this. You know, there are some markets that are boom or bust. You know, we talk about some of those coastal markets.
Phoenix, their markets are not just Pickle Phoenix, but Phoenix, Vegas. Some of these markets are very cyclical, right? And when the market is doing well, we saw 20% rate growth in some of these markets, right? I think 24% of some markets. That’s amazing. It’s not sustainable, though. And if you go up 24% and then come down 10 or 15% the next year, how valuable is that for you as an investor to be able to predict, you know, the future growth?
So one thing I like about the Midwest is it’s very sustainable. It is I don’t want to say predictable, but you can project with some accuracy what the growth rate is going to be, what the demand is going to be. There’s not as much new development, which as an investor is good because that’s less competition from new housing stock. If you buy a 1980s building, but every year there’s brand new class A buildings going up around you. Well, your property is not going to be as attractive.
You know, you won’t be able to compete versus in a lot of art markets. They build class A buildings, but for the B class area where we invest in, it’s really difficult to build, you know, B class products in the Midwest that are going to be comparable. So typically speaking, if we’re going in with a value add strategy, we’re going to have a fairly nice product that can compete with some of the newer, nicer stuff. Not exactly, but it’s but it’s a nice.
John Casmon (26:59.276)
compliment or a nice alternative to those assets. So I love the Midwest. We still stick to the fundamentals. Again, we want to invest in markets where we’re seeing population growth. I still want job growth. I still want to see rent growth. I want to see overall appreciation. I want to see demand growing. I want to see which employers are coming into the markets. What thing that I love about the Midwest are the growth is usually in sectors like logistics and healthcare and things that tend to be recession resistant.
You juxtapose that with maybe some markets that are driven by technology or driven by hospitality and travel and leisure. Those markets tend to suffer more during a recession. So I like the fact that, you know, if you think about it more plainly, people in the Midwest live in the Midwest because that’s where they’re from. They got family there. They’re comfortable there. You’re typically not, I mean, Chicago is different, but people typically aren’t
waking up and just decide they want to live in Louisville, right? Is you’re not moving from California to Louisville because you just want a culture change, right? You’re probably going back to Louisville. Maybe that’s where you grew up. Maybe you’ve got family nearby. So those people are staying for reasons that economics won’t really impact. Again, when I look at a Vegas or Phoenix, there isn’t a pick on those markets. But those people are typically going because they got a high priced job there.
Right. There’s a tech company there. They graduated. I’m going to move and go live there. Same with Chicago and New York and these cities, too. Right. But they’re moving for that. But as they start to settle down, have a family, you know, jobs disappear or whatever their layoffs. Well, there’s no reason for them to be in those cities anymore. So I like the Midwest just for the stability of those markets. And a lot of it is just with that underlying understanding of why people live in those markets and why they choose to call it home.
Dave Wolcott (28:52.414)
Yeah, that’s a good breakdown. I was going to ask you about the demographics, right? Because we all hear about people, you know, moving to Texas, moving to Florida, the Carolinas, right? But what is the actual population growth in the Midwest? I mean, just generally speaking, right? Is it growing or is it maybe at a slower growth rate or what does it equate to?
John Casmon (29:13.052)
Yeah, it’s definitely it’s definitely growing. It’s at a slow, a little bit of a slower growth rate. And again, the Midwest is not kind of a, you know, one single market. So I would say when I’m looking at it, I’m looking at again, the Columbus, Indianapolis, Louisville, Cincinnati, those markets are seeing really good sustainable growth. They’ve got different jobs there, different industries that are driving it. I’ll take Louisville as an example. Health care, logistics, UPS is there.
FedEx has a, you know, a big footprint there as well. They’ve got some automotive manufacturing in that market. So if you just think geographically, look at it on a map. Well, it makes sense for logistics to be there because it’s an easy way to access the Northeast, the Southeast, the West, right? You can get to a lot of the parts of the country in those areas. Cincinnati, Amazon built a one and a half billion dollar airport hub, right? An air cargo hub of their own so that they could get in and out and do same day shipping.
So these are the things that are driving the parts of the Midwest, not to mention health care and some of the other industries there. Eli Lilly’s in Indianapolis. So we have a lot of those kind of things that are that are sparking growth. But again, it’s not unilateral. So while I’m born and raised in Cleveland, I love Cleveland. You’ll never hear me say anything negative about Cleveland. Unfortunately, Cleveland as a macro market, the metro itself is not growing. OK, it’s stable.
but it’s not growing. So that’s one of the things that, you know, we have slight concerns about Cleveland, right? Then you get into the ease of doing business and all the policies. So there’s some markets where we don’t focus on those markets for reasons like that, but the markets that I mentioned, I would match them up with, you know, some of the more popular markets in Texas and in Southeast region. And again, they’re not, it’s not Dallas. No one’s trying to say that it’s Dallas.
But I think too, when you look at the competition, when you look at the new development, I think it stacks up, most of those markets stack up very nicely with what you’re seeing in some of these other metros.
Dave Wolcott (31:21.942)
What are you thinking about 2024 right now in terms of, you know, where is the market going to be? Where are the opportunities going to be?
John Casmon (31:30.388)
You know, there’s a mantra you hear from a lot of people, which is survive till 25. Right. What I what I would say is I think is going to be a great opportunity for those who are looking for deals and looking for opportunities. But you’re probably you probably don’t want to sell in 24. You know, you probably want to wait until the market settles down, you know, where interest rates are going to be in a place where people know kind of what some level of certainty what to expect in the next 12 to 24 months. You know, you can.
read very reports on where rates are going to be, one more rate hike, rate hikes have stopped. Who knows? For me as an investor, I go back to where we were before, you know, have a longer term view. You know, let’s make sure we have deals that cash flow, we have deals that we have a business plan that we believe in, deals that we have a business plan that has flexibility built into it. And if you’re doing it that way, you’re a little less concerned about
trying to time the market and where things are gonna be at 24. It doesn’t mean that you’re, you know, put your head in the sand. But on the same note, people there have been people waiting on a sideline since 2018. Right? I mean, just 2018 everyone told me all the market is going to collapse. You want to sell all your stuff, right? Rates are gonna go and then COVID hit 2020. Okay. Well now it’s really gonna hit right now is the time everything is gonna crash. You got to sell your stuff and wait and we saw everything go up. So
I’ve been hearing this for years and years and years, and it’s not to say that I want to dismiss it. I believe it. However, I think the key here is to find the solution. The solution is don’t worry about selling in 2024. Figure out deals that give you flexibility. If you have deals in your portfolio now that don’t have that flexibility, you need to be pushing it now, either refinancing or looking to sell or rearrange your portfolio. But now is the time to have flexibility with every single asset in your portfolio.
so that you can take control over whatever happens in the market. And you’re not worried about where things are going to be in 2024. And more specifically, like, you know, all we got to refinance by May or whatever the time frame is. You want to have that control so you can sleep at night and just make some business decisions with the assets in your portfolio.
Dave Wolcott (33:45.47)
Absolutely. I think that’s really the beauty of real estate, right? If you have that three to five year window, you know, that hold period, you’re able to have the flexibility with the asset to kind of plan long term. And especially when you kind of compare that against the equities markets, right, which most people are always trying to react to.
And you look at investor psychology and that’s how investors are losing, right? Because they’re getting emotionally involved and this went up, this impacted this, I got to change, I got to move, right? But with real estate, it’s a much more, it’s a slower, it’s more systematic type of approach. And I think it’s more of an all weather approach as well.
John Casmon (34:11.336)
Yeah.
John Casmon (34:28.564)
Yeah, Dave, there’s a quote that I love and I definitely have stolen it. But real estate, the values only matter on two days. The day you buy it, the day you sell it. And if you could control that second day, you’ve got all the power. The problem is if you don’t have good cash flow or you’re in a situation where your loan comes to where you don’t get to control that second day. So for us, our whole philosophy is control the day we sell. And if you do that, you’ll be OK.
Dave Wolcott (34:57.462)
Love it. Love it. John, if you could give our listeners just one piece of advice about how they could accelerate their own wealth trajectories, what would it be?
John Casmon (35:09.752)
I would tell them to figure out what their biggest challenge is and then think about a solution. Set differently, not to get into mindset too deep, but it’s really important to ask yourself how can I do this? How can I save a million dollars? How can I add $10,000 a month in passive income? If you say how can I…
you’re setting up the solution and the answers. Too many people, I think, start with, oh, I can’t do that, or I don’t have that, or, oh, it’s easy for John to do it, or it’s easy for Dave to do it. And they dismiss it and they cut it off before they actually have a chance to brainstorm potential solutions. So I would urge them just to ask yourself, how can I, and then you fill in the blank with whatever it is, how can I invest in real estate? How can I?
add $10,000 of passive income in most of my portfolio. How can I add a million dollars in assets? And if you start asking yourself, how can I, now you can start to understand what those potential solutions are.
Dave Wolcott (36:16.214)
Yeah, sage advice. It’s really been a pleasure having you on the show, John. Really appreciate all the insights and wisdom. And if folks would like to reach out and learn more about what you’re up to, where’s the best place?
John Casmon (36:28.86)
Yeah, listen on our website we have a bunch of different resources including a sample deal package for anyone who’s looking to invest passively And maybe just wrap your head around what to look for in a deal package But you can go to casmon capital comm Slash sample deal and then also on casmon capital comm we have our podcast multifamily insights, which Dave has been a great guest So be sure to check that out whenever you can with casmon capital comm
Dave Wolcott (36:54.675)
Awesome, thanks again, John, really appreciate it.
John Casmon (36:57.248)
Thank you, Dave.
Dave Wolcott (00:01.154)
Garrett, welcome to the show.
Garrett Gunderson (00:03.117)
Sup Dave, good to be on, appreciate it.
Dave Wolcott (00:05.13)
Yeah, no, really awesome to have you on Garrett. I love connecting with like minded people. And I really so much support your mission and really trying to, you know, break down all of these concepts that I think, you know, we were all taught, right? We were taught by conventional wisdom, we were taught by, you know, schools, our peers, our parents, all these things. And you’ve really just kind of, you know, pulled back.
the curtain on what’s really happening in the financial industry. And you have such a unique background as well, being a financial advisor yourself, and then kind of moving into some of these more advanced strategies. So really appreciate your time today. And I know the audience is going to really jump into this. But for those who aren’t familiar with your background, why don’t we start things there and just tell us about your journey.
Garrett Gunderson (01:00.985)
June of 1998, I got life insurance license. And shortly after I got my series six and 63, and in 98 and 1999, I mainly sold mutual funds and a little bit of variable whole life insurance. I thought the stock market was where it was because it’s the 90s. The previous eight years were like unprecedented. I was young and naive at 19 years old. And then I had my wake up call in the year 2000
Most of my clients were like my family, you know, like my grandparents, my parents, my friends’ parents. And they all thought I was super smart because I had nothing to do with the market going up. But when the market went down, they’re like, what do we do? And I hated what the firms were telling me. Tell them the market’s on sell. I’m like, well, that’s bad news for the people who already bought, not good news. They’re like, tell them earn it for the long haul. I’m like, when does the long haul end? When they die? They’re like, dollar cost average. I’m like, I don’t know anyone that’s looking to be average. And so…
Fortunately, I had this mentor and he managed five billion dollars in municipal bond funds and he helped me get everybody out of the market between March and May of 2000. Therefore not losing for that next two and a half years that there was double digit losses. So there was three years in a row of losses. And that’s where I really decided to focus on what was guaranteed in finance. Like you were not even allowed to say that word, but what’s guaranteed in finance is if you could save tax, that’s a guaranteed return.
If you could save interest, that’s a guaranteed return. If you could save non-performing fees and commissions, that’s a guaranteed return. Or if you can remove duplicate coverages or an improper structure with insurance, again, another guaranteed return. So I became like obsessive about efficiency and helping people keep more of what they make and focusing more on cashflow. But when I was really young, you know, and I was in my 19 years old, 20, 21, 22, I could use being young.
to speak to people who normally wouldn’t meet with someone. So I just went and I flew somewhere every single month, it was 26 straight months, and interviewed the brightest financial minds I could schedule with. I remember being 20 years old, never driving in New York and renting a car and trying to navigate that chaos, but like learning so much because I didn’t know and I’d had this situation where the market went down and I didn’t wanna face my clients again and say, oh, I’m sorry, you’re in it for the long haul. And so I just had this red memo pad.
Garrett Gunderson (03:25.389)
I used to just take notes and ask, like, I was curious. And that helped me to see, like, the rules that the middle class and the poor were playing were very different rules than what the ultra wealthy were playing because I got to see what a family office was. I walked into this boardroom. They were talking about a $400 million strategy, and there were attorneys questioning how the taxation of it would be and, you know, and the ownership of it. There were investment advisors and analysts saying, what are the risks that are in this?
And the client wasn’t even the room. And so I turned to the guy that was presenting at the end. I said, well, what is this? He goes, family office, but it’s low tier, you know, maybe 30, $50 million. You could work with these guys. I’m like, I came from a coal mining town, 30 to 50. There was nobody worth $30 million or $50 million. There’s no one that could have worked for this firm. So I went on this really ambitious yet naive kind of process of being like, I need to create this for the average person, like.
a comprehensive, cohesive communicating team. And I realized that’s really hard to do because the very best people get bought out or gobbled up by these families that have a team that works just for them. Like if someone’s worth $300 million or more, they might have a financial team that is only employed by that family and no one else. And there’s these entire networks of family office events where they all get together and…
They’re examining investments and have people presenting investments that aren’t available to the public. And so it’s like, oh, this is a whole different world that I didn’t even know anything about. And it really opened up my eyes and changed my trajectory.
Dave Wolcott (05:01.494)
Yeah, so many parallels to my story as well, Garrett, you know, it was back in 2000, when I just got so fed up, you know, with the market and the tech bubble was bursting at the time. And I just hated that feeling of having no control. You know, you wake up every day and there’s to be something else in the news. And it’s just all, you know, it’s a sea of red, and you have absolutely no control, right. And then the other thing that
you know, I really respect about the work that you’re doing in your book. I’ve got a copy of your book right here. We’ll reference this for folks killing sacred cows. But I love how you really get into investor psychology, and really thinking about what is this all about anyway, right? There are tactics, there’s strategies that we can employ, we can follow the ultra wealthy.
Um, but let’s kind of jump into investor psychology a little bit, because I think it’s kind of so fascinating. Some of the things that you’ve uncovered here and, um, you know, why don’t, why don’t we start with abundance versus scarcity mindset?
Garrett Gunderson (06:06.713)
Yeah, that’s the first chapter of that book. And the title of the book is called The Finite, or that chapter is The Finite Pie. And I remember, as you can see by my hair, at one time I wanted to be a rock star, right? Like I just, I loved music and I played guitar. And my wife bought me Rolling Stone as like a subscription. And the very first magazine I opened up, it was a picture of this massive guy. It was a cartoon. He was bigger than all the buildings, eating pie. And there’s little crumbles coming down, the little people down below.
And the title was the finite pie. And it was a belief that there’s a win, lose zero sum game that one person having wealth means another person cannot have wealth. And that is this foundational philosophy of scarcity. And they quoted people in the article, like Thomas Malthus, who was an economist that was like, we’re going to run out of food. That was like three, 400 years ago. And, and I just kept thinking, I’m like, you know, animals have babies and, you know, uh, plants have seeds and.
Yeah, maybe there is a place where there’s too much, but ultimately they were ignoring innovation, ingenuity, exchange. And my belief was in abundance, the wealthier someone is, it means the more value they created, the more value they created, the more other people have actually been able to receive that value. And the more exchange we have through serving others, solving problems and delivering value, the more wealth is created. And I think we have so much evidence of abundance because there was a time where
59% of the planet just a few hundred years ago was like in poverty and now it’s like 9% is in real poverty that still exists But it’s drastically reduced and even if we look at people that were extraordinarily wealthy Years, you know hundreds of years ago, like I went to the Palace of Versailles a few years ago And it’s like a big place, but it didn’t have indoor plumbing when the Kings were there, you know, it didn’t have
They couldn’t have just whatever food they wanted. It was limited to just what was there. They couldn’t just get anywhere in the world anytime soon. If they wanted music, they had to bring in a band. Like now someone whose middle class has access to even more conveniences through innovation and technology and value. And so this notion of, if we think it’s all about competition and what we could take versus what we could create, that zero sum game mindset harms us, not helps us.
Garrett Gunderson (08:29.557)
And if we don’t conquer the scarcity mentality, no luck or saving or discipline or ready return or financial person will save someone because scarcity is the greatest destroyer of wealth. And it’s a belief system that governs our behaviors and those behaviors are very limited and they’re very isolated. I believe in abundance, it’s co-creation and collaboration and value creation that are king. And if we can really embrace that, then we can be more expansive by solving bigger problems.
serving more people or more deeply impacting the people we serve. And so that’s the foundation of everything when it comes to finance, is understanding that. And if you don’t understand that, then you’re probably going to get persuaded to do things that don’t make logical sense, but someone convinces you of because you believe a faulty premise.
Dave Wolcott (09:14.41)
Yeah, it’s so spot on. And in our holistic wealth strategy, that’s actually phase one as well. It’s all about your mindset, and having that abundance mindset, getting rid of those limiting beliefs, right? So you can conquer things. Because like you say, I mean, everyone’s going to come back, you could you could have the greatest strategies that you share with people, but they’re going to say, well, my financial planner said it was too risky, right?
My family and those around me say that, hey, this isn’t for me, you know, it’s too risky. So you have to have that abundance mindset, like you said, to be able to create value and just think about the possibilities. And then the second piece of that, I also find really fascinating about your journey as well is this concept of never ending question asking.
right and curiosity, right, that you have in life. And that’s part of having a growth mindset, right? Always creating a future that’s bigger than your past and everything. So talk to us a little bit more about, you know, your path on curiosity. Was that really the passion or did you have a particular aha moment that, you know, really inspired you on this journey?
Garrett Gunderson (10:08.345)
Mm-hmm.
Garrett Gunderson (10:29.077)
My curiosity candidly came from a route of not feeling like I was smart enough early on. Look, when I was a kid, I was in, I don’t know, I was like kindergarten. I’d made this little art project, which was a house out of a milk carton. And to get it back, you had to memorize your address. I never did because I just forgot to do it. And then finally, the last day I gave it a half-assed effort. So everybody in the class got it back, but me and mine got thrown away. So from a…
time I was young, I was like, man, I’m stupid. So I did all I could to prove I wasn’t stupid. Great grades, a lot of study, a lot of research, it wasn’t naturally what I would have done. But I had this ambition to prove that I wasn’t dumb and prove that I wasn’t stupid, which led me to be curious. So it served me to a large degree, tell it didn’t tell I wouldn’t speak up till I wouldn’t ask every question because I didn’t want to appear as dumb, right, like in a group. But
Fortunately, I did work and kind of got over that, but that was my initial thing. My curiosity was I wanted to learn for myself so I could get out of my small coal mining town and move to a big city and be seen as successful. And my definition in my rudimentary mind at the time was success was being a multimillionaire. That’s what I thought success was. And maybe when I was 15, it was probably being a millionaire. And then I remember getting there at 27 and being like…
It didn’t feel that much different, and I wasn’t necessarily a whole lot happier. I do think money does directly relate to our happiness when we handle the basics, but once we get past that, if we’re not doing things that we enjoy, and we’re not designing a life that we love, and we don’t feel fulfilled in other areas of our life, money as a solo artist can be very misleading, where if we’re just trying to build that worth at the expense of our family, our quality of life, our travel, our hobbies.
We might check every box society told us mattered and not feel whole, feel actually quite hollow and feel empty and wonder why more people aren’t banging down our doors and you’re so amazing. Because I think that a lot of times our relationship to money is merely a reflection of the relationship we have with ourselves. And anything we haven’t accepted in ourselves that we expect money to fix, unfortunately, isn’t strong enough to fix those things that are more emotionally in nature and more wounds that a lot of people have. So.
Garrett Gunderson (12:50.413)
What’s great is when you can have a whole lot of money, a whole lot of purpose and a high quality of life instead of a whole lot of money, no purpose and be exhausted all the time, right? So it’s not that you have to do away with money to be happy. You can have money and be happy. It’s actually easier in a lot of cases. It’s just that unfortunately people do things they hate to live a life that they love 30 years from today when they’re so-called retired. But what happens if we create a life we don’t wanna retire from?
What happens when we become financially independent early and now we can swing for the fences and our purpose and our life design versus just being in the grind?
Dave Wolcott (13:27.542)
That is just so spot on Garrett. And I think so many people struggle with that. I think people don’t really spend enough time working on it, especially today, right? We live in such a reactionary kind of environment. You’ve got so many different things coming out, you know, at us at the same time. But if you don’t spend time to kind of figure that out and get your mindset, right, you’re really going to plateau or even worse, you know, the world starts getting smaller, you know, without having that right, you know, vision.
stuff for yourself. Garrett, have you been able to, you know, there’s so many different, again, strategies and tactics that, you know, you uncovered in your book and everything. But one of the, you know, successful habits I’ve seen with family offices and Ultra High Net Worth as well is that they’ve created one kind of overarching, you know, framework or overall wealth strategy. So have you defined such a wealth strategy for yourself personally?
Garrett Gunderson (14:26.297)
Yeah, I have a wealth framework for sure. And that framework has depth in each piece of the framework, but it begins with simplicity of I’m just always like, OK, so financial independence is the first step. Financial freedom is the permanent step. So there’s a difference between the two. Financial independence is when we have enough recurring revenue from our assets to cover our expenses.
So whether we show up and do work the next day, we are taken care of. Now, we still have to maintain that by monitoring and managing it. But ultimately, there’s five levers that help us create financial independence. And then financial freedom, it’s a perspective or a state of being, where money’s no longer the primary reason or excuse we would do or not do something. It’s a consideration. It’s just not the consideration. And when we can come from that place, we can make decisions that are based first and foremost on value.
Second on the economic impact or cost and then third on the price Most people are not financially free think about the price and price alone and therefore they spend a lot of time trying to save money But we don’t shrink our way to wealth. It’s an expansive game. So if I put value first economic cost second, which might be hey, maybe Maybe I pay a lot more for my financial team But they provide so much more value than another financial team that would be cheap, right? So sometimes high price can be low cost
because you’re tapping into the best people, the best resources, and then that values your overall feeling of satisfaction and enjoyment. So I wanna be financially free at all times, and there’s a framework for that, which is simply how I start my day every day. I start my day with some meditation, with a sauna and cold plunge when I’m home, with some stretching, and then gratitude journal, and intent for the day, and so I’m living by design on a daily basis.
That’s part of how I keep that financial freedom at the forefront is those habits and rituals when it comes to financial independence Well, then it’s about these five levers. The first one being Plug financial leaks. So i’m always looking at efficiency. Can I pay less on to the irs to interest to Investment costs or to insurance costs is there a way to do that more efficiently number two engineering the wealth
Garrett Gunderson (16:47.189)
What is the amount of money that has to come in every month to cover my basic lifestyle and reverse engineering to get there that is first on the foundational pieces. So no money’s leaking through like the first step. Second, the sustainability because we’re looking at mitigating risk in a long-term way, which could be everything from asset protection to education. And then the third piece is investor to DNA. I want to invest in things that are aligned with my values, my competencies, my drivers, and I focus instead of diversify.
focus on creating cash flow, which is that third step, which is accelerating investment income. I look at all my assets and say, can I create cash flow? And I look at assets differently than most people. I don’t look at assets as things I have no control over. I look at them as either businesses, real estate, or intellectual property. And I’m saying, which of those am I going to develop most of my accelerated wealth with? And then the fourth step is, I’m always looking to scale that revenue.
because if I have control over the outcome of the income with those assets, I can actually make tweaks by marketing, hiring, developing, eliminating, whatever it is, and that can grow a lot faster than a blue chip stock could ever grow. And then the fifth thing is to make it count. I treat myself as my greatest asset. I’m always investing in myself, and I’m always asking, what’s the highest quality of life along the way? So I’m not wanting to retire from my life. So plug financial leaks, engineer wealth, accelerate investment income.
strategically grow revenue or scale revenue, and then fifth is make it count. That’s the framework of wealth for me because it creates that cash flow. And then I have choice where I could swing for the fences in everything that I do. Now I have different pieces of that framework where I capture the savings. I like to put it in overfunded whole life cash value insurance as a savings account because I think that’s better than a savings account that’s taxable, that doesn’t have a death benefit with it.
that isn’t protected from liability where a lot of people keep those money in, you know, bonds, which right now interest rates have been going up, lowering those values. They don’t have a debt benefit, so they got to buy term insurance. I don’t have to buy that. So I use this cash value as a way to capitalize when economies are chaotic. When the market’s down, my cash value stays strong. I could then buy when the market’s down, whether that’s real estate, whether it’s acquiring a business or whether it’s developing intellectual property, because people pay attention to me more in down markets.
Garrett Gunderson (19:08.397)
with my financial advice. So my books tend to sell more during that time, my courses tend to sell more, because when people are lulled to sleep because they’ve had a strong market for no reason other than people aren’t, you know, they’re just putting money in, or maybe it’s even fabricated through hedge funds or whatever it might be, they’re not paying attention. But when COVID hits or when the market starts to decrease and when all of a sudden the money they’re putting in isn’t getting them what they want, they start going, hey, what can I do? So I’m always looking for having liquidity.
that I can then take an opportunity where other people don’t have liquidity and actually profit from day one. I call that making money on the buy versus hoping it’s going to work out 30 years from today. Look, the numbers are in. 95% of people in America are not financially independent at age 65. 95%. So that’s including if they have Social Security. That’s including if they had a pension or if they had a retirement plan like a 401k or an IRA. They can’t stop working and cover their basic expenses.
That’s why I want this framework to cover that within 10 years so that now, rather than try to save 10% of my income, I can save 100% in building new assets. And that’s why I have nine books instead of one, because I build more of those assets because that’s an investment for me that I now can invest fully versus trying to save 10% of my income and then the other 90% pays bills. My cash flow is paying the bills and frees me up. So that’s part of it. I mean, there’s more to it, but that’s the basics.
Dave Wolcott (20:35.162)
Yeah, no, that’s really great. And it’s actually one of the questions I love to ask guests, right, is what is your wealth strategy? And most people all think about it in terms very one dimensionally. They say, you know, we just invest in real estate. You know, this is what we’re doing. This is how we’re building growth. But I think the way you articulated that is really this 360 degree view that encompasses that, you know, that freedom portion, right, which is essentially what we’re all looking for.
Right? And if you can realize that earlier in your life, whether rather than waiting till you’re 65 to achieve it, I mean, you know, wow, you know, life can be so much more exciting. And to that point, you talked about the difference between financial independence, financial freedom. And this is something I’ve found interesting is that, you know, there’s this fire community out there. A lot of people who want to, you know, build passive income in the community, which is great.
Their income will exceed their expenses. But I find in some cases, people are actually doing that to a fault where they’re keeping their expenses so low that they’re not growing. They have achieved that financial independence, but they’re not really growing.
Garrett Gunderson (21:53.413)
Right. And there’s three ways we can live within our means. A lot of people in the fire, they’re like, live within your means, live within your means. But the problem is they’re only thinking about the first way, cutting expenses. But here’s the thing. There’s four types of expenses. The one that they’re completely spot on with is get rid of your destructive expenses over consumption, you know, borrowing to buy something that you can’t afford, you know, stuff that you don’t really value. There’s a lot of people that are just
mindlessly letting money leave. The second though is lifestyle expenses. They’re minimizing some of the best lifestyle expenses just in the name of not having to work. And there’s just certain things like that people love. I call it, you know, like mindful cash management is what we want to do. And we want to also look and say, what’s your living wealthy account? Like what if you had some money that you could just splurge because maybe you like to buy things that other people think are expensive?
Maybe this jacket was probably too much for most people. Or maybe a certain restaurant. Maybe you like Michelin rated restaurants. Or maybe you like to go to the Tour de France. There’s all these things, but people go, oh, I don’t need that. Well, you might not need it, but you might want it. And it’s okay to want it. You just have to manage it and pay cash for those things. But if you get to a miserly mindset, you’re never gonna get there. The third thing is protective expenses.
Protective expenses are your asset protection, your estate planning, your corporate structure, your education and your liquidity. People that are often middle class and don’t know what the wealthy know never take care of these protective expenses and they have to start over more than once through their lifetime. And it’s simply because they didn’t understand. But the fourth type of expense is what this movement’s missing that you mentioned the fire movement, it’s productive expenses. You put in a dollar, more than a dollar comes back.
I don’t budget those expenses. I go, as long as I can manage it and handle it, let’s keep putting money in it because it’s productive. And so if we get in a mindset that all expenses are bad and we should eliminate them, we eliminate our production. And reduction can help you to get on track, but production accelerates you when you’re on track. And unfortunately, whether it’s Suzy Ormond, Dave Ramsey, or the fire movement, it gets people to focus more on cutting back than creating. And the game is a game of value creation when it’s true wealth.
Garrett Gunderson (24:12.705)
And the more people that you can impact, or the more deeply you can impact those people, the more wealth there is, because money is a byproduct of value. So the more value you create, the more money you’re gonna have. So that’s kind of the two other ways to live within your means is to be more efficient, like we said, plugging either those four leaks, IRS, interest, investments, or insurance. And then the third one relates to the fourth expense, expand your means. Why not expand your means? I get that.
far too often people think materialism will make them happy and they’re going to be disappointed. So I think that this movement is right on that. But why in the world would you retire from value creation? What kind of life is it to be 50 years old and have no purpose other than to get up and minimize your expenses? Is that truly going to bring you happiness? I get it. We could give a bird finger to the consumeristic world of corporations trying to get us to over consume.
But that doesn’t mean we should stop serving one another and stop living our purpose. That’s what I’m most concerned about in that movement.
Dave Wolcott (25:14.602)
Yeah, so such good points there. And I mean, I can relate to so many of them. And look, I mean, I was raised in a middle class family as well, right? And I was always taught, you know, they’re starving children in Africa. I mean, you know, turning off the lights in every room, right, just kind of concert.
Garrett Gunderson (25:26.817)
Yep, heard that one. I still can’t help but turn off the lights in every room or get after my kids if they didn’t drink the whole drink. It’s still programmed in me even after all this work. It’s like an inheritance that I got, you know?
Dave Wolcott (25:33.386)
Yeah.
Dave Wolcott (25:39.758)
Hey
Yeah, exactly. It takes a lot of work. And one of the things that I’ve actually done, so, you know, speaking to, you know, your cold plunge and sauna, like, I actually created a goal for myself this year to say how much, you know, can I spend 25,000 on my health with, you know, extracurricular things? So, purchasing a cold plunge for 6,000, some people are like, you’re crazy, you’re buying a tub, just like that. But…
Yeah, I mean, the health benefits of that alone are just, you know, massive, right? I haven’t had a sick day and I can’t even remember when, right? So reprogramming your mind, I think is so important for some of these things.
Garrett Gunderson (26:25.133)
Yeah. Um, I look at, again, I said, you are your best investment. So health is part of that investment and people that don’t take care of their health will later on have to have a much higher price to keep their health. And I, it’s a price I don’t want to pay. I went to my grandma’s funeral earlier this year and just a lot of my family members are just unhealthy surgeries, not doing well. And I’m like, man, like I was extra motivated and it’s really cool. Cause my 18 year old is watching that. So we work out four days a week together.
He does the cold plunge. He watches Huberman and does only the exact amount he’s told to do. He does the sauna. He hangs from a bar to get his mobility and he gets out and gets some vitamin D every day. So it’s pretty cool to watch him taking care of himself. But that began by me valuing myself and taking care of myself and having these tools there. And so I get some people might be in survival, but part of the reason we get caught in survival.
Dave Wolcott (26:58.551)
Nice.
Garrett Gunderson (27:20.785)
is from faulty philosophies where we think hard work solves everything, but hard work with the wrong philosophy still leads to bankruptcy or frustration. So understanding the frameworks like you’re asking can liberate us to get past this kind of situation where we’re making effort but not feeling we’re making progress. And I get it, like sometimes people don’t have the financial wherewithal today to do what we’re talking about. But if you could just look at the things like I’m talking about first thing in the morning,
You can write, you know gratitude and that can start opening things up you can meditate that doesn’t cost anything You can like you can do the things to invest in yourself without even having to write a check or transfer some money I don’t think people write checks anymore. You know, I don’t think that’s actually a thing these days, you know Venmo Whatever it is, you know, whatever these kids are doing. So basically We can invest in ourselves regardless of our financial circumstance
Dave Wolcott (28:07.997)
Yeah.
Garrett Gunderson (28:19.285)
by watching this, by reading something. And by the way, I don’t know if you know, I have a new book that just came out too. This is my seminal work, I think. Yeah, Money Unmasked. Because this is really about what are the subconscious things? What are the relationship to money that we have is just our relationship we have with ourselves. And if we expect money to fix our problems, but we haven’t looked in ourselves, it’s not gonna help like we wanted it to.
Dave Wolcott (28:26.898)
Oh, very nice. Manian, okay.
Garrett Gunderson (28:46.809)
and we’ll be upset, we’ll check the boxes, but not fill the fulfillment. And so there’s four money personas that people have. And once they understand their money persona, it’s more predictable of understanding what’s happening. I kind of think of it as like not knowing your money persona is like driving around at night with no lights on. You’re gonna hit a pothole, you might go off the road. This kind of illuminates it so you’re like, oh, now I can see and I can make better choices. That’s what happens when we know our money persona.
Dave Wolcott (29:12.906)
Yeah, for sure. That’s and that probably ties to your investor DNA that you talked about earlier, right? Really understanding yourself and then, you know, not only the activities and the purpose that you want to do, but also investing in those things that, you know, align to that DNA that make you happy, they come naturally to you. I think one of the things I learned also, what reason I didn’t really like the equities markets is, you know, I don’t really have the trader mentality. I’m a people person, right? So I like
Garrett Gunderson (29:18.51)
Totally.
Garrett Gunderson (29:40.493)
Right.
Dave Wolcott (29:41.71)
You know, I want to be aligned where with people that I can make bets on, uh, you know, people I can make assessments on and, and are they going to win the game and do that versus, you know, just putting my money in some kind of machine and then you hope it is going to turn something.
Garrett Gunderson (29:57.589)
I can’t imagine sitting there and like one options trading is tough because it’s competitive and it’s encyclical, but you’re just sitting there clicking a mouse versus talking to a person like you said. And by the way, options trading is win lose. It’s one person wins, the other person loses. So I, yeah, I’m just not, whether it’s options trading or just trading stocks, like I’d rather connect with people. And that really is disconnected because people start seeing it as company.
or numbers on a piece of paper, and it’s not as much about communication and value. And so anything that’s a greater fool theory, one person wins, another person loses, I don’t care whether it can make money, I’m out. Like you could, you bought my book, Killing Sacred Cows, I made money from you buying that. I know what’s in the book, so I didn’t need to keep the book. You could be wealthier by reading it and understanding the book. I could be wealthier because you bought it. We both could be better off because of that, because we shared with one another and you valued.
the book more than you valued the 20 bucks, I valued the 20 bucks more than I valued the book. Both parties ended up wealthier in that situation. The only time that doesn’t happen is when there’s deceit and deception and over-salesmanship and I know that gets people jaded, right? But someone that’s not wealthy could see profit as evidence of deceit. But if someone’s wealthy with ethics, which is actually more often than not, that wealth is a byproduct of value creation. So profit is evidence of value.
But if the mindset is profit is evidence of deception, people will propel and they’ll make sure wealth doesn’t come to them. They don’t want to be bad people. So they want money, but they feel like it’s evil. So you can see all of those myths really harm people where they’re doing their best, but they’re pushing the gas and the brake at the same time and wondering why they’re not getting better gas mileage and why they’re not getting further and why these other people passing them. It’s our framework. It’s our mindset. It’s our belief system.
You know, and hard work again in the wrong belief system is not going to equal good results.
Dave Wolcott (32:00.906)
Yeah, for sure. And I think that’s really at the heart of capitalism, right. And I always find it fascinating that we have so many international entrepreneurs in this country, right, because they’ve come where they haven’t had the complacency, right, that we do of all of these things that are right at our fingertip. And they come to this country, and they’re just, they have so much gratitude, there’s so much opportunity in front of them. And they have that abundance mindset to go and create the value.
which is going to be bigger for, you know, communities having more impact and also those types of things. So I think a lot of, you know, Americans sadly look at it, like you say, with that opposite lens, right, which is really self-defeating.
Garrett Gunderson (32:45.281)
Yeah, it’s something to be said about someone that walks away from everything and has nothing to lose. They can be a lot more resourceful versus someone that’s born on second base and thinks they’ve hit a double. They might not have as much gratitude or might not be as resourceful or feel like they have too much to lose. And see in this book, Money Unmasked, I talk about these two factions. There’s playing not to lose and that’s people holding on to what they’ve got and just hoping that they’re going to make it through.
then there’s playing to win, which is chasing something at the expense of today. Either way, neither one of them are present. One’s only focused on the past, the other one’s only focused on the future. Neither of them have the joy and fulfillment right now. And so my argument is, what if you create a game worth winning? What if you set and design a vision that’s so compelling that you wouldn’t wanna retire from it? Then you’ve actually won, and the win becomes the work that you do, not just the outcomes that you get.
You know, like I once heard an interview with Kobe Bryant where, you know, he had won five championships, but he said he had a work ethic because he loved it because he loved the work and that the win was in the work. And so, yes, those were outcomes, but that he enjoyed it. It was like there’s other people that go, I’ll be happy when I win the championship, I’ll be and then they win. Then what? And you said something early on, their future isn’t brighter than their past and they become depressed. So when we create a vision, that’s a lifetime vision.
Like even when I wrote Money Unmasked, I’m like, I want to dedicate the next two decades to making this the biggest, most impactful financial book of all time. And that gives me 20 years of framework of working into it and being on podcasts like this and sharing it and living it and expressing it. And, and when I did Killing Sacred Cows, I wanted to be a New York Times bestseller. Why? Cause that was about me. I wanted to feel validated and sure it was motivating.
But once I hit it, I kind of lost steam. What I don’t care whether this hits New York times or not. I care whether this reaches people’s hearts and whether it impacts their minds and whether it like, I had someone read it and it was at my cabin on Saturday, gave me a big hug. They said, your words are mattering to my family. It’s making a difference of how I see the world. Thank you. Like that’s connection. And I love the fact that I can write words and it turns into a cabin that I live in or don’t live in, but go up to, or that it
Garrett Gunderson (35:06.177)
It turns into a relationship I have with a human being. And like, that’s what we don’t realize is when we’re indoctrinated by society of what they think we should do, what they think will make us happy. We give up who we are and what would fulfill us to appease someone who doesn’t even have our best interest at heart. It’s like Napoleon Bonaparte said his life changed the day he found out people would die for a blue ribbon. So he offered this blue ribbon, this trophy.
that people chased and he didn’t have their best interest at heart. He just wanted to win at all costs. So when we’re playing someone else’s game that’s not ours, we lose. And you know well, as I do, the financial game is rigged out of our favor. It’s rigged against us. When people say high risk equals high return, they want you to take the risk while they get the return. When people say it takes money to make money, it doesn’t take their money, it takes your money. When people say the long haul…
they’re making money on you through that whole long haul. We know that that’s the case. The wealthiest understand that that’s the case, but the average person that says they don’t have the time, money or ability, they just hand their money over to salespeople and hope for the best and find out in the end, it didn’t end up the way they want it to be. So I even wrote a comedy special called the American Ream, using all of my financial knowledge and making it funny. And it’s like, everybody’s being sold a dream, it’s actually a ream. And you know, I talk about everything from Wall Street.
Dave Wolcott (36:27.854)
Ha ha ha.
Garrett Gunderson (36:29.925)
to crypto, to insurance, mainly property and casualty, to taxes and like tell jokes around that because I want to reach the people that right now don’t think that they can face their finances. We already know the wealthy are playing by a different set of rules and you’re here to bring those rules to the rest of the world as am I because it’s really frustrating and unfair to think this is someone’s human life that we’re dealing with. It’s someone’s human capital. It’s someone’s dreams, their daily experiences.
The number one reason listed for divorce is money, but it’s not actually money. It’s when people don’t have their money handled, they stop dreaming. They stop thinking about the future and they just fight over what they have. And so we’ve got to get it where people can dream again and feel safe enough to be excited, to feel safe enough to feel like it’s possible. But if they’re behind, they have too much consumer debt, they’ve lost too much money in the stock market. They’ve done some crazy, you know…
syndication they didn’t know anything about. And they look like when people lose, they lose their life. They lose their joy. They leave bitter and they stop trusting humanity. And that’s something that we’ve got to help with because that’s a really dark drab place.
Dave Wolcott (37:43.062)
Yeah, what do you think Garrett is at the core of this? 98% of the people just really, they don’t understand even the fact that they are getting reamed at multiple levels. Why do you think that is?
Garrett Gunderson (37:57.209)
We’re taught to be victims instead of be responsible. We’re taught it’s not your fault. You know, you did the best you could. You don’t have the time. And we’re just indoctrinated from the time we start that this is just how it goes and you just got to accept it. There’s $22 trillion in mutual funds. Mutual funds were made so that it was easy and thoughtless. You didn’t have to have a specific amount to buy a share. You could put money in every single month.
You could set it and forget it. You can invest early, often and always. And who’s making the most, who are the mutual fund millionaires and the mutual fund billionaires are the people that created them, not the people investing in them, you know? And so that lie that we’re not capable and that we should just trust people who are better at passing, passing tests than us. Look, let’s say someone goes to an Ivy league school, they’re going to be very intelligent in how to pass the test.
But are they really intelligent in the emotional intelligence and compassion for the person that’s about to allocate their money? Or are they really good at telling a story of why they should be the ones managing it or their firm should be the one managing it or why they should be in charge? And how many of those people from the Ivy League school after 20 years have beat the index after fees? So, yeah, they’re really good at telling a story. The problem is that story doesn’t help us out. That story.
They tell me any Wall Street movie that’s inspiring. I mean, every Wall Street movie is about people being taken. Right? Yet people just do it because it’s complicated. It was designed to be complicated so people don’t question it or think about it. And it was designed to say, well, this person, they graduated from this school, so they must be smart. But that doesn’t mean that they’re good at managing your life or your money.
Dave Wolcott (39:30.261)
Yeah, it’s true.
Garrett Gunderson (39:51.129)
just because they could beat you in any test that’s in their category. Fine. That doesn’t mean like, and that’s the thing. That’s kind of communism to a degree, isn’t it? You know better for my life. So you tell me what it is. You promised me I’m going to have housing, but then anyone that’s been to a communistic place, I’ve been in North, North Vietnam. I mean, you see the impacts of communism. You know, I had to talk to people that have been to Cuba. You see the effects. Yeah. Free housing that you have to share with a hundred people because there’s not enough people to build it because there’s no
incentive for someone to live their life and add value. It was under the guise of you have to because you owe this to someone else. And unfortunately, that’s how we started to treat our money communistically. Here, I just had my money over, they promised it’s going to be better in the future and we get there like, by the way, they weren’t capable of making it better in the future and you gave up who you were for a false promise. I know that’s kind of hardcore, but that’s what it is.
Dave Wolcott (40:43.634)
Yeah, yeah, no, they’re forgetting so many different things. They’re not educating people on taxes, fees, and inflation. I mean, you know, you name it. Give us, Garrett, a couple of, you know, in the interest of time here, maybe just a couple of your top, you know, money myths that you want to share. I think we talked about a couple of them, but if there’s top two you want to unpack.
Garrett Gunderson (40:51.883)
Right.
Garrett Gunderson (41:07.089)
You nailed it to start this. Scarcity is the biggest myth, right? But if we’re talking about money, there’s really three that I think go hand in hand and that most people buy into because it’s all this notion of set it and forget it one day, someday, which is we believe that wealth is a function of how much money we could put away, right? It takes money to make money. It doesn’t take money to make money. It takes relationships and value. It takes exchange and service. It takes being resourceful.
Money is a by-product of value. Sure, you can make money on your money, but you don’t have to have money to make money. Number two is the second faulty belief is high risk equals high return. Like what drunken Wall Street idiot came up with that? Risk means chance of losing. How does increasing your chance of losing help you win? Instead, I believe investor DNA, mitigating risk and having a team that helps you manage that risk. And the more aligned your investment is with you, because risk isn’t in the investment, it’s in you the investor. So if you’re making
investments in things you know nothing about, that’s taking risk. And then the third one is you’re in it for the long haul. That’s always about compound interest. After 30 years, you’re finally going to have all this money. But the problem is what happens the first 10 years and what happens when life is interrupted or you don’t have your protection in place or the market doesn’t cooperate or it was more fees than you thought. Like there’s just too much that people get lulled to sleep in the long haul. So people believe wealth is a function of money times rate times time.
So high risk equals high return is the second one. It takes money to make money is the first one and your long haul is the third one. My belief is it’s all about velocity. It’s all about cashflow. It’s all about investing in yourself. It’s all about increasing your skill sets so that you can serve more people and then keep more of what you make with that efficiency. And then when you’re in cashflow and you’re economically independent using the frameworks I shared, you’re gonna be a whole lot wealthier than putting your money away for 30 years in a retirement plan that’s gonna underperform. I mean,
Finally, interest rates are doing better now for retirees, but retirees for the last 20 years before 2022 were in trouble because the interest rates were so low. Now they’re in trouble because inflation’s so high. And next they’ll probably be in trouble because taxes will go up and they weren’t trained in that. I mean, how insane is it to say, hey, you’re gonna one day stop working and then you’re gonna create cashflow from your assets. But what I want you to do is never create any cashflow for the next 30 years on your assets.
Garrett Gunderson (43:28.373)
And then when you finally stop working, then you learn how to make cash flow from your assets. It’s like, why not do that over the 30 years? It’s crazy to me.
Dave Wolcott (43:35.31)
No, I know, Garrett, that one just kills me. It’s like we spend our entire career, 40 years, like building this golden goose, right, on this accumulation theory, and then you start to kill your golden goose at 65, and you have this whole fear. I mean, I can’t imagine being at this point of saying, are we going to outlive our money? Or, yeah, it would be scary, right, for a lot of people, or something happens.
Garrett Gunderson (43:58.757)
Scary, right?
Garrett Gunderson (44:03.009)
You better not buy that cold plunge. You better just start eating high fructose corn syrup.
Dave Wolcott (44:06.015)
Exactly. I mean, that accumulation to me theory to me just makes absolutely no sense. And I think a lot of people just they’re not asking questions. They’re not being curious enough. And you know, sadly, it becomes too late, right? You become late in the game, and you haven’t been able to figure that out. So so many great points, Garrett, you know,
just really spot on. I think this is going to really help people kind of think through some of these things. If you could give just one piece of advice to listeners about how they could accelerate their wealth journey, what would it be?
Garrett Gunderson (44:43.241)
I’m going to be the most self-serving guest in history and just say, just buy my shit. Yeah, buy this right here. Okay, that’s self-serving. But whether it’s this book or something else, you’ve got to get a framework that gets beyond scarcity and that’s empowering versus abdicating responsibility. So the number one thing you do is take responsibility. That’s the bottom line. No one’s coming to save you.
Dave Wolcott (44:48.592)
Read your book. Love it.
Garrett Gunderson (45:09.721)
They, you know, you’ve got to take responsibility, but if you do, then you can build the right people around you because they’ll understand that type of person. So yeah.
Dave Wolcott (45:19.45)
Awesome. Love it man. So many great points, Garrett. Really appreciate you coming on the show and look forward to the next chat.
Garrett Gunderson (45:28.845)
Hey Dave, I really appreciate it. This was fun and look forward to talking with you again for sure.
Dave Wolcott (45:34.21)
Thanks. And if people would like to reach out outside of the book, any places, it’s the best links to connect you with.
Garrett Gunderson (45:42.081)
Yeah, if you money on mask.com is where you can get the book, but if you go to garrickgunderson.com You can click on musings and there’s my blog. Uh, someone said they read all of them, but they’re long They are long. I write a lot But I respond to all comments on that or if they go to my youtube channel, which is youtube.com Garrett gunderson tv. I respond to all comments that I can make sense of some comments. I don’t know what they’re talking about
And some are just viciously mean to me and I those I actually really enjoy and I do respond in the most snarky smart ass ways possible. But but I do respond to my blog and to my YouTube channel personally.
Dave Wolcott (46:19.958)
Perfect. And can we pick up the bits that you have, any of your comedy work? Is that on YouTube?
Garrett Gunderson (46:26.249)
Okay, so yeah, if they buy money on Mast, we’re giving them the comedy special that I filmed as one of the bonuses. We’re also giving them the money persona quiz and an entire guide and audio on what their money persona is and how to utilize it to navigate things. So that’s the best way. I do think that there’s this one 10-minute clip if you go to Ripwater, R-I-P-W-A-T-E-R. Oh, sorry. This is my next call calling in. Sorry.
ripwater.com forward slash comedy that will give you a little 10 minute bit if you don’t want to buy my book and so that I’m not just always saying buy my stuff so there you go.
Dave Wolcott (47:06.023)
Awesome. No, some great, great value here and we’ll make sure to link all of that in the show notes for listeners out there. Thanks again for tuning in to everyone. If you’re enjoying the show, please follow and subscribe to the show and talk to you next week.
Garrett Gunderson (47:21.825)
Hey, I’m jumping on the next thing, but this was awesome. I really enjoyed it.
Dave Wolcott (00:01.163)
Hey Gary, welcome to the show.
Gary Lipsky (00:03.418)
Dave, thanks for having me. I appreciate it.
Dave Wolcott (00:05.526)
Yeah, you bet. I’ve been looking forward to the conversation, Gary, and for folks who aren’t familiar with you, can you tell us a bit about your background, how you really got into real estate investing and asset management and all the things you’re doing today?
Gary Lipsky (00:20.89)
Yeah, absolutely. So been an entrepreneur my whole life. I own a restaurant delivery service in college, outside of college where I co-produced three low budget independent films. Then I got into, I started a company where we did after school, outdoor ed, and leadership development programs. And we worked with 90 schools daily, 9,000 students on a daily basis. So I had like nine, I looked at it as 90 properties throughout Southern California.
And I sold that business at the end of 2016 and got into real estate full time at that time. I had been investing a little bit. I had a single family home and, and I did a lot of research on like neighborhoods for my own family, like where to live and schools and whatnot. So I didn’t realize at the time I was, I was educating myself on real estate until
I got into it full time and I knew I wanted to use my creative side, which I, which I use for, for all of my businesses, particularly in the film business and my, my business side of things. And real estate was a really good fit for me. Um, by using, you know, that the both sides of the brain.
Dave Wolcott (01:29.738)
Yeah, for sure. And was there something driving you towards real estate with that, you know, you, you saw.
Gary Lipsky (01:37.654)
Absolutely. It was the ability to control my own destiny and not rely on others. Like I can take over a property, force the appreciation. It doesn’t matter where the markets are at any particular time. If I’m adding value, that’s still like creating a lot of value that I can, I can extract out. So I always wanted to be in control of my own destiny. And in the film business, I, I didn’t have that destiny. I didn’t know if I was writing a script.
I’d keep rewriting it and rewriting it and didn’t know if it was good or not. And even if it was good, I had to rely on other people to want to invest in the movie, to make the movie, to release it, to, you know, and ultimately get paid for that. So there was a lot out of my control. And maybe I’m a little bit of a control freak, but I wanted to be able to, you know, provide for my family and control my own destiny. And…
and without having all these other outside factors to manipulate what I’m able to do or not do.
Dave Wolcott (02:41.938)
Yeah. I find it so interesting how people have kind of grown. I mean, that’s such a creative, you know, how you, how you, you know, make one choice in life that kind of leads to something else and drives it. But, you know, typically there’s some kind of last straw or some people are either, you know, frustrated or excited, you know, to take on an opportunity. But, but I really liked that. That mean that really hits home around, you know, having more control over your financial future.
And sadly, most folks are really outsourcing their financial future to, you know, someone in Wall Street, right? Who says, Hey, I’ll, you know, I’ll take care of this. Right. Um, and real estate investing in alternative assets is totally different where you can actually completely have control and create more predictability in your life, which means, you know, that’s how you’re going to actually be able to scale.
more. So that’s pretty cool. Did you develop a particular investment thesis? You know, once you kind of got into the multifamily side and things that you were chasing?
Gary Lipsky (03:46.574)
Well, you know, for, for multifamily, we knew, uh, there’s a tremendous housing shortage and everyone needs a roof over their head. So, you know, that really spoke to me and, and you can lay out, you can look at the T12 or you can even recreate a T12 if an owner doesn’t even have those numbers and you’ve got economies of scale. So you can, to some degree, nothing goes perfectly, but you can kind of estimate where, um,
the numbers will be. And certainly we’ve always been our numbers, but you can lay out comfortably. There’s enough history. There’s enough information. You do this enough that it will tell a story of where you could bring it to. And you can look at a property and know exactly what needs to happen to help bring it up to that, that quality. So I feel it’s one of the best risk adjusted investments that you can make out there. No one’s, no one’s making a tweet and your property goes down 30%, 50% overnight. You know, there’s
There’s a lot of factors. There’s opportunities in a good market, in a bad market. No matter what, there’s always opportunity out there and that’s what I love about real estate.
Dave Wolcott (04:56.682)
Yeah. And so for folks, if you didn’t catch that T12 means the trailing 12 months of financials. And you know, you bring out another really good point, especially, you know, we have a lot of entrepreneurs in the audience, right? And if you think about it, you know, investing in multifamily, essentially, you’re buying a business, right? And we can buy businesses and whether they be franchises, a tech business, you know, Amazon e-commerce business, there’s so many different businesses.
And, you know, I find that there’s lots of variables, you know, to most businesses. But if you get into, you know, multifamily, just like you say, you have a trailing 12 months, you can look exactly at the financials. You can, there’s no hidden surprises. You know what everything is doing and how it’s performing. And then you can say, okay, how can I then, you know, optimize this? Right.
Gary Lipsky (05:52.438)
Absolutely. So there’s a property we have on the contract right now. When we look at the T12, we knew that they have one extra employee on staff, which we don’t need. We know that, you know, of course of all of our other properties. So that, that saves us 50,000. Then they had an insurance claim because their, their insurance bill was way too high when we look at other properties. So we found out they had a claim a few years ago. So they’re paying $55,000 more than we’ll be paying. Plus the water bill was more than two times higher than what we currently pay at our other properties as well.
So when we, so we knew that they didn’t have any low flow toilets. Um, they didn’t have aerators on their faucets and showers. So what that does is, um, their toilet has 3.5 gallons per flush. And if we installed the low flow toilet, that’s 0.8 gallons per flush. So massive difference. And so when you take these things and divide it by the cap rate, we’re adding millions of dollars of value from day one, as soon as we take over that property.
So if we had that property under contract for 34 and a half million, that we’re really paying maybe 30 million now for that property because we know that we’re adding millions of dollars of value just from taking it over by looking at the numbers and doing a little bit of research. So that’s what I love that it’s a lot less complicated than buying these other businesses. Like you said, each property is a business and we have a team onsite that runs it.
I have a regional manager and then we ask them to manage the heck out of that deal. That business execution piece to maximize the net operating income so that when ultimately we sell, we get top dollar for our investors.
Dave Wolcott (07:32.69)
Yeah. And do you guys have a particular sweet spot of properties that you’re going after certain markets, certain class demographics that you’ve really narrowed it down to?
Gary Lipsky (07:45.558)
Absolutely. There’s riches in the niches, you know, I ever hear that saying. So we focus on a few markets so we can be experts in those markets. We can’t do the shotgun approach. We’d rather have built great broker relationships, have thousands of data points by underwriting a ton of deals in a couple markets. And for us, we’ve done all of our deals in Arizona so far, Phoenix and Tucson. We’ve been looking in Albuquerque and Vegas and the suburbs of Denver for a year and a half.
Dave Wolcott (07:50.538)
Yeah, oh yeah.
Gary Lipsky (08:14.758)
accumulating data points. But I’m based in LA, I’ve got some of my staff in Phoenix. We can’t be experts everywhere. We can’t be, there’s plenty of markets I like in the Southeast, but that’s just too far for us to be there on a consistent basis. So I can fly into Arizona, take a 6 a.m. flight, visit all of my properties, and tour five new ones. If I’m looking at deals, have lunch with a broker, maybe a drink with a broker.
and have really strong relationships. So when something comes about, I know right away if it’s a good deal or if it’s not, because we’ve been honed in on that market. And we also focus on value-wide multifamily. So we’re looking for deals that, workforce housing, it’s your not that class A super nice property, there’s a lack of workforce housing. They make new buildings.
for that top buyer or top renter, but they don’t make new stuff for the workforce housing person out there. So, we fix it up, we provide nice value for them, and they’re really proud to live in our properties.
Dave Wolcott (09:28.146)
Yeah, makes sense. And I know there’s a lot of pros and cons to some, you know, workforce housing, right? You know, what would you say? I mean, some people on the downside, right? People talk about that as like, okay, it’s a, it’s a tenant that could be particularly, you know, potentially rougher on the properties. So you’ve got maybe more maintenance charges, things like that.
Also, they have a lower income. So if they lose their job or something, it’s not like they have savings to keep the rent going. So how do you kind of approach that?
Gary Lipsky (10:02.23)
Yeah, absolutely. So in the past, we’ve had some rougher properties, you know, see, you know, C class that we’re trying to bring up to a C plus. So you’re gonna you’re gonna have a little bit more delinquency. It’s going to be a little bit rougher on the staff to because they have to deal with some, some issues. So you’re going to have more turnover. But we’ve moved into like, if I could bring a C plus to a B, or B minus to a B, like the B is where I want to
I want to be basically because it’s a little higher income level. You know, they might have more savings. Like you said, if, if we hit rough times and a may fall down to a B class or B is, is a really good space. You, you, you might have less issues, less damage on if someone leaves. So we like to be in that space. So maybe it’s a C plus property and a B neighborhood.
we can buy at a discount and bring it up to where it should be.
Dave Wolcott (11:06.174)
Yeah. And Gary, what’s your take on the market right now? Obviously it’s been a super interesting year in the industry, you know, primarily driven by the interest rates, right? So, so what are you guys seeing, right? Have you been able to, is that, is that gap between buyer and seller starting to close? Are we getting any certainty with interest rates and, you know, being able to do underwriting to put together deals that are making sense now?
Gary Lipsky (11:36.182)
Yeah. So I would consider myself a little bit more optimistic than most others. So, um, the deal we have on the contract now is like, is we’ll close. It’ll be a year between our last deal. And so the, the buy sell gap was, is, was real because we, we hadn’t been, you know, finding something we’ve been putting offers in, but our gap was, you know, a few million on stuff. So, um, but I do feel like it’s a great time to buy. I know people are worried about interest rates, but
You know, we’ll probably have another 25 bits, you know, rate hike in, you know, maybe it’s November, maybe October. Um, but that’ll probably be it. You know, we’re, we’re looking at, uh, going into an election year. The fed has so much debt. They need a refinance. They’ll have to print money. They’ll have to, uh, lower rates. There’s just a lot of different things that need to happen. And most likely something will break by then.
too, that they’re going to have to make a switch. And I think the Fed is scared to say, hey, this will be our last, you know, hype because then, um, uh, excitement will, will happen. And, and the, and the markets will take off and there’ll be this frenzy, you know, cause there’s trillions of dollars sitting on the sidelines. So they have to be very, very careful on what they say. Um, but I, I feel like this is a really good opportunity to buy, you know, we’re seeing things 20, 25% discounted.
Dave Wolcott (12:46.334)
Right.
Gary Lipsky (13:00.858)
There’s not a lot on the market. Like I’m not a seller right now. I’m a buyer. I don’t want to sell any of my stuff until, you know, a couple of years from now when things really get rolling. But I think there’s a really good opportunity ahead. You’re going to see some distress deals, you know, not a tsunami like people are talking about, but people are having a hard time covering their debt service. And some of those loans are coming due. So there’ll be opportunity.
the office space may, you know, well, there’ll be a ripple effect because a lot of those loans are coming due too over the next, you know, few years. And there might be some banks that go under because they’ve had so much office space loans that they’re gonna be hurting. So interesting times, but if you’re an investor, make sure you’re investing with someone that really understands the market.
under underwrites conservatively. I know everyone says that, but to really find out what their what their cash reserves are as a company, their net worth to help, you know, if that they can cover a capital call because I, you know, when I talk to a lot of investors, they’re frustrated that they’ve invested in a bunch of deals and they’ve got
the GPS, you just don’t have the liquidity to help cover some of these things.
Dave Wolcott (14:30.25)
Yeah, that’s a great point. And it’s one of the things we look for in operators as well as having a strong personal balance sheet as well. As long as that as well as the reputation risk, right, you know, maintaining your reputation and not having capital call, I think is really critical. And what do you think, Gary, as well? I mean, some of a lot of the deals that we’re looking at, I mean, it’s pretty interesting because we’re kind of
really going deep in terms of the underwriting the analysis and, and we’re having a hard time just really finding deals that are like good that we want to bring to investors. We’re seeing much more of an increase in deal flow this quarter. So lots of deals out there. And even if there are some discounts, I still think we’re overpaying for some of these things. And the thing that’s really getting me as well is that the, the cost of these rate caps,
are huge, right? And I think a lot of investors don’t really realize this. And that goes directly out of the equity that’s raised that can’t go into, you know, value add, right?
Gary Lipsky (15:37.742)
Yeah, you know, on this current deal, I think we have like 20 different models on all the different loans that, you know, we could have picked, you know? And so we look at, you know, our business plan and what’s the best fit. So yeah, finding the right loan is really hard. Things you’re getting less leverage, higher rates if you need a rate cap. So it is difficult to find a good deal. It’s a range out there. So…
Like I go back to my current deal. It’s it’s just under 135,000 a door we have a comp that’s a C minus property that was Almost a 150 and the broker also sent us a deal that was 175 a door and both of those other properties were like junk compared to what we had so it all depends on what the seller is, you know if they need the money to maybe they need the liquidity or
you know, they’re, they’re underwater, like, what’s their motivation is to find those, those deals, because there are some good deals out there. But, but, you know, like you said, there’s a lot of dogs out there as well. And so you’ve got to wait through it, do your homework, and just underwriting a ton of deals will give you those data points to know what is a good deal and what is a bad deal.
Dave Wolcott (16:44.011)
Yeah.
Dave Wolcott (16:53.462)
Right, for sure. Gary, I know your forte is around asset management and we haven’t really delved too deeply into asset management on this show. So I think this is gonna be a great opportunity for LPs to really kind of understand asset management. So let’s just kind of break it down for folks, right? And talk at a really high level once you take over.
a new acquisition of a property, you know, what are the typical, you know, asset management activities that go on?
Gary Lipsky (17:27.778)
Yeah, so an asset manager basically manages the manager. So whether you have in-house property management or outside property management, you know, they don’t own the property. So you’ve got to manage them and set expectations really high from the beginning. They need to know where the bullseye is as far as, you know, we tell them we’re gonna secret shop the property, meaning we’re gonna call about rents. We might do surprise visits.
and not to catch them doing something bad, but we wanna catch them doing something good. We’re gonna go through the financials with a fine tooth comb because we wanna understand the financials and there are times when people make mistakes. An accountant can manage 10, 15 properties and allocate a charge to a property, to the wrong property by mistake. They’re not trying to do something wrong, but we’ve caught that before. Expensive mistakes.
We’re also the asset manager really manages the execution of the business plan. So if you’re going to re renovate 50 units in two years time, you want to make sure you’re on track. You’ve got to manage that CapEx tracker. As an asset manager, you also have to communicate to the investors what’s going on, what’s going right, and what’s going wrong. And if there’s what’s going wrong,
What’s the plan B and plan C to fix that situation? No investor expects everything to go perfectly. That life doesn’t happen that way. But you’ve got to have a plan. And if something is a struggle, then double down on that communication. So maybe it’s you report once a month, but if something, maybe you had a bad insurance claim or something, then you got to communicate two, three times a month and let them know what’s going on, at least from the very beginning.
So that’s really important. And if you do that, your investors will keep coming back each time. And a good asset manager could make a bad deal good and a good deal great by getting a few extra points in occupancy out of your deal, which can mean 50,000, 100,000 a year, and then you divide it by the cap rate. And now you’re talking it could mean millions of dollars to the investor at the end of time when you sell your deal. So
Gary Lipsky (19:49.154)
It’s really important to have good asset management because that goes a long, long way. And I know people are kind of just starting to talk about it for the last six months. But, um, you know, if you, if, if you have good asset management on a deal, that’s, that’s a, that’s a game changer.
Dave Wolcott (20:06.794)
Yeah, for sure. And what do you think about vertical integration versus having it outsourced, right? What are your thoughts on that?
Gary Lipsky (20:17.35)
So I’m a contrarian. I know a lot of people want to have it in house. So my old business, like I was talking about, I had 700 employees and probably about 700 independent contractors and it was an HR nightmare. I don’t want to do that. I want to run business and find good properties and asset manage the heck out of it. So I use third party property management. So in Tucson, I have a company that they’ve been doing at 35 plus years. They’re only in Tucson. They know that market. They’ve been doing it forever.
So I can rely on their expertise in that market. And if I don’t want to stay in that market, I can move to another market and find another property management company. So I’d rather be lean and mean and not be vertically integrated. They’re not perfect. If I had my own company, they’re not going to be perfect either, but I can figure out the gaps of what there may be lacking and try to fill in those gaps as well. And it allows me to be more nimble and…
focus on what we do best as well.
Dave Wolcott (21:18.922)
Yeah, good point. And can you give a couple examples of some, you know, asset management strategies that are, you know, core to what you’re doing and really differentiate you guys?
Gary Lipsky (21:30.242)
Yeah, so one of the things that we do is, um, you know, the property management sends us a report. It’s like 18 pages. Some of the pages are sideways. So it’s, it’s a PDF. It’s hard to track. So we have a Google tracker, um, no cost. Everyone on our team can see it. We have a tab for, for CapEx, so we can track everything. We have a lease tracker, so we can track all the new leases. We have a task tracker. So,
anyone that’s assigned a task to do it, you know, who’s assigned to it? What is the task? When should it be done? And so we can go back and each week see it right there for everyone to remember. And then each week we have our set of KPIs for the property. So I can go back two years, three years, whenever I want to see where we stood at any one point for delinquency, for occupancy. And it gives us all this data right there on one.
I don’t have to flip it sideways or whatnot. And it just, that provides us with a ton of data, the whole team, so we can save time and make good decisions based on that information.
Dave Wolcott (22:29.88)
All right.
Dave Wolcott (22:41.546)
Yeah. And any examples of some, you know, ah-has or insights you’ve gotten from this data that you’ve been able to, you know, optimize?
Gary Lipsky (22:51.374)
Yeah, you know, obviously for leasing, you need to break down every type of unit. We’re not looking at it as a whole. So, you know, we could see that, you know, maybe there’s certain types of units that haven’t been rented in a long time. So we can just lower that price just a little bit. But the other ones that are filled up, we can raise the price, you know, 10, 20.
you know, as much as we can until we start seeing some, some vacancy in there. So I think those things like just tracking and breaking down all the data is, is really important. Um, um, and then comparing it to your other properties to that will give you some aha moments. Maybe one property, um, is at 90% occupied and another property is 95. So what are those, what are those factors? Is it the property manager? Is it the location? Is it the pricing?
And so it just gives you a lot of information to make better decisions.
Dave Wolcott (23:56.958)
Yeah, those are some good insights. And I think not enough operators out there are really focusing on asset management. You know, I mean, you could throw a dart probably in multifamily in the past, you know, decade, right. And we’re just so many winners, right, based on the market. But now, having that strong asset management is really critical to optimizing the asset delivering on the pro forma, right, that’s promised to investors. So
So really appreciate that approach. I think that really makes sense. And Gary, from a personal perspective, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?
Gary Lipsky (24:40.642)
Yeah, I think planning, you know, having a plan because people will spend a lot of time planning a vacation. But when it comes to looking over their net worth and where they’re investing in money, I’m kind of shocked by the lack of tracking of people’s investments and to know if it’s getting the returns they expected or not.
And if there’s not, then you need to make a change. So I think having that consistent checking in on every quarter basically on your investments to see what’s performing and what’s not is super important because you wanna accelerate your investments and have your money earn money for you versus just sitting in a bank, making 4% if that and investing in great risk adjusted opportunities.
Dave Wolcott (25:38.666)
Yeah, there’s so much to be said for that running any business and actually being an investor is like running a business, right? You’re really the CFO, right of your personal economy. So managing the data to be able to make informed decisions about, you know, whatever it is, cash flow, you know, growth, tax efficiency, things that you’re looking at, but absolutely data points are critical. So concur with you there.
Gary, really appreciate you coming on the show today and sharing your wisdom with folks. I think that’s been really helpful to really unpack asset management and how you can kind of optimize these assets and really some information about the market. If people would like to connect with you or learn more about what you guys are up to, what is the best place?
Gary Lipsky (26:28.59)
Yeah, go to break of day capital.com. You’ve got all of our social media channels. You can book a call. You can see what deals we have. We have passive investing resources up there as well. So that’s the best place. It’s got a ton of information.
Dave Wolcott (26:44.274)
Awesome. Thanks so much for coming on, Jig Gary. Appreciate it. You bet.
Gary Lipsky (26:47.374)
I appreciate it, Dave. Thanks.
Dave Wolcott (00:01.706)
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another great show for you guys today. Today we are joined by Kevin de Merit. Kevin is an international business and economic expert with deep experience in financial markets and interest rate change. Kevin started his international banking career at the WFI corporation. Building upon this experience in his analysis that indicated gold would be a safe haven for investment. In 1997, he founded Lear Capital.
kevin (00:02.753)
A1, welcome to the next part.
Dave Wolcott (00:32.034)
Since its founding, Lear Capital has grown to be one of the nation’s largest precious metals companies. As an expansion of his professional footprint in the financial management space, in 2008, he co-founded Wilshire Finance Partners, a real estate investment fund. In 1997, Kevin wrote his book, The Bulls, The Bears, and The Bust, reviewed by the Associated Press, which predicted the market crash of 2000 and the ensuing rise of gold as a safe investment.
This has led him to being a nationally recognized expert and highly sought after guest commentator on more than 1000 podcasts, radio and TV shows. Kevin, welcome to the show.
kevin (01:12.339)
Dave, thanks for having me. I appreciate being here.
Dave Wolcott (01:16.118)
Yeah, you bet. I know this is going to be a fascinating discussion and really, you know, help the audience, you know, just understand more about precious metals, about gold, and really your investment thesis around that and why, you know, you believe, you know, that now is the time to really have that as part of your portfolio. But before we kick things off, you know, tell us how you really got into gold and
how you got into this space.
kevin (01:48.063)
Yeah, it’s an interesting story. Like you said, I worked at WFI Corporation. It was an international banking company based in Beverly Hills. And we established banks across the world for larger companies, mostly for import exportation. So they would issue letters of credit, so on and so forth, tax reasons, all that kind of good stuff. And each one of these banks that we established, we would have to obviously capitalize that bank. And at the time you didn’t have the Euro, we had to…
use French franc or British sovereigns or whatever the sterling or whatever was available in that jurisdiction. And someone came up and said, hey, look, why don’t we use potentially gold because we have to hedge all these different currencies and it’s a real pain in the neck. So they put me in charge of researching the gold as a way to capitalize a portion of the bank and save on hedging costs.
And after about six to seven months of researching gold, I said, you know, I think this is my career. I think I want to change and start an investment company in gold because I saw that the governments were printing money like crazy and that gold should benefit in a long term. And the thesis turned out to be right and I think continues to be right today.
Dave Wolcott (03:07.614)
Yeah, I was just gonna say, I mean, let’s fast forward to today, right. And and I mean, we’ve just gone through this historic amount of money printing, and would also like to get, you know, your perspective on really devaluation of the dollar, right, and really a kind of understanding that because I think a lot of people don’t really look at that. And that light, they just keep saying, hey, well, the price, you know, the value of my single family home is really going up.
They’re just kind of looking at it through that lens. So tell us a little bit about how you’re viewing the effects of all the printing that’s gone on since the pandemic and kind of where we are today.
kevin (03:49.899)
Well, I think it even started further back than that, Dave. You go back to Alan Greenspan when the dot-com situation happened, that was really the first quantitative easing that we saw. That was the first time someone printed up that kind of money to try to get us through a recession. And in 2008, they just took his playbook and said, well, let’s double or triple this thing and really start printing money and get this economy back on track. And then the pandemic hit, and they continued that.
And it doesn’t look like it’s going to stop. I mean, we have $1.5 trillion deficits as far as the eye can see. So as you start to see the value of the currency continue to fall, which is really easy to look at because each dollar they print makes the current dollar out there worth a little bit less. So that’s why we have the inflation. That’s why the interest rates are up. And that’s why you’re probably going to see long-term.
precious metals and other hard assets like real estate continue to expand because it’s impossible for them to stop printing money at this point Absolutely impossible mathlet mathematically impossible for them to stop printing money
Dave Wolcott (04:58.186)
Yeah, for sure. It’s just been such a, you know, continued, you’re right, I mean, 2008, but it really started even once we came off of the gold standard, right, in 1971. And, you know, this consumer driven economy that we live in is just, you know, as Robert Kiyosaki likes to talk about, it’s all fake, right? I mean, everything is kind of, you know, built on this fake model. So,
It’s kind of interesting, right, to take then precious metals and say, okay, how, how has that really evolved, you know, your investment thesis? So we talk a lot about really wealth strategy, right, and creating an overall strategy, you know, within private equity, within hard assets, things that are non correlated to the markets. Certainly precious metals kind of has a space. But
What do you think in terms of do you have a personal wealth strategy for yourself? Do you have a particular investment thesis, especially since you’ve been in this space for so long?
kevin (06:08.187)
Yeah, you know, my investment thesis is that the government is going to continue to print money at a faster and faster pace. And if that’s your thesis, then what are the investments that are going to benefit from that? It’s going to be precious metals. It’s going to be real estate. It’s going to be art. It’s going to be tangible assets that over the next, in my opinion, 10 or 15 years should get much more expensive than where they are today because the value of the dollar is going to continue to fall. So if you believe that the government’s going to stop printing money, then my thesis, you can throw it out the door.
However, most people are flabbergasted to find out that if you took the value of gold in the year 2000 and the value of the stock market in the year 2000, gold has out-produced the stock market. So if you took a diversification strategy, $100,000 invested in 2000 in the Dow Jones would be worth about $325,000 today, but $80,000 invested in the stock market at 20% or $20,000 in precious metals.
That portfolio stands at $385,000. You have $60,000 more in your portfolio today than you did just having the stock market. Most people wouldn’t believe it, but go look at the charts, go look at the values. That’s what money printing is doing. It’s causing hard assets like precious metals and real estate to skyrocket faster than the productive assets that should be outperforming them. But the government’s gonna keep printing money, and I believe my thesis will hold up over the next seven or 10 years.
Dave Wolcott (07:35.422)
Yeah. Do you think we’re, I mean, there is some type of tipping point. I mean, I know a lot of folks really kind of talk about that where we just, we’ve just printed too much, right? And we start to become a bit more like Japan.
kevin (07:50.739)
Yeah, I think we’re really close to a tipping point. And I think the tipping point is really going to be the US dollar not being the reserve currency sometime in the future. It could be five years from now, it could be seven years from now. It’ll be in my lifetime when the US dollar falls off a cliff and is no longer the world’s reserve currency. And BRICS is doing a pretty good job of being a tipping point because you have South Africa, Brazil, Russia, India and China.
which is 40% of the world’s population. If you want a tipping point, you have 40% of the world’s population looking to create a currency to compete against the US dollar. Why? Because we keep printing more of that dollar than we should. We’ve weaponized it a couple of different times with Russia and some other countries. And countries just want to have trade. They want it to be solid and secure. And that’s why they’re talking about backing it with either commodities or a little bit of gold. That, in my opinion, could be a huge tipping point.
for the US investor and the US people.
Dave Wolcott (08:51.218)
Yeah, I know the bricks have been really growing some steam since then. Do you have a you know, in terms of really looking at gold, since it is so different, and we’re talking about kind of really the dollar is being so fake and so many different data points, I think in the economy these days, you have to kind of look at skeptically. So
Are there any particular data points or different rationalization that you’re taking when you’re looking at gold, right? Or, you know, silver or precious metals, um, with, with just different metrics around how you actually measure it. Right.
kevin (09:32.195)
I think one of the most predictable measurements has been US debt. So if you took a look at US debt and then the value of gold, there’s somewhere around a 95 to 97% correlation to how high the debt is to how high or what the price of gold is. And over time that’s held up very consistently. So if our deficit this year is supposed to be 1.5 trillion, our interest payments are around 640 trillion or 640 billion dollars.
By 2023, those are expected to be $1.4 trillion in interest payments, and they don’t expect the interest rate to be as high as we are today. So if you look into the future with the money printing and the debt that the government has in, and they’re off balance sheet debt, Social Security and pensions, Medicare, Medicaid, and things like that, you start adding that in as people retire. I think the debt goes much, much higher on balance sheet debt, and the price of gold is going to fall or follow.
And you’ll also see the value of the dollar start to come down over the next couple of years. That’s my thesis. I’m sticking with it. It’s worked since, you know, the year 2000. And the government just can’t stop printing money if they’re like dependent on it. I mean, you know, put down the shovel, guys. Let’s quit digging the hole so deep.
Dave Wolcott (10:40.311)
Yeah.
Dave Wolcott (10:50.43)
Right. So then, Kevin, what do you think is the biggest risk in investing in precious metals?
kevin (10:59.667)
Well, the biggest risk to me is if the government stops printing as much money as they have been. But if you believe there’s going to be a recession coming, they’re just going to start printing even more money again. Even if a recession does not hit, we have a trillion and a half dollar deficit as far as the eye can see, and it’s impossible for them to really stop printing money. So that to me is the biggest key is does the government balance a budget, the interest rates fall, and you don’t need gold any longer.
You don’t need it as a hedge against the volatility that all this debt causes. You don’t need it as a hedge against inflation or higher interest rates. So it would probably fall, but I just don’t see that happening.
Dave Wolcott (11:41.602)
Got it. So part of our investment thesis is we’re always looking for, you know, tangible assets that have tax efficiency, have passive income and some type of forced appreciation. So, you know, where does gold really kind of fit into, you know, from a portfolio allocation standpoint? You know, what are you looking at? What is the job that you’re looking at for gold or silver? How much?
in terms of, you know, percentage of your portfolio is good that you got you recommend to clients to have in there. And again, like what is the job that you’re looking for?
kevin (12:21.931)
Well, I think the job is twofold. One, you brought up forced appreciation. If the government’s gonna keep printing, then the value of gold’s going to increase in value. When you brought up 1971, when we went off the gold standard, you have a choice. I can take these paper dollars or I could take the gold. Everybody wished they would have taken the gold at $50 an ounce. It’s almost $2,000, it’s $1,920 today. So it’s had a tremendous run since we came off the gold standard. If they keep printing money, then that forced appreciation, in my opinion,
is that money is going to find its way over to tangible assets, not just precious metals, but real estate, like I said, could be art and other tangible type assets. Personally, I have 30% of my portfolio in precious metals, but I’m in the business, so it’s easier for me than it would be for someone else. But depending on your situation, if you’re looking for income, obviously, gold’s not going to give that. So you might have a lower percentage of gold just as a protection against a fall off in the stock market or an economic recession that we may have around the corner.
So your percentages may be lower. And so we would need to sit down and have a conversation with someone and find out where they are and what they’re really looking to do to kind of try to give you an exact percentage. In our opinion, that would be most beneficial.
Dave Wolcott (13:35.818)
Yeah, fair enough. And what is the best place for people to, you know, acquire? What is your model at Lear to, you know, for people to really purchase gold? Do you have physical vaults? In what countries are they based in? What is the security look like? What is access look like? How does that all work?
kevin (13:58.131)
Yeah, that’s a great question. I mean, most of the time, Dave, we physically deliver the metal if it’s a, if it’s a home delivery type situation. So I would say pay about 80% of the time people actually want to hold the metal. They don’t want it in an exchange traded fund, at least the people who are calling us, they actually want it physically there. Right. Uh, so that’s, we would deliver it. We also use a company called the Delaware Depository Corporation. It’s one of the largest depositories in the country. A lot of the, uh, IRA companies also use them. The government uses them.
It’s used on ComEx to hold all the ComEx physical metals. So very accessible, and you can take physical possession out of that depository any time you’d like. We also work with a lot of IRAs and pension plans. So people are looking to move a portion of their IRA or pension over to a self-directed IRA. We work with a lot of those people. And again, if you wanted to take physical possession, you’re able to take physical possession at that particular point. We really don’t have on.
Storage outside of the United States, I know a lot of other people do. I really don’t like it just in case some third party risk. It’s just too far away. It’s like owning a piece of real estate. I kind of want to own it as close as I possibly can to me. And I feel the same way about the depository.
Dave Wolcott (15:09.91)
Yeah, I’ve been reading that this year, there’s been such a mass movement for countries sovereign wealth funds, basically being bringing back their gold into their own, you know, possession into their own country, right, even the Vatican, I forget the amount that they actually have that’s out there, but they brought it right back. That’s
in their purview under their own physical security. And I think that’s been a big movement for the past 12 months. Do you have any statistics on that?
kevin (15:46.151)
Yeah, I don’t have statistics on it because it’s very hard to follow what these countries are actually doing. But yes, in the news, England wanted their gold back, Germany wanted their gold back out of the Federal Reserve, Fort Knox. So I think people are coming to the same conclusion. I want to hold my wealth in my hand. But on top of that, Dave, just recently, or at the end of last year and throughout this year, central banks have accumulated more gold.
last year and continuing this year than they have for the past 50 years. So central banks are not hedge funds, they’re not day traders, they’re not here to buy and sell. They’re here to accumulate and then hold for 10 or 15, 20 years at a time. If they’re accumulating at the fastest pace since the year 1970, if I were an investor, I’d be looking at that. Because if you look back in history,
sellers, the price drops. For instance, in 1999 to 2000, they were sellers and the price of gold got down to $275 an ounce. And now they’re buyers again. So if I had to guess, the price is going to go much higher. They have more money than, you know, anybody, any kind of institution does. They can print money and go buy gold. So that’s a pretty good way to accumulate some wealth. So long term, I think it’s not only the country’s looking for their gold back, but they’re accumulating more.
Dave Wolcott (17:12.522)
Yeah, I think it’s extremely telling, right? That this is the this is countries all over the world that are doing this. And like you said, central banks, and everything are making these kind of moves. So, you know, investors should be aware of these kind of moves, right? And then, you know, bring that into your own kind of strategy, try to make some sense of
kevin (17:13.235)
Yeah, thanks.
kevin (17:36.003)
Yeah, hey, I’m not smart enough to be a stockbroker. So I couldn’t give too much, or too much of a recommendation on stocks. But gold is supply and demand, right? That’s it. If there’s more demand than supply, you’re going to get higher prices. That’s why when the government’s printing money, if you put an increased demand on fixed supply, basically a fixed supply, the price is gonna go up. And that’s my thesis. And that’s what I think is going to continue to happen. And central banks are now piling on that same thesis.
Dave Wolcott (17:41.643)
Yeah.
kevin (18:06.067)
with everybody printing money. So I think it’s gonna be, like I said, over the next seven to 10 years, a pretty good run for investors in precious metals and other tangible assets.
Dave Wolcott (18:16.438)
Yeah, let’s talk about the supply a little bit of gold, right? I mean, where are what nations is it primarily being mined out of? Have there been any technological advancements that you know, mining extraction has become, you know, more efficient to get out or do we going to still continue to have the scarcity and limited supply that’s out there?
kevin (18:42.747)
Yeah, that’s a great question. So if you go back to South Africa, which is the world’s largest supplier of gold, all of the technology in the world has only been able to keep up with about a 2% increase in supply per year. So they have to just go deeper and deeper and deeper into ground. So more technology is just going to kind of keep you about the same supply that we’ve seen year after year after year. They’ve made no great discoveries. Most of the countries, China, Russia,
have a very difficult time mining their gold and it’s very low grade gold. So we’re just not seeing a big surge in supply that you would think you would see with all the technology and gigantic trucks compared to what we had 30, 40 years ago. So about the same.
Dave Wolcott (19:31.662)
Hmm. Yeah, it’s interesting because it does seem like that there should be some advancements, you know, in, in that domain there, right? That we can drive up efficiency. You can, you can extract more. But like you say, if it’s only gone up 2%, the chances in the next decade of it, you know, surpassing that are probably nominal.
kevin (19:53.307)
Yeah, just deeper into the ground and a lot more government regulation all around the world. So it’s hard to combat those two things with technology. You’re just not going to get anywhere unless they find something at the bottom of the ocean or on another planet. I think we’re probably in that 2% range at the very most.
Dave Wolcott (19:57.739)
Yeah.
Dave Wolcott (20:10.226)
Yeah. So look, I know you’re not an economist, Kevin, but you obviously follow this really closely. So if you had your crystal ball, you know, over the next, you know, five to 10 years, where do you see the prices of gold? I mean, we’re hovering around 1950 or so right now, an ounce, you know, what are you, what are your projections telling?
kevin (20:37.635)
You know, it may sound crazy, but I’ll give you a projection that I made all the way back in the year 2000. Silver was trading about $3.75 an ounce, and I said it would be $12 an ounce, and people thought it was absolutely crazy. About $8, people thought, well, maybe I’m onto something, and then it just surpassed it. I think the price of gold will be $3,500 in the next five years. If you look at the debt around the world and the money printing, it’s a lot of money.
and the supply becoming available and the central bank purchasing, I think gold has a very good shot at $3,500 plus per ounce.
Dave Wolcott (21:14.478)
Hmm. Interesting. And you know, from a gold when you actually purchase gold, are there any fees in terms, you know, like, let’s say I was to buy whatever 10 ounces of gold, right? How does how is it structured? Do you have fees to, you know, if you’re housing it, if the you know, in terms of the transaction and things like that, how does that work?
kevin (21:42.343)
Yeah, that’s a great question. So each type of gold, the coins, the bars, are they limited, so on and so forth, have different fees. Each one of them, when we conduct a transaction, is explained exactly what the fee is for that particular coin or bar. So it’s right on your invoice, it’s on a recorded confirmation line, it’s also on a contract, and it just really depends on exactly which type of metal you’re purchasing.
You’re purchasing the rare type coins, obviously a higher fee for those because they’re rare. And American Eagle might be a 1% to 3% depending on how much you’re purchasing. So there’s a range, but you’re going to know. We actually did something fairly unique last year. We had a 24-hour risk repurchase guarantee. You actually purchase gold from us. We get your invoice, and you have 24 hours to cancel it after you’ve locked in the price or send in the money. So we really want people to understand and have transparency.
Here’s what its costs go out. Try to look across the internet, see if you can do better. We’re a fairly large company. We think our prices are the best.
Dave Wolcott (22:48.53)
Yeah. Let’s go back to security for a second. So how is it, you know, if you were to buy, you know, say you bought 20 bars, how do you deliver that if you’re physically delivering that to someone’s home? How do you do that?
kevin (23:04.703)
Yeah, that’s a great question. We get that question a lot. Just how the heck are you getting hundreds of thousands of dollars or millions of dollars a day through the mail? So we use federal express so that you can watch, uh, you know, the process all the way through here. The box left it’s, it’s about ready to get to my door. You need to sign for it. And then it’s finally yours, but yeah, federal express for 99% of everything that we deliver on a daily basis.
Dave Wolcott (23:09.25)
Yeah.
Dave Wolcott (23:19.348)
Okay.
Dave Wolcott (23:32.174)
Okay, and is that insured? I would imagine it’s got some degree of insurance on it.
kevin (23:37.655)
Yeah, yeah, it’s insured for the whole, the entire value of the package. And correct. And then we make it easy for people when they deliver it back. We just email you a federal express label. It’s our insurance that has a blanket coverage back to us. So within two or three days, you’re back out of the metal, just like you would a stock or any other.
Dave Wolcott (23:40.502)
for the whole thing. Okay.
Dave Wolcott (23:58.302)
Got it. Got it. And so how do you recommend people, uh, you know, take, once you’ve taken possession and it’s in your house or wherever it is, you know, that’s on in your purview. Um, do you recommend people, you know, set up a safe or, or what type of security system, um, you know, do you, do you recommend?
kevin (24:20.059)
Yeah, I mean, most people use two different things. They either use a safety deposit box. You can get a fairly large amount of gold in a safety deposit box, or they have a home safe if it’s nice and secure. So I would say that if you have a decent amount of metals that you bolt it to the ground because there’s an incredible amount of stories that I can tell you over the past 30 years where the next door neighbor comes and takes the safe or the next door neighbor’s kid comes and takes, you know, tries to take the safe out.
So have it bolted in or in a wall or something like that. But that’s the way most people will store it.
Dave Wolcott (24:57.41)
Got it. Yeah. Interesting. Uh, you know, in terms of security, I know there’s a lot of different thoughts on different gold and there are some, uh, facilities I know throughout the country as well, that people will actually store and it’s kind of managed in that central location in vaults. Do you, do you guys offer that service as well?
kevin (25:17.127)
Yeah, we do. Delaware Depository, we also use Brinks. Those are the two that I like the most. So Brinks has different locations, Los Angeles, Utah, back east. So you can get fairly close to where you are, depending on where you are in the country, if you wanted a Brinks location. And then Delaware Depository is in Delaware. And like I said, one of the most secure and largest depositories in the world. So that’s what we use for most of our storage. And that’s what most of the.
IRA custodians use as well.
Dave Wolcott (25:48.946)
Yeah. Kevin, you mentioned that you had about 30% of your portfolio in gold, silver right now. You also have a real estate investment firm. What is that actually focused on? Which asset class in real estate are you focused on?
kevin (26:07.535)
Yeah, so it’s a lending company. And it’s, it’s not hard money. It’s in between the hard money and the bank lending. So our rates are somewhere between, you know, six and a half percent to around 9%. Mostly in commercial type properties with industrial properties, long term memory care, things like that. So very, very stable. Went right through, you know, we started in 2008 didn’t have a problem. We’ve never lost an investor, you know, any money at all.
Our loan to values are around 65% on the values and we’re very, very strict on that. So it’s strictly lending for a margin of safety in the real estate market, which gives us a pretty good preview of properties that maybe we want to own personally as well. So you just see so many different types of properties that you can get a pretty good idea of what are good values out there, what may be increasing in value. But I like the income aspect of lending on real estate.
and just getting monthly check with margin of safety. Yeah, sure.
Dave Wolcott (27:09.298)
Yeah, sure. So where is the remainder just at a high level in terms of your portfolio allocation that other 70% which other key buckets are you focused on?
kevin (27:20.667)
Yeah, so I have 30% in precious metals. I have 40% in real estate. And then the other 30% is in cash and some stock. It’s a very, very narrow stock because I only invest in what I understand. And like I said, I’m not great at understanding the stock market. So it’s a very small portion, maybe 5% of my portfolio in stock. But that’s how I have it right now. The cash is fairly high because I believe there’s going to be a recession. And I can take advantage of some undervalued assets once that happens. So.
Dave Wolcott (27:40.468)
Yeah.
kevin (27:50.047)
That’s kind of what I’m looking for.
Dave Wolcott (27:51.774)
Yeah, excellent. So tell us a little bit, just let’s just kind of walk through the steps. So we have a clear picture now. I think it was a great background that you’ve provided of, you know, some of some of the risks, I mean, how to kind of, you know, manage security of the asset, how it fits into your portfolio. So if someone was to actually, you know, engage and want to, you know, purchase gold or silver from Lear,
What are the simple steps that they can take to actually acquire some?
kevin (28:25.523)
Yeah, the first thing I would say is just get the package of information. You know, a lot of people, it’s their first time investing in precious metals, and I really would love everyone to get the education on it first, because then you’re going to ask the right questions. You’re going to feel much better about, you know, the investment you made. You’re going to be able to answer, you know, the questions about, you know, why do you want precious metals and what we’re expecting out of precious metals? Get that first. Spend a good week, two weeks with the package of information and then get back to us. We can have a conversation about some of the goals.
And then once we understand what your goals really are, is put some recommendations together, and then you choose. Here’s a couple of different ideas. Here’s one that maybe we think there’s going to be a little bit more appreciation that’s going to skew more toward the silver market, because I believe that’s a great place for appreciation. Or do you want a little bit more security on the gold side? And then what kind of time frame are you looking for? Is it 10 years, 15 years? If it’s a couple of years, then it’s all going to be a bully in something that’s going to happen.
extremely high liquidity value, so on and so forth. So we’ll go over that with everyone. And if they’re interested in an IRA and moving some over with an IRA, we can get the paperwork out on that. Once that’s all done, then they get to choose. And once they choose, we lock in the prices over the phone before we have anyone’s checks. And we make sure that, you know, here’s the price, here’s everything, send out the invoice. You look at the invoice, make sure everything’s okay, pricing’s right, so on and so forth. And then send your money in, and then we help start tracking that for you.
you know, newsletters, updates, bulletins, and you have your own personal representative that you’ll talk to each time you call in.
Dave Wolcott (30:02.374)
Excellent. If you could give just one piece of advice to listeners about how they could accelerate their wealth trajectory, what would it be?
kevin (30:13.175)
Always be learning. Every day I’m trying to study, trying to learn more about my own market. I’ve been doing this for 30 years, and I learned something new every single day. But don’t try to be a jack of everything. To focus in on a couple of investments that you love, you can spend time with, that you’re passionate about, and really understand that. Because I think.
people make investment decisions and then go, geez, why did I do that? Well, you didn’t have all the information. So if you have all the information, if you understand it a little bit better, you’re gonna make better decisions, you’re gonna buy at the right times, hopefully sell at the right times, or somewhere around the right times, and it’s just gonna work out much, much better. So I would say focus, focus.
Dave Wolcott (30:57.782)
Yeah, I love that. A couple key points you made there, just never invest in something you don’t understand. So getting smarter on this is really key and continuing to learn. And really that’s kind of some of the fascination about investing and looking at some of these asset classes. But I think the investment thesis around precious metals, gold, silver, are very strong. It aligns with our thesis around having tangible assets.
and having some allocation in your portfolio to hedge against all of this money printing that’s going on in the world for sure. Kevin, it’s really been a pleasure speaking with you. I think this has been super informative for the guests. I know you’ve talked about setting up a special link for first-time clients, but if people would like to learn more about you or Lear, what is the best place for them to connect?
kevin (31:58.343)
They can go to, I think you guys had a link, which was leer.biz backslash gold. So they can go there and request some information. They can give us a phone call at 800-314-0723, 800-314-0723. And I wanted to do something special on the program because we do want people to kind of, you know, look at this investment and learn. So I…
I’m going to offer a $500 credit for anyone who wants to request information from us. We’ll put $500 into your account immediately, and you can use that if you’d like to start an IRA. You can use it for your IRA fees or the delivery and insurance of the precious metals to your home. You can use it for that as well, and it should cover almost all of those expenses. So we’ll do that, and hopefully everybody can enjoy that.
Dave Wolcott (32:49.11)
All right, guys, I hope you heard that one rewind that if you haven’t, but Kevin’s offering a tremendous offer of 500 bucks to get started. Um, and you know, with a very reputable, uh, you know, precious metals, uh, supplier in the country, definitely something worth considering in your portfolio, we will make sure to, uh, put this, all those links in the show notes as well, um, and feel free to reach out to, you know, Kevin and his company, if you’ve got any questions. Uh, but.
Thanks again for joining us, Kevin. It’s been a real pleasure and honor to speak with you. Thanks again.
kevin (33:25.023)
Dave, thank you. Been a pleasure for myself as well.
Dave Wolcott (33:28.822)
All right, thanks. Till next week.
kevin (33:31.871)
Thank you.
Dave Wolcott (00:01.066)
Hey everyone, welcome to another episode on wealth strategy secrets. Today we’re joined by Neil Bawa. Neil is a technologist who is universally known in the real estate circles as the mad scientist of multifamily. Besides being one of the most in-demand speakers in commercial real estate, Neil is a data guru, a process freak, and an outsourcing expert. Neil treats his billion dollar portfolio as an ongoing experiment in efficiency and optimization. Neil serves as the CEO and founder at GrowCapitus.
an iconic data driven commercial real estate investment company. Growcapitus 28 person team acquires and builds multifamily and commercial properties across the US with more than 800 active investors and over 2000 reviewing projects. The Growcapitus portfolio currently spans across 10 states with 31 projects and completed equity raises of 270 million for multifamily while on track to close another 1500 units and 12 months. Neil
Welcome to the show.
Neal Bawa (01:02.395)
Thanks for having me on the show Dave. It’s a delight to talk with you again.
Dave Wolcott (01:06.858)
Yeah, absolutely, Neil. Always enjoy our conversations and really looking forward to sharing some of these pearls of wisdom with the audience today. So for folks who don’t know you and haven’t heard about the mad scientist coming from the tech space, tell us a little bit about your journey and how you got into real estate and alternative investing.
Neal Bawa (01:30.427)
Sure, I am a computer science graduate, so software engineer that is focused in data science. So I’m a data scientist. I’ve had a successful tech career, 14 years. I’ve had a successful tech exit, class leading multiples. And I was doing, while I was running that company, we had 400 people reporting to me. I was using real estate as a way to get my taxes down because I live in Taxifornia.
And so there were years where I paid 53% of my gross income as taxes, and real estate was the way to get it down. And ironically, unlike most people that get into real estate by doing a fix and flip or buying a single-family rental, my first experience with real estate was in 2003 when my boss, the senior partner in the tech business, asked for my help to build an entire campus from scratch. We didn’t want to be renters anymore. We wanted to have our own.
campus, no investor money, it was just our money, all cash, no loans. We built a first campus and I learned so much from that, you know, that development process that we ended up working on six other campuses over the next five or six years before in 2008, I started, you know, doing aggressive data science on real estate, realized it was the best time ever to buy and ended up basically buying a property every month for a significant amount of time.
Dave Wolcott (02:49.262)
Hmm. Very interesting. So on this show, Neil, we talk a lot about wealth strategy, right? Because as you know, investing in real estate and alternative assets, you know, it’s completely going against the grain or the other, you know, 95%. So as you went through this journey yourself, you know, did you develop a particular investment thesis? Or have you created kind of your own wealth strategy in terms of building your wealth that you’ve been following?
Neal Bawa (03:18.551)
Yeah, I did. And it sort of developed organically over an extremely long period of time. So in 2008, 2009, I started to mine websites like Zillow and the Department of Labor Statistics using a Ukrainian hacker and gather that information and put it into a software that we use as data scientists. It’s called R. The software’s name is just R. And so we put stuff in there. And what we do is we take massive amounts of data, we stick it in there, and what we try to figure out is, is there a correlation between x thing
and profit? Is there a correlation between population growth, job growth, income growth, crime, and profit? And how can I parse this by city? Can I parse it by state? What shows me that there’s the one, which of these things is a bigger indicator? Which one leads to more profit? And what is the combination of these factors that leads to the highest amount of profit? And then we back test it over the last 10 years so that we’re not just making stuff up, we’re basically testing it against what’s happened in the past.
When I did that, I realized that there were five factors that had a very significant impact when you were buying properties and then there were some additional ones when you were building them. And so I started in my business, in my technology business, we had large classrooms. And so I opened a meetup group and initially the meetup group was more about multifamily and I really enjoyed that process. But then I was like, you know, I’m a geek, I’m a nerd.
Where are all the other geeks and nerds out there? Don’t they want to know about this methodology that I have? So I also created a meetup group where I started presenting my findings and my, um, investment thesis. And like, uh, somebody came in and said, you need to give it a better name than what you have. Cause I had some statistical analysis, blah, blue, blah, horrible name. And they’re like, no, give it a better name. So I said, what’s a good name. And he said location magic, because what you’re really talking about is what are the specific things that
that create the best location for real estate profits. I’m like, I like that. So I called it Location Magic and I opened a meetup about it. And the first time, four people showed up, but three of them were from Apple. So they were all making good money because guess what? They were data scientists. So they were really attracted by this meetup. And then next time I taught there were 10 people and a year later, there were a hundred nerdy, geeky data scientists, software programmers that were coming in and everyone’s contributing and everyone’s doing stuff and we’re putting this stuff on the web. There’s no like…
Neal Bawa (05:38.287)
There’s no LPGP, there’s no deals. It’s just all people sharing data together and everyone’s doing their own thing with it, right? And this is 2009, 10, 11. And then somebody comes in and says, this is amazing stuff, right? But you got to dumb it down for the people that are not software programmers or data scientists. So I started to work on that and I spent six months basically dumbing it down to where anyone can take like a one hour course from us, one hour meetup. And then in 10 minutes they can figure out whether
Columbus, Ohio is a better city to invest in than let’s say, Idaho falls to Idaho, right? So any two cities in the US that they’d never even heard of, but in 10 minutes they could figure out. So dumbing down is not the appropriate word. We basically just made the whole process like a wizard. Like, right? Just take five steps and then you know, and it teaches you so much. So people loved it. All of a sudden my meetup was full. Lots and lots of people are coming in from everywhere. I was starting to get…
conference is calling me from across the United States and saying hey there’s you you’re that nerdy guy that basically teaches this thing called location magic that we watched on YouTube because by then one of my YouTube videos had gone viral and Hundreds of thousands of people had watched it and it was a long video date like 75 minutes and we had like 80% of the people staying until the end and you know hundreds of thousands of views and so all of a sudden I’m This micro celebrity in the data of real estate world
And everyone’s asking me, what do you have to pitch? And I’m like, no, no. I’m a technologist. I have a company. It’s worth a lot of money. I’m not doing any real estate. I just buy my own stuff. And you’re welcome to just take my stuff. And people are like, at least get a list together. So I started keeping a list of people. And that list grew from 100 people to 1,000 people to 10,000. And then one day, a guy comes in from Apple and says, I’d like you to present across campuses. So he takes me into the Apple Spaceship campus. And all of a sudden, I’m presenting to a very large number of people.
were sitting in different campuses throughout the world and listening to me. One of them, one group was at two o’clock in the morning somewhere else in the, you know, outside the US and they were still listening to me and I could see them on the screen. I’m like, this is cool stuff. How do I disseminate this? And so the idea I came up with is there’s a website called Udemy, U-D-E-M-Y. So what I did was I took my data science course and I stuck it there at udemy.com slash real focus.
Neal Bawa (07:55.471)
or just unim.com Neil Bauer comes up. And I’m like, maybe a hundred people will take the course. Well, right now, Dave, there’s 12 and a half thousand people taking this course, and it has over a thousand five-star reviews. It’s the best reviewed course on Udemy in real estate, and they have a thousand courses. And so I basically found a way to find my fellow geeks, nerds and dorks and bring them together into this ecosystem of people that are basically just.
obsessively tied to data and using it to make investments. And I did all of that before I had a syndication, had ever taken money from investor. I’m just a tech guy doing these things. And repeatedly, people are now, like 2012, 2013, I’m getting to the point where I’m selling my company and people are calling me to conferences. I’m going to this conference, that conference. And I’m really excited because I’m getting all these free conference tickets and people are even paying for my travel because they know that I don’t have a pitch. You know, I don’t have anything to sell. And so in…
2013 sold my business, immediately had a gigantic, massive tax bill, you can’t imagine it, it was just disgusting. And so at that point I knew I had to get the depreciation benefits and jumped into multifamily value add. So I did value add first, then I did new construction, then I got into self storage and did office, flex, student housing, town homes, luxury town homes, and then finally ended up with Bill to rent.
And so all of these things have sort of worked out over time and roughly a thousand people have given me about $300 million of their money to buy stuff, to build stuff. It’s all along, it’s really been an experiment and location magic has now developed into something that is vastly more powerful than what it started with, but it still works and still delivers amazing returns.
Dave Wolcott (09:42.742)
Yeah, fascinating story. And is that product available for the public right now? Can they take the class and actually access the software as well?
Neal Bawa (09:53.807)
So yeah, the answer is everything’s available for free. So we’ve never charged for it. There’s no subscription, there’s no upsell, there’s no mentoring, there’s no education. It’s just given away. It’s like Wikipedia. So take it, use it. The vast majority of people that have used it, maybe 100,000 people, I don’t even know them because Udemy doesn’t even give me their information and I don’t do the meetups in the San Francisco area anymore. So they’re available on…
in two places. One is multifamilyu.com. You can go there, you can take it. And then of course, all of the pieces, software as you call it, are available right there. You just grab it and you come back once in a year. So it does require an annual update. So you come back every year in January, take the new course or just skip through the course and grab the updated software. Or you can take it at udemy, U-D-E-M-Y.com slash real focus and you’ll notice there’s about 12 and a half thousand people taking it. So it’s free. It’s meant to be free.
We haven’t even put a license on it, so technically, Dave, other people could even be selling Location Magic.
Dave Wolcott (10:53.91)
Yeah, that’s interesting. And how does that compare to, you know, some of the other analysts, whether it’s yardie or costar and things like that, you know, from, from that data, how, how would you say it compares? Is it, is it complimentary? Is it providing different data points?
Neal Bawa (11:09.835)
It’s complementary in many ways. So I would always recommend that if you have the money, buy a CoStar license or buy a Yardy Matrix license. But I think that it looks at the world from a back testing perspective, where Yardy Matrix and CoStar look at it from an incoming supply perspective. So it’s highly complementary. I continue to use Yardy Matrix. I continue to use CoStar data. But I still find location magic.
to work well. The one benefit of LocationMagic over Yardi Matrix and CoStar is that while CoStar and Yardi Matrix provide phenomenal data for the top 50 or 100 metros in the US, they’re extremely weak once the metro size falls below 500,000. LocationMagic works for smaller metros. So I’ve been investing in smaller metros. For example, I invested in Idaho Falls, made 30 plus IRR for my investors. Idaho Falls is only 130,000, 50,000 people. There’s no way CoStar would have data for that. So…
The location magic allows you to find smaller metros. Like my favorite metro in the United States right now is Rogers, Arkansas. Most people don’t think of Arkansas as being an amazing metro, but I promise you this. If you take a flight and you go to Rogers, Arkansas, within an hour of you landing, you’ll see exactly what I mean.
Dave Wolcott (12:24.39)
Interesting. And can you use this also not only for multifamily, but say people are doing short term rentals or an Airbnb or is that I’m assuming the data there is valuable for those type of assets as well, right?
Neal Bawa (12:40.135)
It is, but I actually recommend that people not use that. The challenge with places like short-term rentals is that supply is a much bigger determinant of your success than anything else. So AirDNA is so inexpensive. I mean, it’s $50. I mean, come on, right? Pay for AirDNA. It’s a superior product. It’s specifically designed for you. If you’re doing short-term rentals and not paying for AirDNA, shame on you, right? Because CoStar is $65,000, so there’s a bunch of people who simply can’t afford it.
Dave Wolcott (12:43.755)
Okay.
Neal Bawa (13:09.219)
But why wouldn’t you be able to afford AirDNA at 40 bucks or 100 bucks?
Dave Wolcott (13:13.566)
Yeah, sure. Okay. So before we jump into multifamily, Neil, um, I want to talk to you a little bit about your mission 10 K, which is pretty, pretty exciting.
Neal Bawa (13:24.463)
Yeah, I am a mission-driven person, right? So luckily, because of my tech exit, I’m well off. I want to do things that I love. I want to do things that make me get out of bed every day and say, today is another fine day and we’re gonna change the world. So that’s very interesting to me because after you make money and I travel the world, I spent two months a year traveling Europe and Asia with my family, we have a blast, we spend our money. And so…
my life is now just tied to doing things that are fun and interesting and make a difference. And I know that value add multifamily where you’re improving older properties makes a difference. I know that building newer apartment complexes makes a difference. But I was always looking for what makes the most difference. Once again, my data science hat is always on, right? So it’s like, I don’t want to make a difference. What makes the most difference to Americans? And what I figure out is while
Americans will live in my class A properties and my class B and class C properties just fine. Most of the time they’re living there because they have no choice, right? And I wanted to give them that choice. Well, most Americans want to own their own home, but since COVID, the average salary needed to buy a home in America has gone up 88%. You now need 88% to make 88% more in the last three years to buy a starter home.
than you did before COVID started. And that’s a combination of high interest rates and ridiculously higher prices, right? So prices have gone up. Single-family prices went up. Unlike multifamily, which came back down, they have not come back down. They’re still at the peak. They’ve only come down about 1%, right? And that’s seasonal. So home prices are still at peak. They’re holding at peak. They’re not increasing anymore. And interest rates as of today are at 7.18%, which means that you need an 88% higher salary to buy a starter home.
So we have this unusual situation that was developing before COVID, but has now exploded after COVID. That situation is simply this. We’ve got families in America, right? With kids and dogs and those kinds of things. And that there’s a band of these people that make good money, and I define good money as 60 to $80,000 a year for the family, that do not wanna live in apartments and cannot afford to buy a single family home. I believe that, I realized that what they, and they also didn’t wanna buy
Neal Bawa (15:46.299)
They rent in really, really old single family homes, you know, very trashy, but that’s their other choice and they hate it. So I realized that this middle America, and I call it about 8 million families. My data indicates there’s 8 million families that don’t wanna live in apartments and cannot afford to buy single family homes. I have decided that my mission in life, and I call this mission 10K, is to build 10,000 brand new town homes for these people.
And these townhomes, they don’t look like my class A properties. There’s no infinity pools. There’s no CrossFit gyms. There’s no clubhouses. You know, it’s not like a sexy apartment market that’s a class A that everyone’s building today. They’re just a bunch of townhomes together in a community. There is no pool. There is no gym. But the question is, Dave, if your other option was to rent a 70 year old trashed property, it’s unlikely to have a pool and it’s never going to have a gym.
If people are simply looking for a place that’s as close to owning a property as possible, brand new townhome rentals, three bedroom, two and a half bath, nine foot ceilings, courts or granite countertops, no amenities, except, you know, I generally have a large central area where kids can enjoy themselves. So there’s a central park and there’s a little dog area and maybe a swing and a fire pit, simple amenities, right?
In the end, it’s like a subdivision of single-family homes, but they’re townhomes. And I’m building these in many markets across the United States that you’ve never heard of. Why? Why am I not building them in superstar boomtown markets? Why am I not building them in Orlando or Miami or Denver? The math doesn’t work. I am just, I’m just a robot with some human qualities, right? I’m just tied to mathematics.
I look at these amazing markets and I realize construction costs are too high, property taxes are too high, impound fees and permit fees are too high, insurance is too high. The combination of these four things kills my ability to deliver rents to that middle-class America because they only make $60,000 to $80,000 a year. So my rents can’t be more than $20,000 to $26,000 a year, which is essentially I’m trying to keep my rents below $2,000 a month and give them a brand new beautiful…
Neal Bawa (18:12.495)
townhome property, gorgeous nine-foot ceilings. How do I do that? Well, I can’t. In most of these superstar markets, they’re going to be what is known as rent burdened, which means that 40, 45% of their gross income is going to go towards rent. That doesn’t help America. And because I’m mission-driven, I wanna make profit for my investors, I’ve made a huge amount of money for them, and I wanna keep making money for them. But I wanted to somehow find a way to tie profit to not rent burdening people.
So I went across the United States doing surveys of construction costs, permit costs, land costs, property taxes and insurance, and found a bunch of metros that nobody knows about. And I am building townhome communities, 100 to 150 units at a time, non-amenitized in those areas. And I call it Mission 10K. My investors love it and have already given me $50 million that I have in a bank.
and that I’m now basically buying land at extraordinarily cheap prices. Because of increase in interest rates, land just has become practically worthless. So I’m paying like a third of what I was paying two years ago.
Dave Wolcott (19:23.23)
Yeah, I really love that Neil. It’s similar to how Peter Diamandis talks about an MTP or your massive transformational purpose. So that is so spot on, and just really spoken like a true entrepreneur, right? You know, waking up every day having something that you’re fascinated and motivated about, and really making a difference, right in the world solving a problem for that, you know, niche market that you’ve identified. So
Neal Bawa (19:33.411)
Yes.
Dave Wolcott (19:52.662)
So really, you know hats off to you for creating that opportunity for those in need and solving that problem I think it’s really amazing and have been interested and following to see how the progression goes As we kind of you know delved into this. Let’s talk a little bit about the market. I know you’re You’re quite the scientist as well in terms of the market There’s been so many things going on such interesting times that we live in and dynamics I’m not
asking you to pull out your crystal ball, but, you know, give us some of your thoughts on, you know, where do you, where do you think the economy is right now? Um, you know, with respect to, uh, you know, pending recession potentially and the other dynamics that you see.
Neal Bawa (20:38.974)
Yeah, it’s an incredibly interesting economy. The first thing that I do in the morning is I’ll read everything that I can find on economics on in the Wall Street Journal, then Bloomberg, right? That takes me an hour in the morning. And because I find that as real estate, you know, general partners, nothing is affecting our ability to deliver profits more than the general economy.
The general economy right now is in charge of our ability to deliver profits to our investors. And so clearly understanding what’s happening in the economy requires a tremendous amount of study. And I’m putting in an hour every day, including Saturday and Sunday, into that. And I’ve been doing that for the last three or four years. And that allows me to stay slightly ahead, just slightly ahead of the marketplace. So here’s a few things that I’ll say. Number one, stop worrying about inflation.
You should have been worried about inflation two years ago, 18 months ago, 12 months ago, six months ago. Today, if you’re worried about inflation, you’re simply not looking at the data. I am worried about disinflation and deflation. Inflation in the United States peaked in June, 2022, so that’s about 12, 14 months ago, at 9.1%, right? So whether you’re looking at core or PCE, it peaked right about that 9.1%. Today, it’s below 3%. If you look at it,
for the last quarter, it’s at 2%. Now, that doesn’t mean that the Federal Reserve will cut rates immediately, because they want to see it stay there and even go below that 2% line. That’s when they’re convinced that they can get it back to that baseline of two or two and a half percent. And so I’m not suggesting that the Fed is going to cut rates anytime soon, but what I’m pointing out is that if you look at the mentions of the word deflation or disinflation in the last 30 days,
the mentions are up over 400%. And if you look at the mentions of the word inflation, they’re ebbing away because we broke in the back of inflation, there was one last piece that we really had to look at and that was wage inflation. So inflation comes from rents, right? So real estate, it comes from wage inflation and it comes from commodity inflation. Well, commodity inflation has been low for a while.
Neal Bawa (22:50.635)
Rents in the United States are flat. So each month when you see that decline in inflation, a lot of that is because rents are flat and we’re looking at a 12 month timeframe. Rents weren’t flat 12 months ago. So each month as we go forward, inflation falls because those rents are falling or the rents are not increasing. They’re not falling, but they’re not increasing. So of the three main components, rents are supporting us because they’re staying flat. Commodities are supporting us because the cost of oil has gone from $120 to 80.
and the Chinese economy is doing so poorly that international demand is reducing. Remember, it’s very difficult to get inflation when demand is reducing, right? Demand is what drives up inflation, right? There’s right now a lot of supply. For the United States, for example, has 1.2 million excess cars. So the price of cars is dropping. Both EVs and regular gas cars are dropping and have been dropping for months and months and now used cars are also dropping. So…
we’re seeing demand destruction in the economy, which is exactly what the Fed wants. And that’s bringing numbers down. And so the concern over the next few months is going to be, are we going to get too much deflation? And if you get too much deflation, can it drag us into a recession? So for a while, the chances of a recession were decreasing because the economy was doing well. Unemployment still at 3.5%. The job growth is reducing, right? So three or four months ago, we were producing 400,000 jobs a month or 425 a month.
I just saw the ADP report yesterday, and you’ll see the government report come out tomorrow, Friday, and they’re both going to be around 177,000. Well, 200,000 is equilibrium. If the economy produces less than that number of jobs, you’re going to go into a recession. So the Fed at this point has to be convinced, and more and more of the Fed governors are coming out and saying this Bostic, who is Rafael Bostic, just came out this morning and said…
Hey, I think we’re done. I think we’re done. We don’t need to do this anymore. And I’m talking about a Fed governor making a public statement today saying, guys, we’re done. If we overdo this, we’re going to go into a recession. Look, we didn’t increase unemployment, but jobs have reduced. So who cares about the fact that unemployment’s still 3.5% and core inflation is down to 2%, PCE is down to 4%. You’re making progress. You’re clearly hitting it hard. Just stay where you are. So.
Neal Bawa (25:16.615)
My belief is this, we’re done. We’re not going to have any more hikes, but we’re not going to decrease rate for a while. So let’s just say, I’m going to say, we’re in the beginning of September here. I’m going to say February or March of next year is the first time that the Federal Reserve actually starts to cut rates. And they’re going to be cutting gently. Why? Because unemployment is very low, so they have no incentive to cut fast.
If unemployment had gone from 3.5% when we started Dave to 5%, then the cutting process would have been fast. Well, unemployment, we started at 3.5% and today we’re at 3.5%. So the incentive for the Fed to cut fast is just not there. So the Fed cuts may be in Feb. But the boost to multifamily with that first cut, there’s a lot of people that say, well, we really need to see substantial interest rate cuts for multifamily to benefit.
That is just complete horse shit. I look at that and I say, you clearly don’t understand how mortgage rates work. You clearly don’t understand how spreads work. You don’t understand how so far and LIBOR affect the economy, right? Because you’re not looking at this from an economist perspective. And you have to, because the economists and the economy is really holding multifamily back. And so I can tell you in February, March, we’re likely to get that first increase decrease. And even if it’s a tiny increase,
decrease of a quarter point, the difference that it makes to the multifamily market will be enormous. I can explain that, but I’ll stop here.
Dave Wolcott (26:50.238)
Yeah, no, so many great points there, Neil, really appreciate you giving that breakdown. Because I think most people just get really it’s kind of like, you know, paralysis by analysis, right? There’s just so many moving parts in this whole thing and everything. So how do you make decisions, right? As an investor. And so we have a lot of investors on the show, they’re trying to say, you know, is this the right time to invest in multifamily? We’ve certainly seen transaction volume is down 70% this year and multifamily.
Neal Bawa (27:18.512)
That’s right.
Dave Wolcott (27:18.646)
And we’d like to look at a lot of fundamentals. So, I mean, let’s go into that for a second, right? Talk to us about, you know, your data points from a fundamental standpoint in the multifamily space.
Neal Bawa (27:24.376)
Yeah.
Neal Bawa (27:34.075)
2024 is going to be the best time to invest in multifamily since 2018. I don’t wanna say best ever or those words don’t mean anything. I like to compare years. So obviously if you bought in 2020 and you got lucky because prices went up in 2021, that’s fine. But that had nothing to do with fundamentals and you’re asking a fundamentals question. That simply had to do with the fact that we reined two trillion dollars on our economy and everyone bought stuff. Nothing to do with fundamentals.
So when we are looking at fundamentals economies, we cannot look at 2020, 2021 or 2022 or 2023 because all four of these years are whacked. One because of COVID, one because of the money that rained after COVID, one because interest rates started going up and one because interest rates are really high, right? So when’s the last fundamental year? It’s 2019. So I’m gonna look at 2019 and 18 and I’m gonna make my decisions then because we didn’t have to deal with all this money crap, too much money, too little money, too many interest rates. And I’m looking at that and saying,
What does 2024 look like? Well, it looks like a bargain. It looks like a bargain to me and I’ll explain why, right? Two years ago, a lot of my contemporaries are buying properties every month. There isn’t one that I’ll mention, but he was a student at one of my bootcamps in 2019. And literally, I think he bought 10 properties in that late 2021, mid 2022 period. Why? Because money was raining down on him, right? Now I’m not.
Time will tell whether those were good purchases or bad, but from what I’m seeing, I was the one basically going to podcasts and telling people don’t buy. And people are like, are you buying Neil? And the answer is I bought one and a half property in that mad timeframe. The mad timeframe to me was second half of 2021 to like June, 2022, there was this crazy timeframe where people are buying properties at three, three and a half cap and trying to justify those numbers with outrageous underwriting.
During that time, I bought one and a half properties. One of those properties was mine and I exited my partner. So that was good. The other property that I bought was a military based property and people don’t buy properties at military bases because every time soldiers leave, you lose like 10, 15% occupancy. The people don’t like that. And the bet I made was that’s painful and it’s gonna happen. And it did happen by the way, because a bunch of people left for not for Ukraine, but to support NATO.
Neal Bawa (30:00.331)
And so I did lose occupancy there once, but I bet that pain was going to be less than the pain of overpaying because I bought that property at five cap. So today, despite the fact that I lost occupancy and went into the eighties once when soldiers left for the Ukraine war, that property still at this point is cash flowing for me. Despite the fact that it had the same floating rate loan that everybody else had. Why? Because I didn’t pay.
that much, I paid 30% less than what people were paying for other comparable properties. So I can tell you that during that timeframe, I wasn’t drinking the Kool-Aid, only bought one and a half properties, just sort of paid my employees, didn’t do anything. Today I’m saying to you, the next 12 to 15 months, I’ll call it the next 15 months, because we’re looking at Q4 of this year, and then all of next year. Those five quarters are great times to buy multifamily. And my reasons are very simple.
Number one, prices of multifamily are down between 20 and 25% as of today, as of September, 2023. Today I can get a 25% discount from peak. It’s not really a 25% discount because those prices were outrageous, but it’s at least a 12% discount. Why 12%, why? Well, the answer is prices were too high and now are too low.
So where’s the median? Well, the median is I’m looking at 2018 and 2019 when interest rates were normal. Well, at normal interest rates, cap rates were not as low and crazy as they were in 2021 or as crazy high as they are now, they were in the middle. So number one, when I buy a multifamily property today, I’m getting a 12.5% discount. My second reason is simply this, 70% of all multifamily new construction in the United States has stopped.
This number was basically 80 or 90% back in 2008. And we saw what that did to rents because we just didn’t build multifamily for three or four years. And as a result of that, we had above trend rent growth for a decade, not for one year, not for two years, one full decade. Multifamily had more than twice the rent growth that it did historically. Why? Not enough supply. Well, we’re doing the same exact thing right now, 70%.
Neal Bawa (32:25.763)
of new multifamily construction has either stopped or is highly delayed. Now, does that affect rents today? Not at all, because there’s a huge amount of supply coming in. And that’s my third reason to be buying, because right now there’s supply coming in from the craziness two years ago. So there’s a huge supply, it’s pushing down rents. So I’m getting a bigger discount. So I’m not getting one discount, I’m getting two. But my first discount is cap rates, right? Cap rates are high because interest rates are high. And my second discount,
is rents are artificially low. Rent growth in the United States has been zero. How can rent growth be zero when inflation is 4%? If you look at the 50 year history of inflation and rent growth, rent growth is always higher than inflation. Right now it’s 4% lower than inflation. Why? The answer is straightforward. There’s a lot of supply. And that supply is coming in with concessions, one month concession, two month concession. That supply ends at the end of next year.
So then you have a hole in 2025 and an even bigger hole in 2026 before we start to see some normals in 2027. So I want to buy something when rents are artificially low and prices are artificially low. And both of those things are likely to correct in 2025 or 2026. That is the perfect time to buy an asset. So this has nothing to do with multifamily. It just has to do with timing.
Dave Wolcott (33:52.49)
Yeah, being a savvy investor, I love how you put that like multi tiered layer of a lens on that, right? To be able to see, hey, you know, these are these are ways that you can, you know, capitalize on the opportunity at three levels. And even if you’re wrong by one, and two out of three pan out, you’re still you know, you’re still way ahead. So this brings me to another, you know, point I like to ask you, Neil, because we have
Neal Bawa (34:09.687)
got others. Yep.
Dave Wolcott (34:19.714)
You know, again, a lot of listeners, as you know, investors out there, they might be newer, right, to investing in syndications, real estate, other types of syndications. And let’s face it, I mean, over 90% of Americans have the majority of their wealth tied up into government sponsored plans, or, you know, home equity and everything. So.
Talk to us a little bit, you know, and give us some data points from your side as to, you know, why investing in, you know, multifamily real estate, another syndication, your views on that as compared to, you know, typical stocks, bonds, mutual funds.
Neal Bawa (34:59.247)
It’s all about numbers. It’s all about math, right? I wouldn’t invest a single dime of my money and I’m invested in 26 syndications. I haven’t been doing much investing in the last two years because I didn’t believe, I believe the market was expensive, but I’ve been doing syndication investing for a decade, giving money to every syndicator that’s, you know, an expert in some market that I felt was interesting, but I didn’t have the time to go do stuff there myself. So number one, I believe in this because the math is good.
the average annualized return of syndications, then compared that to the average annualized return of real estate, and then compared to the average annualized return of the stock market, it’s not even a contest. First, real estate over any 10-year time, and the metric is called NCREIF, N-C-R-E-I-F, so just Google NCREIF versus stock market. And you’ll immediately see the gap.
between what the stock market produces over a five or 10 year timeframe. Usually you wanna look at 10 years. They’re always good, right? Cause you wanna have a couple of recessions in there. And then what NCREIF produces. And then what does syndication produce above NCREIF? Because NCREIF is basically just a bunch of really rich REITs or real estate investment trusts that buy properties and sit on them. They don’t improve these properties. They don’t go out and rehab them. They just sit on them and they make money. Nothing against REITs. They’re awesome. Please invest in them. But my point is,
Those people are not there to improve properties. They’re there to simply buy, and then as rents go up with inflation, and rents and inflation are very strongly correlated, they make money over time. And they’re smart about when they sell. They never sell in a recession. They never sell in a hurry. So they always end up making money. Good for them. But then you’ve got the syndicators above that, that are taking older properties that are 1980s product or 90s product. Nobody’s rehabbed them. The properties are…
There’s old carpeting, there’s laminate countertops, there’s white appliances that nobody’s bought for 20 years. We take that and we improve it. And we don’t spend a huge amount of money. We spend seven or eight or $9,000 to improve each unit. And so now we’re getting that same benefit that the REITs are getting, which is that as rents, inflation is there, rents go up, but we’re also creating additional value.
Neal Bawa (37:21.495)
And that additional value means that the average return over 1,000 or 100,000 projects is significantly higher than general real estate. And that’s the math. That’s the math that compels me to continue doing this. There’s one tier above that. And that tier is Mission 10K, where I am buying ultra cheap land. And I really mean ridiculously cheap land. And building town homes from scratch.
When I do my value add projects, and I love value add, so I’m not trashing it, I adore it, I usually increase the value of rents by $150 to $175 per apartment. When I’m going from raw dirt, I’m going straight from zero rent to $1,800. And there I’m producing 12 times the value.
Dave Wolcott (38:14.858)
Yeah, no points well taken. And you know, one that you didn’t mention, right, which started your journey was also the tax efficiency, right, you know, tax efficiency, and also the income generation, right, which is what we’re all looking for, regardless of where you are in your journey, right, people are looking for that, you know, passive income, having alternative streams of income. So appreciate those sentiments, Neil. And I also wanted to ask you
Um, I, you know, we’ve talked in the past, uh, around other sectors as well. And just, you know, what, what are your thoughts on, uh, energy, uh, in general in terms of, you know, a sector to invest in? What are your thoughts there?
Neal Bawa (38:55.851)
I’m also equally fascinated about energy. There hasn’t been a Bloomberg or Wall Street Journal or Economist article in the last five years that I haven’t read. I read a website called oilprice.com almost every weekend. Here’s my belief. The renewable energy market is far more disruptive than people understand. It is going to disrupt energy demand in the United States
2030s in a way that is extremely radical. And the oil companies know this. The oil majors understand that over a 10-year time frame, they’re going to be disrupted. So the amount of money that the oil majors and the oil miners are spending on new exploration is way down from five years, 10 years, and 20 years ago. But the world is still continuing to grow its oil needs.
Neal Bawa (39:55.663)
million barrels per day of oil equivalent. Equivalent includes like natural gas and other things, right, liquids like NGL. So today that number, just so you know, is 103 million. So with all that renewable energy coming in and China’s producing an extraordinary amount of solar, like just a ridiculous amount of solar, they’re now producing more solar in a quarter than we’re putting in a year. With all of that happening and accelerating and EVs and
rooftop solar, the world has managed to increase its oil consumption from 95 billion million barrels equivalent today to 103 million barrels. And the reason for that is simply this. The world has an ever-growing middle class. China and India now want to drive fancy cars, and so do African nations. So now we’ve gone from basically 15% of the world being American-like consumers to 30% of the world being American-like consumers. And so it’s
it’s actually, I’m thankful that it’s only increased by from 95 million barrels a day to 103 million barrels a day. So what we are seeing is renewable energy making an incredible impact and allowing us to continue with these lifestyles, but at the same time we need more oil. But the problem is, because there’s disruption going on, there’s less and less people funding major oil fines, especially in the 10 year, 20 year horizons. And oil has always been a 10 year, 20 year horizon. So…
My fundamental belief is this, I wouldn’t invest in oil in 2035, but I know that we’re gonna have shortages of oil in the next 10 years, because if we keep funding all of the money towards renewable energies, which I’m in support of by the way, we’re gonna have a shortage of oil. And so as an investor, I wanna take advantage of that. There are going to be sporadic shortages of oil that the equilibrium price of oil is $80 a barrel, and that’s the price that we’re seeing currently.
So if you look at the price, the European price versus, South Texas price, it’s about that number. And that’s fine. So we’re at equilibrium, the world at equilibrium. But here’s what happens. One refinery somewhere shuts down and all of a sudden we’re out of equilibrium, right? Oil is the most inflexible product known to mankind short of food. We need food every day. We can get by without oil for a few days.
Neal Bawa (42:16.419)
But 99% of them, if I told you, Dave, hey, it’s three miles to your favorite haircut place, why don’t you just drive 2 and 1 miles and then walk the remaining 1 1? No one will agree to do it as an American consumer, which means that somewhere in Iraq or Iran or India, there’s a consumer giving up on their oil because we didn’t want to walk that last 1 because there’s a shortage of oil. And so what we essentially do is basically whoever
The price of oil, when there’s a shortage of oil by 1% in the world market, 1%, just a 1% shortage, the price of oil goes up 25%. If there’s a shortage by 2%, the price of oil nearly doubles. It goes up to $150 a barrel. That’s how inflexible it is. And no one is sitting and calculating how much oil we’re gonna need in the next 10 years and how much exploration we’re doing. There is no central agency doing this. There’s no one coordinating.
The OPEC people hate the Americans because we’re producing shale oil, right? The Americans don’t share anything with the Russians because we hate them. And so there’s no central coordination of how much oil should be dug out. If there’s just a feeling that people have of how much oil there should be. How does this scenario and the inflexibility of oil lead to a flat price over the next 10 years? The statistical chances of that happening are close to zero. Great time to invest in oil, even though I believe in the next 15 years will solve all of our energy problems.
But right now I’m looking at a five year horizon saying, there is going to be shortages. How can there not to be? No one is paying attention to increasing use of oil. Everyone’s focused on renewable energy.
Dave Wolcott (43:53.31)
Yeah, really solid assessment, Neil, and I would definitely, you know, concur. I, and I think, you know, there’s so many important lessons for investors out there, right? And really trying to understand markets, the fundamentals, what’s really driving things, you know, cause you want to be investing, you know, where the puck is going and, and kind of looking at these key data points as Neil pointed out. So that’s, that’s kind of why we’re, we’re bullish on the energy sector. Uh, we’re bullish on real estate. Uh, so some really great points. Um,
Neil, it’s been such a pleasure today. One question I did want to ask you as well is if you could give the audience just one piece of advice about how they could accelerate their own wealth trajectories, what would it be?
Neal Bawa (44:36.475)
Stop talking about Warren Buffett’s famous comment, which is, you know, when others are fearful be greedy and when others are greedy be fearful. It’s probably the best known comment in all of investing. Actually start following it. Everyone that’s saying, I wish I could go back to 2009. I can tell you when I was buying a home a month, I was shitting in my pants because everyone around all I heard was horrible news about real estate. Horrible, horrible news.
The homes that I was buying for $80,000 cash, which used to be $250,000, would drop to $30,000. And I would be an idiot to be buying them at $80,000. There’s never a time when there’s opportunity and good vibes at the same time. Real investors invest in times of distress, and that’s how they make money. That’s all it is. So just stop saying this stuff in cocktail parties and actually start following it.
Anyone that doesn’t actually do what Warren Buffett is talking about is not an investor. You’re just a speculator that likes to call yourself an investor. Jump over to the investor side. You’ll make a lot more money and you’ll sleep a lot better.
Dave Wolcott (45:48.514)
Perfect. Yeah, that is so spot on. Really appreciate that. It’s been really so insightful having you on the show today, Neil, really appreciate, you know, all these pearls of wisdom that you provided for the audience. If people would like to connect with you or grow capitals and you know, learn more, what is the best place they can connect?
Neal Bawa (46:09.447)
Well, luckily, I’m the only Neil Bao on the web. So first way of connecting with me is simply Google, N-E-A-L-P-A-W-A. And pretty much all the good stuff and the bad stuff is about me. The second way, which is more structured, is to go to multifamilyu.com, multifamilyu, followed by u.com. We do 12 webinars a year, and we share all of our thoughts. We actually have a webinar coming up on oil and our thoughts on oil as an opportunity, even though we’ve never invested in oil. And we just did a webinar that…
2600 people find out for about the impact of artificial intelligence and how it’ll change the world how it’ll radically change the world and So about 20,000 people show up for these webinars. It’s basically our new way of giving information away So one webinar a month, so everyone’s welcome to join. There’s no subscription. There’s no upsell. There’s no educational fees you know come in join our community and During these webinars we spend 60 seconds talking about our projects. So if those look interesting you can jump in
Dave Wolcott (47:09.894)
Awesome. Thanks so much Neil and thanks to the listeners for tuning in this week.
Neal Bawa (47:16.111)
Thanks so much.
Dave Wolcott:
Hey guys, welcome to another episode on wealth strategy secrets. Today we’re joined by Mark Hutchinson. Mark is a seasoned executive with over four decades of expertise in the steel industry. His journey has honed him into a respected authority, excelling in steel fabrication, entrepreneurship, and alternative finance advisory. His advisory work has earned him the trust and respect of clients who value his insights. Mark’s dynamic entrepreneurial career shaped by triumphs and setbacks, while building and scaling several businesses, enriches his understanding of alternative wealth strategies. His diverse experiences position him as an invaluable source of insight and guidance. In the wake of the 2008 financial turbulence, Mark’s path led him to a personal revelation, the infinite banking concept. Since then, he has been committed to reshaping clients’ financial views, uncovering hidden truths, and Mark’s dedication to financial education is evident in his fervor and the referrals he garners from satisfied clients. Mark, welcome to the show.
Mark Hutchinson:
Thank you, Dave. Welcome. I’m glad to be here. Always fun to talk to you.
Dave Wolcott:
Yeah, no, Mark, I’ve really been looking forward to this conversation. It’s always great. When we connect, I learn from you all the time. And I think this is going to be a special episode for the audience. Because today’s episode is really, you know, taking that investor journey, right. And Mark has had a quite a prolific journey in terms of, you know, becoming more of a professional investor. uh, actually being an entrepreneur and creating businesses, um, around that. And I think, you know, his, uh, experiences in insight are going to be incredibly valuable for the audience. So, so why don’t we start Mark for folks, you know, who don’t know you, um, tell us how things started for you, you know, what, what was the, that beginning moment that kind of, you know, got you into this space?
Mark Hutchinson:
Sure. So I have an interesting background from the aspect that I was born in the US, but grew up in Africa and grew up on a farm and ranch. And so that gave me a unique perspective. And I think the perspective was that we were always working hard, everything revolved around a tremendous amount of hard work, dedication. And I think it, it It really planted the seed for me of being an entrepreneur and I suppose a little bit of a risk taker since farming and agriculture is very much a risk. So when I left Africa, my parents stayed behind and I came to the US and I really just sort of had a suitcase and a dream and wanted to see how it would all unfold as a very young man. took some odd jobs. I did some strange things. I was a commercial diver in the Bay area. I was then a feedlot cowboy, of all things. And then that job just didn’t pay enough to basically keep me from sleeping on a floor. So I found a job as a welder fabricator. And that’s kind of where things changed for me, because I figured that I could weld. certainly from the farm and so I took that job and then one thing led to another over a period of about two years I Grew kept growing inside of that company did a lot of interesting things a lot of work in Pebble Beach 17 mile drive working for celebrities and I thought Dave I can do this myself. So so I broke out on my own started a company And that company grew over a period of 13 years into a sizable steel fabrication and erection company in California. But along the way, having no formal education in business, there were some stumbling blocks and one of them came in a very interesting way. And I think shaped. also my career going forward from that point. And it was about 1990. And I was given a contract or was issued a contract from the state of California. And it was to seismically retrofit part of the US 101 central viaduct that went down into San Francisco. And it was the first contract of its kind. to repair the portion of the freeway that didn’t collapse in the 1989 Loma Prieta earthquake. So I knew that in order to do that job, I had to do something different. And I knew that my success was tailored to creating a piece of equipment that was required to do the work that we had to do. But the piece of equipment didn’t exist. So after I was awarded the contract, I leased a 40,000 foot building in addition to the steel fabrication plant that I had and started to create this piece of equipment. And about a month and a half into a six month project, which was the duration with a very substantial six figure liquidated damages per calendar day, I was kind of at a point where I was in real trouble. So I was either going to make it or I was going to fail right then, right there. of finalizing this design, couldn’t get it to work, kept making iterations of this design. Finally, we finally got the breakthrough that we needed and it worked. And so in the period of about four weeks, we had made up the month and a half behind in schedule and went up about five weeks ahead of schedule. So it was absolutely, it was just life changing at that point. So at that point, I knew that I was going to have success and stood to make millions of dollars on this contract. And about, gosh, it couldn’t have been a week after that. I got a phone call and they said, you’re not going to believe this. I think the state’s going to put this contract on hold. What do you mean they’re going to put it on hold? We could have an aftershock and the freeway could collapse. So we have to repair this freeway. And wouldn’t you know it? A couple days later, it came through written notification that the contract had been terminated for convenience. Now to the best of my knowledge and my lawyer’s knowledge, that was the first time the state of California had ever used that clause. Convenience clauses exist in all contracts, especially in the construction world. But… You don’t normally see them executed when it comes to a governmental agency. It’s just not, you don’t terminate for convenience.
Dave Wolcott:
Sure,
Mark Hutchinson:
You have a plan,
Dave Wolcott:
sure.
Mark Hutchinson:
you know, when you start, when you, when you issue contracts. So, um, about, uh, about a year and a hit took about a year and a half for me to finally settle with the state of getting paid, um, and, and in that period, I just couldn’t survive anymore. And I wound up losing the business of 13 years. And, and that was really an eye opening, uh, experience for me, because I realized that moment that things could change in an instant, things that are completely out of your control. And I was basically just drug down that path for that year and a half of trying to get paid and slowly releasing little bits and dribs and drabs because they’re in control. And so that was really, really a game changer for me professionally.
Dave Wolcott:
Yeah, yeah, sure. It’s interesting how these defining moments in our career, whether, you know, you’re, you have a particular career in W2, uh, you, or you’re an entrepreneur, how these things at the time seem so monumental and they are, uh, but we can actually grow the most, you know, from these types of experiences. Um, so next question for you, Mark was. you know, how did, you know, how did this defining moment really shape, you know, your view? Is that what propelled you to get into investing and, you know, what was your next course of action?
Mark Hutchinson:
Yeah, that’s a great questions. Uh, it, I think what happened at that point for me was that I had always been focused on building the business and, and I know professionally in, in my, my work now with client, you know, with my clients, I have a lot of business owners as clients and they’re very, very focused on investing in themselves. Right? So everything is about investing in yourself and your business and building that business. It’s not. You know, it’s not in the markets and playing and trying to do all these, you know, outside things. It’s, it’s focused on yourself because you’re, you’re betting on yourself, you believe in yourself. And, and that’s where I was. So I was just a hundred percent building my business. When, when the, when the loss of the business occurred, two things happened. One, I stumbled with my, you know, my personal confidence and I, and I thought. Who’s going to hire me? No one would want me. I mean, I’ve been self-employed basically my adult life at that point. And I don’t know how to work for anyone. I don’t, I wouldn’t know how to act. I just want to run everything. So what I then figured out was that was actually a quality that a lot of people who own businesses were looking for. And that began my career as a business builder and working inside of the industry that I had known and loved and was passionate about and building those businesses. But along with that came this component of investing where, well, what do I do now? Right? I mean, now I’m grinding all day long building businesses, but typically everything goes into it. At that time, that was really where 401ks were starting. you know, to become the mode, you know, prior to that, businesses gave you a pension and, and those types of things. So I started getting into a pretty heavy dose of market, uh, equity exposure. So that’s really where I stayed focused for quite a long time. And I, it served me, it served me well, but, but I think that, you know, knowing what I know today, that’s not what I would do. ever again, right? Because we become smarter the more we know, obviously. So I think what really was an eye-opener for me were the market events that had transpired throughout my career to that point, you know, sort of leading up to 2008. And when you look at those, it’s, you know, starts with Black Monday, I think, then we had the Gulf War, we had the dot-com bubble in 2000. We had September 11th, we had the global currency crisis, the European currency, European crisis. When you look at all of those that have transpired, it just seemed to me like it was three steps forward, one and a half steps back, or even two steps back, depending on what the timing was. So I knew that as I was working through my career and having more and more exposure to these events that I had to find something else. So that was, I think, my big revelation for me.
Dave Wolcott:
Interesting. Yeah. That was your last straw moment. And
Mark Hutchinson:
now.
Dave Wolcott:
I can definitely, that resonates with me and probably a lot of other folks. I mean, having gone through, yeah, I mean, back to 2000.com. I mean, you name it, all of these things. And I think what’s at the heart of that, you know, a lot of people don’t really talk about as much, but it’s actually having control, you know, and trying to have a sense of control over your financial freedom. know, your destiny and things like that. And, and I felt like, you know, it was just like going to the casino being completely exposed into the equity markets. And, you know, typically when something happens wrong, like, you know, you, you want to adjust, you want to make something happen, right? But you, you know, you just have, you know, no control there. So Yeah, so that’s pretty interesting that you were able to make that shift. And then, so have you refined an actual wealth strategy that you’re leveraging today?
Mark Hutchinson:
Yes, I would also add though, Dave, to that, that I figured out during that period that there’s this strange thing that happens in traditional Wall Street and brokers and things like this, that they like to talk about average returns, right? So that’s really a big thing that they will… always talk about as well, the S&P average over 10 year, 20 year, 30 year period, or the Dow Jones average. And they talk about all of these. And so if you took the example of a 10% return per year for 10 years, so we sum up the total of the returns. And so 10 times 10 is 100. And then we divide by the number of periods that we’re talking about, divide by 10. That is an average 10% return. I think we can all agree on that, right? But if you apply that a different way and you say, okay, well, let me take minus 10% for the first period and then plus 30 and then minus 10 and plus 30. And we go for a 10-year period. Well, when I add all those numbers up, it’s still 100 and I divide by the number of periods of 10, we’re at 10%. The problem with that whole logic is that when you take million dollar account and you compounded at 10% per year for 10 years, that’s like 2.59 million dollars. If you do the second iteration, which I just said of the minus 10 plus 30, that 10% average return is actually about an 8.17% return. And why? Because of volatility. And volatility, any volatility. negatively impacts the return. So while they would take that sum and tell you had a 10% rate of return, that 10-year period, the difference between those $2 million accounts is $400,000. So it’s these half-truths or misnomers everywhere in the financial industry that I found very, very frustrating. So that’s what… sort of led me on my path to get back to your question
Dave Wolcott:
Yeah,
Mark Hutchinson:
of,
Dave Wolcott:
totally.
Mark Hutchinson:
you know, what
Dave Wolcott:
Totally agree
Mark Hutchinson:
it’s
Dave Wolcott:
there,
Mark Hutchinson:
crazy.
Dave Wolcott:
market. Yeah, it
Mark Hutchinson:
Yeah.
Dave Wolcott:
is. And that’s actually why stock market losses are actually one of the top three biggest wealth destroyers. But no one has it. No one puts on that lens and looks at it that way. But just look, you’re up 15%. You’re up 18%. Everyone was thinking things were going good. but then you just lost 20% last year, right? And that’s on that total compounded value, as you were saying. So to get back up to where you were, you know, is sizably different, right? And the other thing I’ll even add, to add insult to injury, that I think, you know, I think advisors are not really, you know, helping their clients out by really talking about taxes, fees and inflation. So you just pointed out what is the actual rate of return, which is closer to 8%. But when you factor out, you’ve been paying at least a one to 2% fee over that time. So now you’re at, okay, let’s call it six and a half percent, right? And taxes, you know, everyone says defer taxes, defer taxes. But the only thing that I’m probably certain of in the future is that taxes are likely going to go up. And we don’t control that. The government controls that. So why put yourself in that risk? So once you take the taxes out, you’re probably looking at like a 4% to 5% return, right? Which is why we really kind of have this, I think, a real crisis in this country.
Mark Hutchinson:
I would agree with that. Yes, I really would. I see it all the time. I talk to people about these issues and it seems that people are really not aware. And I think people are so caught in just life, Dave. Just the W-2 job, everything that’s going on, kids are so active now in all of the sports. So parents are running in every direction. They just don’t have time to really… learn these things and then certainly, you know, apply great concepts to their life, their financial life.
Dave Wolcott:
Yeah, such a great point, Mark. It’s exactly true. There’s just so many things going on. And look, we all learned this, right? We learned this from our parents, from our peers, from our employers, every time you start a new job. Well, it’s mandatory. You have to sign up for the 401k program. And they’re giving you, and that’s the other thing, they kind of sucker you in by saying, hey, we’re gonna give you a free match of whatever points it is. but you should still do the math and look at the net income of what you’re going to get, even though they’re saying it’s, Oh, it’s, well, it’s free money. I’m getting, you know, uh, free points here, right?
Mark Hutchinson:
Absolutely, absolutely. And then you’ll be taxed at a rate that you have no idea what it’s going to be at some point in the future, however old you are, right?
Dave Wolcott:
Yeah,
Mark Hutchinson:
And then
Dave Wolcott:
exactly.
Mark Hutchinson:
the, and then the RMDs kick in and whether you want that money or not, it’s time to pay up.
Dave Wolcott:
Right, right.
Mark Hutchinson:
Yeah.
Dave Wolcott:
So Mark, tell us a little bit about the infinite, how did you come across infinite banking concept in 2008? What was your revelation there and what problem did it really solve for you?
Mark Hutchinson:
So, you know, 08 was really the, you know, as you had said, the final straw for me. I had enough at this point. So I set out on a journey to see what other way I could interact with the financial system. There had to be something out there for me. And I stumbled into this letter called, it was an advisory letter called the Palm Beach Letter. And they were talking about this thing called income. for life, the IFL. And the way that they did it was they just drip, it came out in dribs and drabs. So it took me a good probably six or seven weeks to get enough information fed to me that I could then go out on my own and go, what are these guys doing? I can’t wait for six months for you to tell me what this really is. So I got enough information and then I discovered what. what we call, you know, the infinite banking concept, IBC. But when I, when I figured out what this was, uh, Oh man, I, I went down the rabbit hole day. It was, it was bad. So I,
Dave Wolcott:
Hehehe
Mark Hutchinson:
I tried, uh, to figure out everything I could about this. And I wanted to be a part of it. Uh, I had to get my capital deployed because there were just too many things that were resonating with me. Too many things that in my past years of working and investing You know is like pouring salt on wounds. So What struck me though about this was that I Have dealt with a lot of insurance professionals in my life in my own business other businesses You know, I’ve always been insured as an executive and all the companies that I’ve been involved in And not one person had ever said anything to me about this, which means they probably didn’t know about it. And literally every single one of them never considered any type of a permanent insurance. It was always term, rent it. And that really stuck with me. I was just wondering what was really going on. Well, later on, I figured out what the issue was. But boy, at that time, it… It was a little bit of anger involved. I’m not gonna lie. It just didn’t.
Dave Wolcott:
Yeah. So what do you think the issue is?
Mark Hutchinson:
I think the issue is training. So the insurance companies train agents to sell products in a very specific way. And they just do not expose them to something like IBC. Their most profitable products are not permanent. Their most profitable products are things that expire and go away without an event occurring.
Dave Wolcott:
like
Mark Hutchinson:
So.
Dave Wolcott:
term insurance, yeah.
Mark Hutchinson:
like term insurance, tremendously profitable for the insurance companies. Remember that every time you sell a permanent product, as far as they’re concerned, there’s going to be a payout. Just the way the product is structured.
Dave Wolcott:
Yeah, good point.
Mark Hutchinson:
Now, you know, you have situations where there isn’t necessarily a payout. So that’s when someone surrenders a policy, but there, you know, that’s, there’s not a lot of that going on. People surrender policies. No one that I would work with would ever surrender a policy. Because we’re, you know, we’re trying to educate people on why that’s just such a horrible idea. But it happens. It does happen.
Dave Wolcott:
Yeah. So let’s just go rewind. Can we just rewind for a sec? Because I
Mark Hutchinson:
Yeah.
Dave Wolcott:
want to go back to those earlier comments that you made and help the audience understand, you know, when you were first coming across this concept, what were the things that really struck you that’s that said, Wow, you know, this, this is resonating, you know, this really makes sense for me.
Mark Hutchinson:
So when I discovered that I could actually put money into an instrument, let’s just call it a financial instrument, that would grow every single day that I’m alive, irrespective of what the market does. Not tied to markets, not tied to anything that I knew that I was not going to go backwards. I had done too much of that in the past. And so… I thought to myself, if I could know every day that I’m going to be wealthier, right? Wealthier than I was the day before, that really means something to me. So that really struck a chord with me. And then as I started to understand like how the actual product could be utilized and all of the, what I call living benefits of these products and properly structured, I was just blown away. that you could, you know, take a policy loan and then go invest that somewhere else at a higher rate of return. So in essence, your money is kind of working in two places at the same time. Then I started to build models that would illustrate some of this stuff. Well, what if I, what if I took $10,000 and I bought a dividend stock and I did that every single year and I just took one, you know, so I started to figure out. what that would look like. And then, well, what if I took my 401k plan and, you know, and started to take penalties in IRAs and fund this? And so I just started to explore and build examples, Dave. And the more that I did that, I was just like, okay, I get it. I get it now. I understand
Dave Wolcott:
Yeah.
Mark Hutchinson:
why people are doing this.
Dave Wolcott:
Yeah, no, that’s such a great explanation. You know, when I came across it, for the first time, right, I was seeing investors who are using it, you know, the use case was basically to, to amplify your returns by, you know, as you talked about, you know, using the same dollar twice in two different places. But you know, I can really relate to your story early on, you know, with your business as, and as an entrepreneur, and even in, in my days of, you know, career building, you know, when I transitioned in between jobs, um, you know, typical financial advice is to just, okay, do you have, you know, three, six months of savings and it’s in savings, uh, you know, and that’s your, that’s kind of your, you know, sleep at night capital, right. But. you know, now, you know, people talk about, you know, is there like an impending recession or all of these unknowns or all of this uncertainty, let’s say in the market? Well, the ultra wealthy are literally have three years of personal, you know, operating capital that they can go through any economic downturn before they have to actually sell their assets, right? So to me, and I don’t think Mark, people really talk enough about having a liquidity strategy to your portfolio, right? Because you can be so much more efficient with the existing capital you have. So let’s take that six months or 12 months, whatever that amount is, and then if it starts exactly like you defined it so well, which is my wealth is growing every day in this vehicle. And if I need that capital, It’s there for me to borrow against. But in the meantime, you know, what a great like sense of security, you know, to just know that, Hey, if something unpredictable happens, which it does happen and that’s life,
Mark Hutchinson:
Mm-hmm.
Dave Wolcott:
um, you
Mark Hutchinson:
Right.
Dave Wolcott:
know, now you have kind of a resource to do that. And then you start adding on like some of these other additional benefits, like, you know, it’s asset protected, right? There’s asset protection around it. it’s actually a legacy strategy because you know, you can give it to your heirs, right? Without paying taxes. So I, I know the audience, I get fired up about this stuff because it gets, it’s kind of geeky here. I mean, we get really
Mark Hutchinson:
Mm-hmm.
Dave Wolcott:
excited, but when you can take, you know, $1 and you can do multiple things with it, I mean, it’s super powerful, right?
Mark Hutchinson:
It absolutely is, Dave. And, you know, when I talk to clients who are in these products and I’m working with them and, you know, they’ll have a large real estate portfolio that they’re investing in and using policy loans to fund the real estate, you know, and I hear comments like, I can sleep at night, Mark. I can sleep at night knowing that if something, heaven forbid, happens to me. all my real estate’s paid for. It’s all paid for. We can’t do that at the bank. So you save up the money, you put it in your bank account, then you drain your bank account, right? And then you go buy the real estate and then something happens. Well, maybe if you had some term insurance, you know, that might help. But, um, think about it from that respect, that every investment that you might make, where you take a policy loan, that, that you know that that your spouse or partner is taking care of, your family’s taking care of if something were to happen to you. That’s powerful stuff, you know? And I just don’t think that people really understand. Like when they really dig into it and start pulling back the layers of the onion, there’s so much there. And I understand why a lot of advisors don’t want people to get into these types of products. There’s a lot of bad rap about them.
Dave Wolcott:
Yeah.
Mark Hutchinson:
And
Dave Wolcott:
And
Mark Hutchinson:
I understand.
Dave Wolcott:
why, I was going to ask that way. Why, why do you think that is from your perspective?
Mark Hutchinson:
So I think it’s all about assets under management.
Dave Wolcott:
Mm-hmm.
Mark Hutchinson:
You know, and look, I realize there’s a lot of advisors who are fee-based. That seems to be more and more the deal out there. But regardless, they’ll place products, but they really want you in the markets. That’s where they want you. I mean, it’s clear. It’s absolutely clear that they want you in the markets because that’s where all the action is for them.
Dave Wolcott:
Yeah.
Mark Hutchinson:
And so,
Dave Wolcott:
Yeah, it’s.
Mark Hutchinson:
yeah, I think that’s honestly the primary thing. I think honestly though, Dave, a part of it is a lack of understanding as well that hangs in there. And, you know, there are commission structures with life insurance and at the end of the day, everybody has to be paid for their time and their expertise. So it’s no different than advisors, no different than going to a lawyer or to a mechanic. You’re going to pay. for their expertise and their ability. And so it’s the same in life insurance and it gets a bad rap. And what I find very interesting about fees is, if you were to take, just pick a number, right? A hundred thousand or let’s say a hundred thousand dollars worth of insurance premium that gets paid into a policy over 10 years, let’s call it, and take the exact same money and put it with an advisor. I guarantee you that after 30 years of you having your insurance policy and having your advisor that your fees with the advisor are probably 10 or 15 times the fees that you will have paid to your insurance agent.
Dave Wolcott:
Yeah.
Mark Hutchinson:
It’s just the nature of the beast.
Dave Wolcott:
Yep.
Mark Hutchinson:
They’re front loaded on the insurance side and they are not on the other. The other is just, let me manage it for the rest of your life and I will have, as long as I have enough of it, I will have a fantastic life.
Dave Wolcott:
Yeah. No, it’s
Mark Hutchinson:
Yeah.
Dave Wolcott:
interesting. And then if you bring that back full circle to what we were talking about earlier with that 10% return, if you actually look at it on paper with the compounding, you know, it’s, you know, here, here’s the question, right? Is, is a 6% return in the insurance policy better than the 10% return that Wall Street is advocating? Right. And the, you know, the life insurance, right. It does compound, uh, tax free, but you know, why don’t you, why don’t you unpack that? Right. What that, what that looks like.
Mark Hutchinson:
Sure. So on the life insurance side, you know, your money technically, we’re going to say technically, it builds in a tax deferred environment because if you were to surrender your policy at some point in the future, you would owe income tax on the difference between your premiums paid and your cash value. So if you paid a hundred thousand in premium and you have a hundred fifty thousand in cash value. you will receive a 1099 from the insurance company upon surrender. They will issue that and they notify the IRS that you have a $50,000 gain. So it’s not tax free, right? You were, you earned it tax deferred. Now we don’t surrender policy. So, you know, in people who are in the IBC world, you, me, all of our, you know, everybody wants to keep that policy forever. And then what we can do is we can take policy loans in the future and we can structure those policy loans for a steady stream of income and we can do that for 10, 15, 20, 30 years, whatever, whatever period you want to structure payments for. You can take that money out of your policy and never repay it. And the reason that happens and people get very confused by this. Like. Well, how can I take a loan and not repay it? The reason is, is because the insurance company is in the long game. Unlike us, they’re in the long game. So they know that eventually you are going to meet your maker. And when you do, that’s when they’re going to get their loan repaid with all the interest that’s due to them. Because when upon your death, you receive the death benefit minus any outstanding loans or accrued interest owed to the insurance company. So they always get paid and being in a long game, they don’t mind waiting. So, uh, I think a lot of clients find that, uh, strange, but it’s that mechanism, Dave, that gives us the complete use and control of our money to where we are in control of the repayment structure of our debt. So if you were going to go and invest in oil and gas, let’s say, and you needed $100,000 investment, you could take a policy loan. And if you need to wait for three years for that investment to repay you, you can just sit back for three years with $100,000 open loan and nothing negative is going to happen to you. So you do not have to repay that. You are in complete control. of your loan repayment system. We want you to be an honest banker, right, if we’re going to use the word banking. We want you to be honest because it’s in your best interest to always repay those loans because we need them in the future, right, if we’re going to have a retirement strategy where we’re going to pull some capital, take loans, and give ourselves a stream of income in retirement. So we want to use our policies. while, you know, before we get to retirement and then when we get to retirement, we’re going to change the way that we use our, our policies. And I’m speaking in general terms, obviously.
Dave Wolcott:
Yeah, for sure. No, it’s such a great example. Um, and then I’ll just add another point that also I think is such a misnomer, uh, from, you know, traditional planning, uh, which is, you know, they use this Monte Carlo simulation and they basically age you out. So, you know, whatever you’re, you’re a male age 55 and they think, you know, based on your genetics, you are going to pass at 91. So if you’ve taken that route and you’ve gone with this accumulation theory approach, to try to build up enough of a nest egg, and then you start dwindling that down every year, you run the risk of outliving your money. With the advancements in technology and where we’re heading these days, I think it’s completely possible to live past 100. Well- Would you want to be scrambling for how am I going to have income at that point in your life when you’re say you’re 96, but
Mark Hutchinson:
Right.
Dave Wolcott:
the life insurance, it continues, correct?
Mark Hutchinson:
Correct, correct. It will continue on basically forever, however
Dave Wolcott:
Yeah.
Mark Hutchinson:
long you live. Yep.
Dave Wolcott:
So it continues to compound and you continue to
Mark Hutchinson:
Yes.
Dave Wolcott:
draw the income off of it, which is that’s what everyone’s looking for anyway, right? However you get there, it’s income, whether it’s passive income or you’re selling your equities to get income or you’re getting income from this. But I mean, this is such a more strategic way to do it. And after I’ve really spent so many years like uncovering the strategies of you know, family offices and ultra high net worth. This is a complete cornerstone to their strategy and what they’re using. Right.
Mark Hutchinson:
It is. And you know, with so many people have brokerage assets, and the reason obviously is the 401k, right? Or those type of qualified plan, I’ll just put it that way, qualified money. But what people I think fail to realize, until they get there, Dave, they don’t realize the issues you could have with sequence of return. and the risk associated with sequence of returns. So you have this qualified money, you’ve got a million, two million dollars worth of qualified money, you now have to lean on it because it’s your only source of income, and you start to lean on it, and the market goes down 20%. Well, now what? You know, you’re now in a position where you’re going to be drawing off of an account. that is losing value. And so you’re taking a double hit. And you might be in a position where you have no choice or, heaven forbid, you’re in RMDs and forced to take out your RMD. But let’s say you’re not yet at RMDs. You’re in that position where you need to protect that asset. And I’m telling you, there’s no better asset that you could have than the cash value of your life insurance. Because I can show you a strategy where if you’re drawing on your qualified money and we get a negative year of returns in the market, you would take, let’s say you’re taking 45,000 a year out of your brokerage account. You would not take the 45,000 for the year of the negative return. So if it looks like this is a terrible year and the markets are bad, you do not take the return this year or next year. Instead, you go to your policy, you take $45,000 this year, you take $45,000 next year, and then in the third year, you then take out the $90,000 to repay your policy loans and the $45,000 that you take for yourself. You can take all of that out of there and I can model it up with actual market returns where if you don’t do that, your policy collapses. And if you do use the sequence of return by utilizing, you know, pools of capital somewhere else, if you use that strategy, the account remains viable. It’s an absolute game changer, but people don’t even know this until they get to that point and then it’s too late. Right. You need to understand these strategies early. Take the defensive measures, put these tools in place to protect your retirement.
Dave Wolcott:
Yeah, such a great strategy, Mark. So many great insights. As I said, I’m always learning from you and love these kind of, you know, discussions as we dive in. I know the audience is going to enjoy this one. So can you tell us, Mark, what would be if you could give just one piece of advice to listeners about how they could accelerate their wealth journey? What would it be?
Mark Hutchinson:
So I think that what I’ve experienced both in business and with my client base and people that I’ve worked with is to take action. I have seen this as the number one issue over and over and over, Dave. People do not take action. They’ll analyze and analyze and analyze. And I think people are looking for… Um, having a greater understanding, you know, having complete knowledge of a subject or whatever it is. And I just think there’s so many problems with that. I think that, you know, all of us are really good at trusting our gut. You know, you, you just get that gut, that gut instinct. So what you need to do is gather enough information that you can make an intelligent decision, take action, trusting your gut, and then you course correct. So if. If it wasn’t quite what you thought, or maybe it isn’t playing out the way that you thought it would play out, then you take the time to course correct from there, but if you don’t take action, there’s, there’s no shot, right? I think that that’s the number one thing that I see with people that they could change that would, would really change their trajectory.
Dave Wolcott:
Yeah, great advice, Mark. Really appreciate that. I also wanted to ask you, Mark, I’ve had the pleasure of getting to know you and you’ve been part of the Pantheon Mastermind and Virtual Family Office. And just wanted to get your thoughts in terms of your experience, how that’s been so far for you.
Mark Hutchinson:
I have absolutely enjoyed it. It has exceeded my expectations. I’ve enjoyed, I just think you’re an incredible curator. The things that you bring to the table are really interesting. You’ve always got good salient points that are impactful, meaningful. I’ve always known about… you know, goal setting and things like this, you know, just being in business. I’ve had so much business training as well. Um, but, but I think your approach to it was very interesting. I love your, uh, the, you know, hundred list, what you want to be, right. Good. You want to have who you,
Dave Wolcott:
Be do
Mark Hutchinson:
right.
Dave Wolcott:
and have, yeah.
Mark Hutchinson:
Be do and have, yeah, the be do and
Dave Wolcott:
Yeah,
Mark Hutchinson:
have, uh,
Dave Wolcott:
yeah.
Mark Hutchinson:
wow. What you learn so much by doing these things and, uh, You know, I just, I wouldn’t know these things without having come across this. And I cried, I find it incredibly valuable and I’m very grateful, actually very grateful that, that our paths have crossed. We’ve come to know each other and, uh, that we’ve come into each other’s lives. So.
Dave Wolcott:
Yeah, really appreciate that Mark. And, and I think, you know, it kind of ties for me, this kind of ties a little bit to what you were saying is, you know, people struggle with actually taking action. And, and I think part of that reason is, is because, you know, look, as humans, we follow the pack and 95% of the pack is putting their, you know, capital into 401ks and IRAs, right? That’s what they’re doing. So when you talk about a new concept, I think it’s scary for people. They’re like, wow, I gotta do something completely against the grain. And so this was one of the reasons why I really wanted to create this mastermind in family office is to say that you’re not alone, right? We have shared peers who are going through similar experiences where everyone says, that’s an excellent idea, right? And look. you know, look at the, you know, experiences Mark has just shared, you know, from his journey. And, and then that becomes inspirational to the whole group, as well as plugging into these advisors. I mean, I just can’t talk enough about like some of the advisors that we’ve had that I’ve spent 20 years pounding my head whether you need an attorney. for something such as asset protection, you need a CPA. I’ve fired so many CPA firms like over the years. Nobody really gets all this stuff. But when you can kind of bring it all together, you know, in one room, right, with like-minded people, it’s just really amazing. So appreciate those thoughts, Mark. I really appreciate your time
Mark Hutchinson:
Yeah
Dave Wolcott:
coming on to the show today. And if folks would like to, you know, learn more about you, connect, to learn more about the insurance, what’s the best place?
Mark Hutchinson:
places to reach out to me via email. My email is livingbenefits at mail, m-a-i-l dot com. That’s the best way.
Dave Wolcott:
Awesome. Well, thanks again, Mark. Really appreciate it. Uh, and thanks to the listeners out there, uh, spending your most valuable resource with us, your time, uh, really appreciate it and we’ll see you next week.
Mark Hutchinson:
Thank you, Dave.
Dave Wolcott:
How’s it going everyone? Welcome to today’s show on wealth strategy secrets. Today we’re joined by Corey Peterson. As the CEO and founder of Kahuna Investments, Corey has acquired over 225 million in real estate nationwide and raised over 95 million in private equity. He’s the bestselling author of Copy Your Way to Success, Standing on the Shoulders of Giants, and hosts the Multifamily Legacy Podcast. His company’s mission is to partner with passive investors to create award-winning apartment communities. Families are proud to call home. Corey, welcome to the show.
Corey Peterson:
Yeah, thanks a lot, Dave. Thanks for having me.
Dave Wolcott:
Yeah, no, looking forward to the discussion. I think the audience is definitely going to enjoy this. You have such an interesting background and journey, to get where you are today. So why don’t we start there and share your background with the audience.
Corey Peterson:
Yeah, I love to man. So I started off, you know, I was a used car salesman and the kind you’d picture in your mind, that was probably me. Until my wife said I couldn’t do it anymore. She’s like, she couldn’t marry a used car salesman.
Dave Wolcott:
And
Corey Peterson:
But really,
Dave Wolcott:
what age was this? I mean,
Corey Peterson:
this
Dave Wolcott:
okay,
Corey Peterson:
is, I was probably about 25,
Dave Wolcott:
okay.
Corey Peterson:
27, right?
Dave Wolcott:
Yep.
Corey Peterson:
And something magical, it was like 23 years ago, I’ve been married for 21. So two years before I got married, That’s when my life changed forever. My mom was married to a man named Bruce and I call him Bruce Wayne. He wasn’t Batman, but he did have a lot of money. And so we go to Hawaii to stay with him and he’s got a home right on the beach. And I’d never seen a guy that had time and money. Bruce had both. And so I had to ask, what do you do? And that’s when he said the magic words. He said that he was in real estate and that he owned apartments. Well, I left that island thinking he was the big kahuna. Like he had something that I’d always wanted. And so I had to go kind of figure out what I wanted to do. And I started reading a bunch of books on real estate. Finally, I read that little purple book called Rich Dad Poor Dad, and the light went on for me. And so from that moment on, I got obsessed with real estate. And I went full-fledged into it. I started off as a single-family fix and flip guy. And that lasted for about three deals, right? I did my first three deals and I ran out of money. I was like, oh my gosh. And at that point I didn’t really know how to get past it. So luckily, sorry about that. Luckily, my wife’s friend, she had a guy that was, he was a financial advisor. And so when I ran out of money, I was like, I gotta go back and get a job, because I’d quit my job, I thought it was so great on those first three flips. And then I realized I had no income and like I couldn’t survive any farther than that. And so I got a job as a financial advisor and up with, with Edward Jones. And that was around 2004. And what happened was it was a, it was a crazy time because, you know, I put my dream on hold of real estate, but the financial world took, you know, taught me everything about money, stocks, bonds, mutual funds, insurance, the whole gamut. And. I was like, that’s what I’m gonna do. I was all in all of a sudden, a change kind of moved my cheese a little bit. I still wanted to do real estate, but I thought if I could make enough money being a financial advisor, I could go buy more real estate. And that was great. 2005, six, seven, all of a sudden, 2008, 2009 happened, the great recession. And at that point in time, I had built a pretty solid book of clients and business. And I realized that I had… No control, Dave, right? I’m telling you, I had a client that was, him and his wife worked at Intel, they retired at 65, had about $4 million in retirement funds, right, from 401k between the both of them. I mean, they’d done a great job saving, and we, you know, this was like in 2006, we diversified this portfolio, and in 2008, they come to me and it’s worth half. And I mean, they don’t just come in, they come in. I mean, she’s sobbing, the guy looks distressed, he doesn’t even know what to do. And they’re looking at me for advice. And here I was, I told them I was gonna watch over their money. But I realized as a financial advisor, Dave, I had no control. I had to say it’s the market. And here I was, I was a younger, I thought I was king hot, hot dingling, yet I really hadn’t, there’s nothing I could do. except say it’s the market. And then they’re like, well, we want to move our money. And then I had to charge them a fee, like adding injury to insult. And so when that happened, my heart just left that business. I realized there is no control on the roller coaster of being a financial advisor. And it is truly indeed a roller coaster. It goes up and down for no reason. And it’s emotionally stressing, I think, on my investor pool. Probably a lot of people are listening to, they know what they can understand that ride, it’s scary. And so I actually got fired from that job. When your heart leaves the business, so does your cells. And so that was the best thing that ever happened because it forced me to go full time in real estate. And all I did was take what I learned in raising capital for stocks, bonds, and mutual funds, and I applied it and did, I started doing single family fix and flips, ultimately to start buying apartments. I realized that… I could not scale single family homes, but I could scale multifamily investments. And so the goal was then to partner capital and put it in the right kind of cash flowing deals that made sense, that could give our investors kind of better returns that they were getting in the stock market. And we’ve done that very successfully, but here we’ve come into another storm. And that’s the one thing about real estate is always going up and down and kind of crazy, Dave. What I realized in real estate is we have levers. There’s lots of things you can do to manipulate your property, to make it more profitable. I think for your audience, if you’re looking at syndicators like me, these are the things you’re looking for, some of the clues you’re looking for is how have they performed in down times? Because anybody can look great in a good period of time, Dave. It’s when the storm comes, what are you gonna see? And when that tide comes out, some people are naked. And so you wanna make sure that you’re understanding what that operator can do. And really it’s the things you’ll have to navigate. So we’ve just come through COVID. Now COVID was a blessing for most of us in the multifamily sector. But for Quarry, I have a lot of student housing, right? I rent to colleges or to the kids that go to colleges by the bed. So COVID for me was… horrible. It was a very hard time. We went with properties that were 100% three years in a row and all of a sudden went to 45% Dave and 45% occupancy is a death wish. It really is. And so we immediately that school year for when it was COVID because no one showed up to go to school. They’re all doing it remotely or at home. They’re not staying at my, you know, at my property now. And so we had to immediately get slim, right? We you know, we got a skeleton staff. So we started pulling levers. And I’m very thankful to say that we didn’t lose any of those assets and it could have been really bad, but we just, we consolidated. And this year, something extra that we’ve done is we’ve vertically integrated. In other words, we’ve taken over property management. And so property management, it’s a little bit different. Like, why does that matter? Why should you be… me pay attention, is it good or it’s bad? Just understand that most syndicators in this space, like me, they’re usually using third party management companies, and I’ve done it for the 15 years that I’ve been doing real estate, that’s what I’ve done. It’s only to this point now that I’ve, and I said I would never self manage or create this thing, but I realized that what became more important as I’ve gone on this journey, and I’ve kind of grown my portfolio, and what I realized is like, man, control. is more important now than ever. Understand, and really it’s not about, it’s about your people. People make or break your business, Dave, right? It’s your staff at the property level, it’s your ground troops that are on the pavement. Those are the ones that will make or break your company. And when you are using a third party management company, you do not have access or really control on the people aspect. And so we just knew that we had to get that part of it under control and then influenced them with our culture, with our code of ethics, the way we want to do business. And then all of a sudden, and the magic thing about that, and as we move through it, Dave is that we started seeing all our costs. I mean, almost across the line start to go down. Our general GNA, admin costs started going down. Our payroll started to go down. because we weren’t really wanting overtime. And so we said, hey, one of our policies is we can’t, we don’t want overtime. And all of a sudden things started getting done in the allotted time. Well, because we mandated, we kind of created stuff like that. And so those little simple things produce NOI, right? You save money, you’re gonna increase your NOI. And in a time like right now where we’ve had interest rates double, 100% increase, even though some of us, we have cap rates, That’s an expense that none of us really perform it. And so again, you gotta have, this is about being lean and mean on your current assets. I think for a lot of people that are invested in guys like me in the last three to four or five years, it was great. And this last two years, it’s been very different. It’s been very difficult because you have to get lean. You have to get very price conscious integration. I call it Six Sigma, your supply chain, you want that thing dialed in, so you’re not got a bunch of stuff sitting on the shelves. You gotta be efficient. And efficiency is what’s gonna win the race right now.
Dave Wolcott:
Yeah, such a powerful lesson, Corey. And I think not enough people really talk about it, right? It’s that it’s just having control. And I think this alternative strategy is very new to a lot of people to be investing in real estate, to be investing in private equity, because most of us were frankly taught by the financial services industry that we’re going to outsource our wealth to someone who is smarter than you. And, you know, they’re going to manage it for you. Um, but what you get with that is, you know, you basically get average returns for the retail investor. So if you’re looking to outperform that, you know, part of the equation is really taking back control. So you have decisions in terms of how you’re, uh, placing capital, right? How are you allocating today? How are you managing your risk? uh, into your point when you’re starting to purchase tangible assets, you know, there’s so many knobs that you can push, right? It’s a, it’s a living business. And the operator, the other thing that’s, I think, very different than the stock market, right? Is you have mutual alignment with your investors. So as an operator, you’re not going to make money, you know, the investors aren’t going to make money. If you don’t make money, we’re like, we all make money together.
Corey Peterson:
Yeah.
Dave Wolcott:
Right? So So you’re incentivized to turn those knobs, look for new, you know, revenue ideas and new creativity, cutting costs, you know, doing all those things. So I think that point of control just really can’t be understated.
Corey Peterson:
Yeah, it really is. And I always say this too, like, when I think back to the investor base is like, who’s going to care more about your money? You know, is it you or is it somebody else? And I always say it’s you. And if you really once you understand that you’re like, okay, so then taking a little bit more control a little bit more active, you can still be a passive investor, but control what you’re putting your money to don’t just give it. I mean, you think about it, you get to a financial advisor. And what that financial advisor does is he has, you know, growth fund of America, you know, and he shows you this, uh, you know, 20 year track record history. And so you invest in it. And I always say like you invest in that fund and then how many people does it go to tell finally that there’s the one guy that says we’re buying blank shares of this company and who is that person and can you call them? You can’t. And so you’ve, again, you’ve settled for average returns. when the rich and wealthy people understand this, I think more than ever, is that they understand that if they control their money, they can make it work a lot faster and a lot better most of the time, right? So there’s still understanding your risk profile, I think is more important than ever, but I find that most investors, when they start taking a little bit more control of what they’re doing and understanding the kind of investments they’re putting, the alternative investments out there, They can do a lot better than what the average stock market return of 6% to 8% is.
Dave Wolcott:
Yeah, for sure. And the other thing that, you know, as I went through that journey myself, I mean, I just got so tired. I’d be at the gym in the morning, you know, and all you see is a sea of red because something happened in China, something happened politically, and you just kind of throw your hands up. You’re like, I, you know, I want to do something. I want to get involved, right? How can I, how can I do something? And it’s, you know, that feeling of helplessness, right? Just, just really sucks. But when you can get into, you know, investing in tangible assets and real estate, you know, I see it really as mitigating your risk really three dimensionally. Right. Because if you have a thousand bucks, let’s say you have a thousand bucks worth of Amazon, the only thing that you’re actually hoping for is that stock value can go up in price. Right. But when you have real estate, you’ve got tax efficiency, you’ve got passive income. And just like you pointed out, you’re driving value every day into that asset to increase your net operating income.
Corey Peterson:
Yeah, I always say Everybody expense rents to go up and we never disappoint them, right? You’re always gonna make a rental increase every year even as if it’s, you know, ten or fifteen dollars That’s typically the train and real estate is we’re all conditioned From the very young age that we pay our rents, right? We if you want a place to stay you got to pay rent and so and if you look at the economics, too This is what I love about the numbers because the numbers are the numbers and they don’t really lie if you look at the supply and demand for What we do in this real estate space and particularly multifamily space There is such a demand for housing for what we do because home affordability is Through the roof. It’s hard to get it’s hard for new home owners to actually buy a new house It’s almost priced out of the range. And so what are they going to do? What are their options? They’re going to look for places to stay, right? Apartments. And that trend is happening more and more than ever. And then there’s a good amount of the population that don’t even want a home ownership anymore. They want flexibility. So as you start seeing now, not every market’s the same. And this is where you got to understand the business of real estate. And this is why when I say, you know, from your, your tribe’s perspective is you’re going to look for either syndicators or you got to learn it yourself. So you either do the work and learn how to invest yourself or you learn enough about the business. And then you find operators like me that you can partner with and then come into their deals with that have spent, you know, the last 20 years. That’s all I’ve been doing is real estate. So I kind of have my PhD in it and, um, we help get everybody there a little bit faster, right? But you always have the option to do it on your own. But what I’ve found is. What most people want is they want some stability, they want the income, the tax depreciation. Like that’s not as great as it was a couple of years ago because of cost segregation and the way it’s played out, but it’s still pretty decent. And so more and more, it’s not about what you make, it’s about what you keep.
Dave Wolcott:
Yeah,
Corey Peterson:
And
Dave Wolcott:
for
Corey Peterson:
so
Dave Wolcott:
sure.
Corey Peterson:
just trying to be understanding the long game of real estate. For us, it’s been a great partnership to partner with passive investors. and create the opportunity for everybody to win. And that’s the thing is, and I think you said it Dave best is we all win together. And that’s really the beautiful part of what we do.
Dave Wolcott:
Yeah, that mutual alignment, I think is so key. Cause as you pointed out again, you know, if you compare that to, you know, Wall Street, um, you know, they’re still collecting fees, even if you’re losing. Right. So,
Corey Peterson:
Yeah.
Dave Wolcott:
um, you know, they’re, it’s, it’s really their agenda that they’re winning. Right. So any way, anytime you can really bypass Wall Street and invest in Main Street, uh, is a good thing. Right.
Corey Peterson:
Yeah. You think about how much money they spend, you know, why is there a financial advisor, you know, in every corner in every street? It seems like, you know, it’s the, and they lobby this like they’ve, they’ve conditioned a lot of people’s minds to say, no, like if I was, I already like when I have people that are, I know they’re in the stock market and that’s all they’ve done. And they’re going to go pitch the idea to their financial advisor. I said, here’s what he’s going to say. He’s going to say this is a bad idea. And I was like, That’s exactly what I was trained to say when I was a financial advisor. Why would you do that? That sounds really risky. Are they going to report, you know, this and this, and you’re going to do it with your IRA? Boy, what happens if they don’t do the reporting? You’re going to be, you’re going to lose your, um, qualified, uh, tax shelter there. And we would just scare the hell out of them because really every finance advisors, their job is to keep assets under management, right? That’s how big is your book. You keep money at your place. You don’t want everyone to leave. So you scare the crap out of you. You say, well, we would have, you know, we would offer it. Well, why don’t you just get this REIT, a real estate investor’s trust. It’s like real estate, even though it’s not, right? It’s paper asset. But that’s the conditioning. And honestly, this is the, I’m gonna give you guys an insider look of what they taught us. Those are the words. And so is that not a slick oiled salesman? you know, are they really working on your best behalf? Because if I’m telling you, when I, when I got together with a bunch of my guys, you know, when we were, when I was at F and A, we were not talking about our clients good. We’re talking about how much money we’re putting in our pockets.
Dave Wolcott:
Yeah.
Corey Peterson:
And so it is a, it’s a direct conflict of what we’re telling and what they’re saying. They’re saying one thing to the customer, but it’s all about Asset center management, 12 B1 fees, how big’s your book, and what kind of money are you making off your client base? And are you churning that enough, right? I mean, and that’s, even though they’re not supposed to, but they’re like, hey, you should be offering and moving money every, a certain percentage of everybody’s money so you can just create new fees. Scary, but that’s the truth.
Dave Wolcott:
Yeah, it really is. And I think that’s why, I mean, we have a significant problem in this country, you know, in terms of retirement, financial education, you know, and really the lack of, you know, assets that people are holding right now that, you know, is definitely a little bit scary. And I think, you know, the more you can take back control, as you pointed out, start to invest in some tangible assets, you know, things like real estate, right, that really can make a You know, you’re going to start to see some massive gains, right?
Corey Peterson:
Well, that’s why podcasts like yours, they have a more important than ever to, is to, is to alert people and let them know that there is alternatives. And they’re, you know, that to talk about the things that we’re talking about now, um, is more important now than ever because people need to be saved. They need to be retirement for most people is not good. And so how do we make it better? You got to take control in what you’re teaching. Dave is exactly what people need to listen to.
Dave Wolcott:
Yeah, 100%. So tell us a little bit about the markets that you’re in.
Corey Peterson:
So we primarily invest in the Midwest and the South. We find that in the Midwest and South, they’re more stable. They’re more affordable. And we only try to buy for cash flow, Dave. This is, I learned my lesson. So in 2000, I bought properties in 2005, six and seven, single family homes. I’ve sold most of them, but I owned them way through the. downturn of 2008-2009 and they survived. And why did they survive? Because they cash flowed. And so I’ve learned that, and I’ll never forget that lesson because I know a lot of people lost their shorts because they bought things that couldn’t cash flow. If you can cash flow now, you can normally cash flow tomorrow. The markets go up and down and they’re crazy, but cash flow is key. So we find that in the Midwest, They don’t go up too high, they don’t go down too low. That’s stable, we like those types of deals. And these are like Oklahoma, Iowa, Indiana. And then we also have a pretty healthy portion of our portfolio is in student housing. And so where we rent, we butt up to colleges. And typically that’s almost recession proof, Dave, except it’s not COVID proof,
Dave Wolcott:
Yeah.
Corey Peterson:
okay? So we learned because usually with student housing, no matter what the market’s doing, it doesn’t matter because when your kid’s 18 or 19 and they’re ready to go to college, that’s where they’re going. And so then it’s about what we look for is D2, D1, we wanna be closer to D1 schools if we can. We prefer D1s, but we’ll do D2 if it makes sense. If our location is very close to the college. So proximity. college is very important in that aspect of what we’re doing and make sure we have the right amenities and right structures. But again, though, even in those markets, we typically try to buy assets that are, you know, 90% occupied, that are already kind of doing what they need. And then we like to make the micro improvements, right? Let’s go and do a remodel refresh kitchen refresh, right? We’ll replace the flooring. and redo the kitchen, paint the cabinets, new knobs, stuff that’s really very easy for what I call turn kind of items. It’s kind of like you can do it in your sleep. We like those. We don’t like to move walls. We’re not trying to redo wiring or plumbing. It’s just cosmetic stuff. And those are micro repositionings that we can do really well. And we force appreciation in that case.
Dave Wolcott:
Yeah. Any other types of differentiation besides your vertical integration? You know, what you’ve learned over the years that really sets you apart.
Corey Peterson:
Yeah, we’ve learned that, um, funny, we’ve learned, we’ve learned, you know, you have these lessons and it’s like, wow, okay. Um, we only try to buy in markets where there’s a regional airport. Right. Um, I don’t know why that’s a big deal, but we’ve done it where there’s not. And, uh, those have not worked out well. We really look for the, uh, the trend for growth. We want to see more people moving in the moving out and we want to see the, uh, our median house pricing, we want to see that just, we don’t need to see it taken off. We just want to see a steady growth, right? If our home values are just over time, just nice and steady, that helps us a lot. We like that data point. We also like more people moving in than moving out. That’s another data point that’s really important for us. And then we’re also looking at employment centers, Dave, who are the main employers? And are they growing or contracting? And so sometimes we’ve been on a property, you know, we’re in Warner Robins, Georgia. For that proper, the location, there’s a base. Well, so there’s one big base and that’s a big employer. And so we’ve got to really watch, we’re watching that base to make sure that it’s not going to be part of any closures. Right. And it’s a big enough air force base where it’s, it’s actually a, a transport base where they have the big planes like C one thirties and that’s not, that’s always going to be needed for what we do. So we’re like, we felt really good with that location, but we did a lot of research in those areas. And so at the end of the day, understanding your markets, you have to really go into your, with your eyes wide open and you’re looking for those metrics that those data points, crime, there’s a crime statistic that we look for. And we want to make sure that our zip code is better than the, It has to be a certain metric that greenlights it for us. And because crime can ruin, you know, and crime is so weird, you really have to look at it from a zip code perspective because you can go across the street and there’s no crime over there, but on this side of the street, it’s bad. So trying to understand that is super important when you’re buying these assets. We’ve had it where we’ve went on site to properties and our primary goal when we think we have a deal, Dave, is to go kill it. Like we go do a site visit. Our job is to say, let’s kill this thing. And if it doesn’t get killed, then it’s something we still want to do. But that has to be, I think for most syndicators, I’m not gonna speak for everybody, like that’s our drive. Like we go there to kill deals and only the great ones select because our goal, our job is to find needles in the haystack. It always has been. It’s always to find the needles in the haystack. And so to do that, you’ve just got There’s no special recipe in my mind, Dave. You just got to do the work. You got to, in the markets that we track, we try to underwrite 98% of the deals that come up. Now, we’re not perfect, but that’s our goal. We want to really do a good initial underwriting to say, does this work or not? And most of them don’t. Well, honestly, most of them don’t. And then from
Dave Wolcott:
Yep.
Corey Peterson:
there, the ones that do, then it merits a site visit. We always do site visits before we make any offers. I know there’s a lot of investors that just do sight unseen. We just don’t do that. It’s not, I’ve never done business that way. I’ve got to physically put my team on site. We want to, because most of the times you’ll go there and you’re like, Oh, that’s a deal killer. We found one. We had a great property, great location, but we get there. There’s this little seven 11 right next to it. And you wouldn’t think, Oh, it’s just seven 11. But at nighttime, that seven 11 is like lots of foot traffic. And usually foot traffic is not good at night. You want people, in home, locked up tight. And so we think we actually saw a drug transaction, right? So we’re like, nope, this property is not gonna work. There’s nothing that we can do to fix that problem.
Dave Wolcott:
Yeah, great point. I mean, there’s certain things you just don’t know until you’re actually physically on the ground, right? Kind of surveying things. So a great, great due diligence step. And what do you think? I mean, you know, given today’s market dynamics, right? With, you know, higher in unprecedented interest rates, right? Kind of this reset going on between buyer and seller expectations. How has any of that, you know, changed your business model and what are you looking for today?
Corey Peterson:
We are stepping on the gas right now, Dave. So we’ve not bought anything for the last 14 months, right? So we went on a hiatus. We needed kind of everything to play itself out and we are now starting to see things drop because people that are in these adjustable, you know, rate mortgages, they’re coming due and they either have to sell I mean, if they’re selling, no one’s selling right now because they want to. It’s usually because they have to. And so that’s opportunity. So when do you buy? You buy when there’s opportunity. And we may not be exactly at the bottom yet, but we’re close enough that we are. Um, and here’s the play. I believe the play right now is if you can buy something now and cashflow in today’s interest rate, right. And you can still, and you still have some micro repositioning that you can do. Then you can buy. And then, you know, we look, we have a five to seven year time horizon on anything we buy. So we believe that in our future interest rate down the road is going to be better. We don’t know what it’s going to be, but we believe it’ll be better than it is today. And that’ll be a, just a micro little piece that’s going to happen that from, you know, 6% to four and a half or even to five, six and a half to five is a huge step in valuation and profitability. So Our goal is to buy as much as we can in today’s dollars, in today’s pricing, with today’s rates, and just make sure that our deals qualify in cash flow. If they can do that, then it’s a green light for us. We’re still gonna add our micro repositionings. We’re gonna add some value along the way, but we’re gonna get a nice little reset somewhere down the road. We’re gonna be able to refly our properties, and it’s gonna smell like Nirvana.
Dave Wolcott:
Yeah, makes sense. So Corey, what do you say the future looks like for you and Kahuna Investments? Talking 10, 15, 20 years out.
Corey Peterson:
Our goal is to become a family office. We have a very robust team. As we started, we’ve been buying deals. We have 10 active projects right now, pretty good size projects. And so as they start to mature, our goal is to keep partnering with investors, but our long-term goal is to become a family office where we’re starting to use all our own monies to buy all our own properties and just keep that machine running. I don’t think I’ll ever stop doing real estate, Dave. I love it. My kids, my son is turning 19. He wants to be in the business. My goal is to find a way to, he can’t come work for me till he’s about 24. But the goal is once he’s kind of matured and learns from somebody else, he’d come and go into all my departments and get everybody’s respect and then stand with me by my side for a minute. And then my goal is to eventually give him the keys and let him do better than I ever thought I could.
Dave Wolcott:
Excellent. Creating a nice legacy there. Love it.
Corey Peterson:
Yeah.
Dave Wolcott:
Corey, if you could give just one piece of advice to the listeners about how they could accelerate their wealth trajectory, what would it be?
Corey Peterson:
Take control. Don’t stop learning about things that you’re interested in. Find things that you’re interested in the alternative investment arena, right? Whether it’s real estate, maybe it’s singles family, maybe it’s lending, maybe there’s so many different aspects that you can get into, but find something you’re passionate about and then just get involved with it. I’m telling you, you can make so much more money. understanding just a little bit. You don’t have to understand a lot, but just understanding the fundamentals of what, of what wealthy people do. They make their money work so much better than the average investor just going in the stock market. So, uh, by listening to podcasts like yours, Dave, to getting knowledge, um, and then take action. Most people are, you know, they listen to these podcasts and they don’t do anything. And man, it’s a shame because I know if, if you would take action, it would just, It would change your life. For most people, it’s a life-changing thing when they take action, especially on the things that we talk about, Dave.
Dave Wolcott:
Yeah. Well said. Really appreciate you coming on the show today, Corey, giving so many valuable insights to the listeners. If people want to connect or learn more about what you’re doing at Big Kahuna, what’s the best place?
Corey Peterson:
Yeah, actually, I would love just to give it I’ll give away my book for free. Copy your way to success. If you’ll text the word book the OK to 480-500-1127. We’ll send you the book for free. Other than that, go to Kahuna Investments.com. You can look us up see, see about us to see what we’re doing.
Dave Wolcott:
Awesome. Thanks so much for coming on the show, Corey.
Corey Peterson:
All right, thanks Dave.
Dave Wolcott:
Alright.
Dave Wolcott:
Hey everyone, welcome to today’s show on well strategy secrets. We’ve got another excellent show today. Today we’re joined by Josh Cantwell. Josh in 2004 took his knowledge of raising capital and financial markets and started investing in real estate full time. He was able to combine his knowledge of financial planning with real estate to create a very successful business, which quickly grew into closing over a hundred wholesale and short sale deals per year. Since 2019, Josh has invested in commercial apartments full-time, having completed 19 apartment syndications and taking nine of those deals full cycle from acquisition to sale. Along the way, Josh has taught thousands of investors how to replicate his success. He’s the founder of a variety of successful businesses, including Freeland Ventures, Strategic Real Estate Coach, creator of the Maverick Multifamily Master. and also the host of the Accelerated Investor podcast. Josh, welcome to the show.
Josh Cantwell:
Hey Dave, thanks for the intro. I appreciate
Dave Wolcott:
Yeah, you bet.
Josh Cantwell:
that a lot. Thanks for inviting me on.
Dave Wolcott:
You bet. Always great to connect, Josh. Really looking forward to this discussion. I think it’s gonna provide a lot of valuable insights for the listeners. So for those folks who don’t know you, just tell us a little bit about your journey and how you got into real estate in the first place and investing.
Josh Cantwell:
Yeah, I think like a lot of people, we all kind of know that real estate is a great way to build and hold wealth. I’ve been an entrepreneur my whole life. My father was an entrepreneur, so I get to see entrepreneurship in my own house growing up. My dad started, founded, and built an amazing financial services company. It was focused on employee benefits when I was in high school and college. So I was able to watch entrepreneurship in my own home. And so when I graduated from college and I became an entrepreneur, I became a basically a 1099 all commission, uh, salesperson and financial planner. My dad freaked out. It’s like, why did I bother sending you to this expense college if you’re going to work at 1099 and not even have a salary? And I said, well, dad, I’ve been watching you for the last six or eight years. Uh, I can’t believe that you’re even really surprised by this. And so, you know, I got into that and I quickly also started studying and learning other financial kind of services and other different financial programs like real estate, oil and gas, you know, forex trading, those different kinds of things. And I would go to the weekend warrior boot camps, right, Dave? Like, so, and I learned everything my dad said. He’s like, listen, get in and out of college in four years, everything you really need to know, you’re going to learn on the job. Well, being an entrepreneur, I started at 22, 23, 24 years old, going to the weekend warrior boot camps and learning about Forex trading and learning about real estate and overfunded life insurance and all these different kind of amazing wealth accumulation strategies. And of course, I immediately started learning about real estate investments, started going to all kinds of boot camps and strategies and learning from gurus, getting pitched their coaching programs, all that kind of crazy stuff. And now you fast forward 25 years, I’m 47. And that’s been my whole life now, is just studying wealth building strategies, primarily in real estate, pivoting from single family to multifamily and now big commercial strategies. And it’s really, I think a lot of the same journey that most people should take. I think I have a very kind of replicatable, duplicatable journey of jumping from Wholesaling to larger rehabs to a private equity fund and now into massive apartment syndication So that’s been a little bit about the journey man over the last so long 25 years to kind of cover in a few minutes
Dave Wolcott:
Yeah, it is too to summarize it like that, but such an interesting background Josh, right? I mean the fact that you kind of grew up with traditional, you know financial planning right with your dad and then starting to Invest and look at you know, different asset classes and understand, you know What you know, what are some of the pros and cons of some of those things? and then to become an entrepreneur and Also to then, you know kind of niche down and focus in on real estate So you have a nice 360 degree view, I think, of the world. And what have you really learned from that? And have you developed an overall investment thesis or a particular wealth strategy that you follow today?
Josh Cantwell:
Oh, absolutely, absolutely. And I think it’s taken me the better part of the last 20 years to sort that out. When I was a financial planner, we were selling traditional financial services products. We were doing fee-based financial plans, charging clients 500 to $1,000, and then implementing all the strategies, primarily manage mutual fund accounts, overfunded life insurance policies. disability insurance and things like that. I felt out of love for the traditional financial services world one, because I knew that primarily if you’re gonna buy mutual funds, which is what your average person does in their 401k and in their brokerage accounts, 96% of the time they’re better off buying an index fund, having lower costs, lower fees. And they’re also going to get a higher return one of the books that really changed my View of what I used to do as a financial planner is Tony Robbins book unshakable Where he interviewed like 20 or 25? the world’s best money managers and wealth builders and to hear I believe his last name is Swenson. He’s the Yale Endowment Fund manager say that 96% of all mutual funds underperform their related index, and the typical financial advisor charges a 3% fee and then a 1% additional fee to the mutual fund. There’s 13 hidden fees in actively traded mutual funds, and you can wipe all that out and get a higher return. I’m like, okay, so I discovered that over time. So I do own a lot of index funds inside of overfunded life insurance policies. That’s going to leave a massive legacy to my family. That’s important. From a real estate perspective, I went from wholesaling because I didn’t have a lot of extra money to buy. I didn’t know about private lending. And then eventually pivoted to raising a lot of money and doing a lot of rehabs and rentals in the single-family space. And then we decided to scale that into a fund where we did private lending. Well, Dave, the problem with all of those is that You have flipping houses and there’s ordinary income. You have private lenders that are getting 1099s for interest income. It’s great to get a 12, 15% return, but interest income is taxable. Flipping houses is taxable. So I eventually stumbled into multifamily because I was underwriting and lending to other real estate operators and they needed funding. And so we were doing their basically underlying debt. through our fund and through brokering for other people. And I still realize the income that we were making, although it was relatively passive, was still interest income. It did not have any ability to wipe out that income through depreciation. Well, in 2017, we started to joint venture in CoGP and buy and own apartment buildings. And that led me to my current, and I believe my final investment thesis, which is to… buy and syndicate multi-family apartment buildings, which then allows us to get eight different fees, but primarily it’s about cash flow and equity and that ownership allows us to have a significant amount of depreciation. So Dave, it’s almost embarrassing because we own a 250 million dollar real estate portfolio, but because my taxes show a loss, I actually qualify for financial aid. at my kid’s high school.
Dave Wolcott:
Yeah, yeah, yeah.
Josh Cantwell:
So, because all of my income from the cash flow and the equity gets wiped out by depreciation. So when you know that you look like you’re poor, but you’re not, that really at the end of the day, really just kind of popped my head off my shoulders. And that’s where we’ve landed for the last six years. And we really love it.
Dave Wolcott:
Yeah, no, that’s perfect. The only challenge, right, once you get this figured out is when you’re trying to talk to traditional lenders about getting financing, even if it’s for your existing house or another
Josh Cantwell:
Right.
Dave Wolcott:
house, they’re like, you have no income, we can’t qualify this at all. So
Josh Cantwell:
Right.
Dave Wolcott:
I guess it’s a good problem to have though, right?
Josh Cantwell:
It is, it is. And you know, I also own my education business, so we do still run this mastermind program. We’ve got about 100 members, and I take a W-2 out of that, but I take a very, you know, very low W-2, and so all of my losses still wipes all that out. But I only take the W-2 to show some income in case I need to get some loans at some point. But at this point, you know, we’re just focused on cashflow and equity. That’s it. I’m not really worried about buying. the next house where I have to walk into a bank or a credit union and fall into their box. I know that I’m not in their box. Like the last 25 years of my life, I’m not in anybody’s financial box. It’s going to lend to me on a traditional basis. So I’ve got to be very creative.
Dave Wolcott:
Yeah, for sure. So Josh, what would you say, I mean, we have a lot of sophisticated investors in our community, right? And people are always looking for different tax strategies, wealth acceleration strategies. And oftentimes a CPA might say, okay, let’s say you’ve got a great strong income year, or maybe you even exited a business, right? And, you know, CPAs out there might just say like, okay, go purchase some real estate. Right. So you can, you know, get that, get that office offset. Um, but I think if you’re dealing with, especially if you’re dealing with say six, you know, high hefty six figures, maybe seven figures that you’re trying to actually offset, um, you know, it can be a little bit scary to say, Hey, I’m going to go do my own multifamily deal and, you know, go buy even a $5 million asset, uh, to, you know, just to offset the taxes because You know, now all of a sudden, you know, there’s, there’s a lot of competition, uh, for that market. There’s people doing it every day. You know, does it make sense? Are your assumptions right? And then do you really want to become now an active investor, you know, in that, uh, versus say doing a syndication. So what are your thoughts there?
Josh Cantwell:
Well, look, I think if that person has a big income or they’ve exited a business, it’s because they really focused on that and it worked out, right? They’re making a big income, they’ve exited a business. And so I would say, look, unless they can focus on real estate the same way that they focused on that exit or focused on their current job that pays them a big W-2, I would say don’t buy the real estate on your own. I work with a lot of groups, investor clubs, doctor groups, family offices. Primarily my deal still, when we syndicate a deal, when we raise five or ten million dollars, those are primarily just retail investors, guys that are writing checks for a hundred to five hundred thousand dollars as part of their investment strategy. But to your point, I work with a doctor group and several other family offices and different high net worth groups. And they usually have a lead sponsor that lead person, kind of leads the investment group, finds different operators, finds different syndications, find different opportunities. They can collectively then go and bring their collective horsepower to an operator and say, look, we can stroke a check for 10 million, 20 million dollars. And then collectively, because we can stroke the check, they’re gonna typically want a little bit extra, a little bit extra equity, a little bit extra cashflow. And then typically, because their main plan is get equity, deploy cash, but get depreciation, accelerated depreciation, bonus depreciation, then they come to an operator like me and say, this is what’s most important to us. So I would say to that guy or gal who’s exiting a business or has a big income is not to do it on your own, but to get comfortable in a community. Dave, maybe it’s your community, other investment clubs, other communities. where you know that you’re collectively working together, have a similar goal, cashflow, equity, depreciation, whatever that is, and then put yourself out there as a group with more horsepower, and then like we craft specific investments, and we look for specific apartment deals that we can then park with certain groups, like a certain doctor group, or an investment club, or a family office. So we know what their goals are. and we try to find an investment that matches their goals, we still remain as the operator, but we’re essentially kind of like that middle man, that middle operator, connecting the investment group to the deal where they don’t have to be the operator. They don’t have to be the boots on the ground. We’ll handle that and we will all partner up together. So I would say instead of going and buying that one deal, first of all, if you’re gonna be exiting a business, you probably know that’s happening for at least a year or two ahead of time. In that year or two, you need to do some planning. You need to make sure that you either get with some investment groups, investment clubs, you need to make sure that you can qualify as a real estate professional to take the depreciation or have your wife or your spouse become a real estate professional. Like I have a friend of mine that does that. He’s a high income earner. His wife is in real estate. She’s a real estate professional. They do a joint tax return. So collectively they can use the write-off. That’s another way, but I would say you know get involved with the group a collective investment group So you don’t have to do it all on your own
Dave Wolcott:
Yeah, no, it makes perfect sense. And I think you really hit the nail on the head, right? When you said like, if an entrepreneur or a high income earner, right, they’re doing well, then, you know, focus on what you do well at, right? Because that’s where your strengths, you know, truly lie, right? And your unique ability. And so you want to double down on that. And then you can get leverage by working with these other groups, right? You get the power of the group or getting into a syndication. You have someone who. You know, for instance, on the acquisition side, you know, has been doing it for 20 years and they have relationships inside and out of particular market. They know exactly,
Josh Cantwell:
That’s right.
Dave Wolcott:
you know, how to identify off market deals and things like that. So you’re getting some really great, uh, leverage by being able to move up, you know, into the syndications and such. So,
Josh Cantwell:
No
Dave Wolcott:
uh,
Josh Cantwell:
doubt.
Dave Wolcott:
you
Josh Cantwell:
Dave, I would
Dave Wolcott:
know,
Josh Cantwell:
give
Dave Wolcott:
appreciate
Josh Cantwell:
you one more example.
Dave Wolcott:
that.
Josh Cantwell:
Like we have a friend of ours who’s a billionaire. I’m not close with him, but we know each other pretty well. And he has basically another group that he partners with that underwrites and makes the decision. And he will often say, if they’re in, I’m in. Right? So he’s essentially offloaded that responsibility of the underwriting, the decision making, selecting an operator, selecting an opportunity because his expertise is not in real estate. His expertise is in his current business that’s made him a billionaire. So he just says, look, I wanna invest in these real estate opportunities because of the cashflow, the equity, but primarily the depreciation. And in some cases there’s some. you know, historic tax credits that are involved and they’re able to get access to those as well. But he essentially says, if that underwriter, that group is in, I’m in. So I would encourage your group as they listen to this to say, okay, who’s that one person who’s a really good underwriter, really good at due diligence, really good at selecting groups, partner up with them, build that personal relationship. And then, hey, if they’re in, I’m in. If that guy’s writing a check for a half a million, I’m in for a half a million. That guy’s written a check for $5 million. I’m in for $5 million. That is that personal relationship. And often, that underwriter should be an attorney, someone who has a legal license to lose if they screw it all up, right? If you have attorneys that partner in real estate deals or attorneys that buy out real estate deals, they have that added layer of fiduciary responsibility, that added layer of underwriting. plenty of real estate guys who have attorneys they work with. And I think that gives you that insulation to say, look, if that guy’s going to invest, and he’s a lawyer, and he’s helping this group, he’s not going to screw things up. He’s going to go the extra mile to do the right underwriting. So that’s some really niche ideas right there that I think people, if they really want to be good at this and deploy a lot of money, they need to be niche. They need to be really well-schooled in those things.
Dave Wolcott:
Yeah, no, great points. And, and again, just getting leverage, we all think of leverage typically as a rookie real estate is great. We’re going to get, you know, leverage with the lender, um, you know, to amp our returns here. But can you think about the human capital leverage factor, right? How much that kind of ties into the success of this. And it’s interesting as well, you know, working with family offices, ultra high net worth, right? A lot of this is also about, you know, not losing capital, right? Um, you know, being, being very defensive in nature, making sure you’ve done your due diligence properly, the risk mitigation, right? To make sure that the, you know, investment is going to be successful. And in some cases, you know, you may, you may hit a home run, uh, but sometimes just, you know, hitting and meeting, uh, projections, you know, is great. Uh, so Josh, what do you think about, you know, let’s talk about a little bit about the current market, uh, today. You know, we’re discussing a little bit earlier. Um, you know, I guess at the time of this recording, right, we’re kind of mid August right now, it’s been super slow in the multifamily space. Um, you know, a number of transactions has been down considerably, uh, this year, you know, primarily due to, uh, you know, the fed increasing interest rates really unprecedented, you know, that’s never been happened before in history. Uh, we have a lot of, um, you know, uh, A lot of that debt is coming due if people underwrote, say, three years ago. So what are your thoughts? What are you seeing in the marketplace right now?
Josh Cantwell:
Yeah, yeah, great question. So a couple things. First of all, things are definitely starting unthought, meaning the transaction volume is starting to pick up. I do believe that, look, if you were an investor in 2021, and 2021, August of 2021 is well known by many people to be the peak of the market. And if you were buying at that time when interest rates were super low because of COVID and everybody was in the market in liquid. then you should be buying now. Because cap rates are up, which means values are down. It means that interest rates are up, values are down, transaction volume is down, which means there’s less people involved in the industry, there’s less competition. So if you were gonna invest two years ago, there’s no question that you should be investing now. Now, what we’re planning on doing is getting deals under contract now. in Q3 and Q4, and waiting until Q1 or Q2 of next year to close. Because we do feel like by that time, interest rates are going to be flattened out, maybe not going up or going down, but they’re going to be flat. We don’t feel like the Fed has a whole lot more reason to raise rates anymore. The labor market is starting to soften. The labor market was so strong the last 10 to 14, 15 months. the Fed had to continue to raise rates, even when property value started to peak, you know, a lot of people were still hiring and the labor market was on fire. So incomes are going up, which is causing more inflation. That’s starting to slow down. You’re seeing CPI basically dropping back down to the levels that the Federal Reserve wants to see. They’re gonna wanna see that for the next several months. but I don’t feel like the Fed has a lot of reason to raise rates anymore or raise rates significantly. They’re gonna be maybe flat or maybe 25 basis points. And then I think by next year, if we saw some shines of recession, some cracks in our economy, remember, interest rates, it takes nine to 12 months for that to actually hit the economy in a real way after the rates been raised. Well, those rates went up last summer. We’re finally seeing that impact our economy today. So. I do feel like there’s a lot of deal flow out there that’s getting a lot less offers in multifamily. I do feel like the area that was overbought where there’s too much competition we want to avoid because those markets are coming down, including Dallas, Houston, Nashville, and Phoenix. I wouldn’t touch those markets right now because I think there’s some ways for them to come back. So I think the Midwest, places like Ohio, Indiana, Pennsylvania, Kentucky. those types of areas, Missouri, those types of Kansas City, those types of areas that are Midwest or landlord friendly. There wasn’t as much competition before, and there’s even less competition today because now interest rates are up. So that’s our strategy. I also feel like next year, there’s going to be some more cracks and some more deals that, from a lending perspective, we’re going to have to sell. So I think you ought to be patient. I think it’s another six months to nine months until we really see great deal flow. It’s truly a buyer’s market. The interest rates might be going down a year from now. Cap rates will continue to go up because that hasn’t totally adjusted yet. Values will still coming down. But I do think, look, if you can find a good deal today in Ohio or one of those Midwestern markets or the Southeast and it pencils. you’re only going to be three to four to five years from now in a lower interest rate environment. Nobody thinks we’re going to be in a higher interest rate environment three to five years from now. So if you acquire that deal now, even with higher interest rates today, three to five years from now, when you go to refire sell, I think if you have a great value add strategy, that property is going to be worth a lot more, because interest rates will be down, cap rates will be back down, and values will be back up. So I think people are making a mistake just totally sitting on the sidelines. If I had to guess to me at an exact time, that would be the right time to buy. The perfect time to buy is gonna be Q3 of next year. But that’s not to say that we’re gonna sit on the sidelines right now either.
Dave Wolcott:
Yeah, interesting. So given all of the market dynamics, especially over the past 12 months, how have you changed your underwriting around lending and what type of lending products are you really looking at today for a solid deal?
Josh Cantwell:
We’re trying to really do loan assumptions where we can. If there’s a good loan that was refinanced a couple years ago, somebody bought a property, let’s say in 2018, 2019. They refinanced in 2020, 2021 when rates were super cheap. And that product has some sort of fixed rate financing or interest rate cap. And we can get that financing in the mid-fours. There’s several deals that I’m underwriting right now. A couple deals I’m going to look at tomorrow, a deal I offered on yesterday. We have a $22 million on a deal yesterday. 37 we offered on a deal on Monday. We have a $5 million deal we’re looking at tomorrow. A lot of those, the smaller deals will still pencil with bank or permanent financing, new financing. The bigger deals are really hard to pencil, Dave, with 6% new financing and possibly triggering a tax reassessment. So those deals that have some sort of loan assumption opportunities are fantastic. So the deal that we looked at yesterday is not have a loan assumption opportunity. It looks like it’s gonna get reassessed. You know, whisper price on that thing was like 28 million. We offer 22, okay? I don’t know if we’ll get it. I don’t know if the seller, I think their loan amount, their basis is more than 22. So the bank would be taking a pretty major short sale. that if we could get it, but we also have another deal that we’re going to look at next week a big 400 unit deal That had really good financing put on it two years ago. It’s got long-term fixed rate debt And because the values were so high back then they got a very high appraisal very high loan amount now values have come back and So that loan to value is in the word between 80 and 85 percent So that’s a really good deal for us to buy because we have high leverage, we have to recruit less equity, we have fixed rate financing in the fours. And so those are ideal deals when it comes to the financing that’s in place. If we can find stuff like that, you gotta look a lot, you gotta dig through a lot of deals to find those, but they are out there.
Dave Wolcott:
Yeah. Tell us a little bit about the market in the Midwest. I mean, typically, you know, everyone just talks about, you know, the smile states really, you know, southwest, southeast, but, you know, tell folks a little bit more about why you like the Midwest.
Josh Cantwell:
Yeah, so the word is boom bust. Okay, boom bust. So I was investing in 2007, 2008, 2009. There were five states that were responsible for 50% of the foreclosures. Those were all smile states, right? It was Florida, Vegas, Arizona, and California. And then the last one was Michigan because of what happened in Detroit with the car business. But those four states had the biggest run up, the biggest boom, and had the biggest bust in 2007 and eight. Well, I lived through that. I was investing in that, primarily in real estate, but also in the financial stock markets and also in the currency markets and in physical gold and silver. And so I know that that’s going to happen again. The boom bust markets are exactly the markets where we saw all the activity in 2020 and 2021. It was Southern California, it was Vegas, it was Arizona, it was Texas and Florida. Maybe even in Colorado you could add that, maybe Nashville, you add that. Those are boom bust markets. And so when that happened in multifamily, you saw so much activity, so much pushing up of the prices, so much low cost money. And those are the markets that are now already getting pinched. Like I would never buy something in Phoenix or Nashville right now. Because not only is there not going to be a lot of appreciation in the price, but there’s also not going to be a lot of appreciation in the rent because they’re building so much inventory. Okay. So in order to avoid the boom bust, we focused in our backyard. I’m from Cleveland, Ohio. I like the Cleveland market, even though it’s not a super high growth market because it’s a cashflow stable market. Okay. So in 2007 and eight, Values went down. Yes, but they might want to down 8 to 12 percent depending on which outlet you’re paying attention to Depending on which data that you’re reviewing If you look at Kentucky if you look at Indiana if you look at Pittsburgh if you look at You know, Missouri look at a lot of Oklahoma a lot of states in the middle of the country. They’re not boom bust So if I’m trying to create an investment strategy in a thesis that I can stick with for the long haul I Want to remove as much bumps? Rollercoaster as I can I cannot remove it entirely I’m gonna have some volatility no matter what I invest in but if I can flatten it out I’m okay with buying a property Having it appreciate in a very methodical way Getting lots of cash flow in a methodical way and letting my residents pay down my mortgage Okay, Dave. There’s a guy that I’ll never forget. I looked at this portfolio This how this property I was trying to buy was 112 units. I pulled up This little old guy in a Cadillac gets out of his Cadillac gets in his gets in his golf cart His name is Turk and he is showing us around his properties Well, he owned almost a thousand units in Youngstown, Ohio Which is a not growing at all C class city But you know what he played the long game He invested for cashflow and equity, and he had a $95 million real estate portfolio that was paid off.
Dave Wolcott:
Well,
Josh Cantwell:
So for me,
Dave Wolcott:
nice.
Josh Cantwell:
I’d rather be Turk than a guy that’s going to play the markets in a boom bust area. So that’s why I prefer the Midwest and some markets in the Southeast. I like Atlanta a lot. I like Oklahoma, Oklahoma City. I have a 216 unit in Lawton, Oklahoma. I’ve got over a thousand units in the Atlanta market and some markets in Atlanta. But I also like if you’re going to do multifamily, you should be investing with an operator who’s investing in their backyard. Because when stuff happens like COVID, you wanna be able to manage that really, really well. And so we like the Midwest for those reasons, try to avoid the boom bust.
Dave Wolcott:
Yeah, great insights. Appreciate that. I definitely wanted to ask you also, Josh, I know you have this 10 step peak performance success formula, which resonates with me. So let’s unpack that a little bit for the audience.
Josh Cantwell:
Sure, absolutely. So there’s a few things that I really feel like are really important when I think about what I call the ACER exercise. The ACER exercise for me is about peak performance. It’s about really understanding what we want to accomplish. It’s about, it’s a 10 step process and I don’t have time to go through it all, but. That to me has really identified what I want to be, who I really want to become down the road. And that formula for me is about understanding the end result, okay? I’ve heard a lot of people talk about their why, their why, their why, like why do I do things? The why is the reasons, it’s the passion for what we really want. Well, for me, it’s not about the why. A lot of people are like, They post pictures of their family on their Facebook or their Instagram and say, this is my why. I said, that’s great. Those are your reasons, okay? But when you got married and you had kids, you sort of became obligated to those people, okay? So that has to be your why, okay? It has to be. Now, when I look at what do we really want, what I started doing years ago, peak performance success for me. The most important step is really step number four. And I’m gonna, so I’m gonna skip to that. The ACER stands for absolute clarity of the end result. So when I talk about Turk, and I talk about having $100 million portfolio that’s paid off, that’s part of the end result that I want. So I’m willing to be patient. and work methodically towards my goal, instead of being hyper active, trying to force that goal to happen in a super short amount of time. I want my end result to be happening in my lifetime. It doesn’t have to happen tomorrow, or three years from now, or five years from now. Of course I’m working hard, of course I’m motivated. But I have this vision of what I want my life to be like. And so I encourage people to close their eyes and on their perfect day, their perfect average day, what does that look like? So if we have 365 days a year, let’s say 50 of those are amazing days where we’re like walking through a rainforest or we’re on the beach in Hawaii or we’re going on a European vacation. It’s this unbelievably crazy experience. We’re parachuting or we’re whitewater rafting. These are the special days of our life. in a one year period, maybe at 50 amazing days. And maybe you have 50 unbelievably terrible days, crappy days, horrible days. You fight with your wife, you lose money in business, your kids are fighting with you, you can’t get through to anybody, you’re not motivated at all, you get rid of those. Well, there’s about 250 very average days left. And the question now becomes, what do you want your ideal average day to look like? And your investment strategy, your investment thesis needs to support that. So the end result of what we’re trying to get to in the peak performance success formula basically is trying to create an investment strategy that supports that average day, that ideal average day. Because this whole idea of living this amazing, crazy, wild life is not true. We’re going to have 250 days a year where we’re having an Average ideal average day. So what does that look like? So if everybody closed their eyes and thought about that What does that look like? When do you wake up? What do you do? What do you eat? What do you drink? Do you go to the gym? Do you play with your dog? Do you go for a walk with your wife you go for a run go for a bike? Like you go to the beach. Where do you live? What do you see when you wake up? What’s the scenery? Where do you live on the beach or in the mountains? This is the average day. This is the end result And that to me is all that’s important is having a true vision for what that looks like. That will then determine the investment strategy. Like people that were chasing these multifamily deals in Phoenix and in Nashville and in Orlando were chasing a quick nickel. They lost sight of the long term investment that multifamily should be. They fell in love with the quick nickel of cheap money, rising rents, COVID, low supply. But did they really buy something that met their ideal average day and met the end result that they were really trying to pursue? So again, for me, Dave, I go back to the Midwest because that supports my long-term vision of what I want my ideal average day to look like and what I want my regular life to look like, right? This whole sexy idea of the boats and the cars and the parties, like everybody gets sick of that. I’ll give you 50 days of that fun and crazy life. really depressing, horrible days, the middle 250 is what we’re working for. That’s what this ACER exercise and this kind of 10 step peak performance successful and it was really all about. There’s a bunch of steps in the middle, cover that some other time, but that’s really what I’m trying to accomplish in my own life and for other people that follow along in that process.
Dave Wolcott:
Yeah, absolutely love it, Josh. I mean, that is essentially the underpinning of our entire holistic wealth strategy, right is creating a vision for yourself and having crystal clear clarity on what that vision is, right. And if you think back to, you know, Napoleon Hill’s thinking grow rich, right, how he has so many affirmations of, you know, every day you’re talking about, you’re waking up, you’re meditating, you know, you’re thinking all of these affirmations around you’re going to achieve that goal is, you know, what it looks like for you. And really, you know, when it comes to investing, again, I think you hit the nail on the head, right? Because really, what are we after anyway? Right? You know, money just buys us stuff, right? It buys us time. It buys us certain freedoms and everything. Right. So, so you have to define what it is that you’re actually going after. Right. Or if you don’t have a target, you’re basically going to miss every time. So getting clarity on that is absolutely critical.
Josh Cantwell:
Yep, absolutely, I love it. No, you talked about that when you came onto my show about having a holistic strategy. I think that’s unbelievably important. And I think it’s like, especially if you have a partner, spouse, you know, it’s really important that the two of you get together and talk about that and make sure that, you know, in my life, my wife is pretty much out of the business taking care of our kids and all the crazy things that they do. And so I want to make sure that I’m engaging the people who are important to me, my wife, my business partners, my CFO, and what’s important to them because the apartments are again, are just like you said, Dave, a tool to help not only me as the CEO and entrepreneur hit my goals, but it’s also impacting all of our investors, all of our staff, all of their spouses and all of their children. And so the more we can know about the main operator, the main sponsor, and what their goals are, now these investors and staff and spouses and partners can all align there. I think that’s really important. So going all the way back to the beginning of this conversation, Dave, if you were a limited partner making a passive investment, the more you can know about that sponsor’s ultimate goals, not just with that property, but with their life. then you can decide, does your ultimate goals line up with them? Does their Acer, their absolute clarity of their end result, does that line up with yours? And if it does, I think you have a much more higher likelihood of a successful investment.
Dave Wolcott:
Yeah, no, such a great alignment, such great point that you make there. Um, so many good insights here and good takeaways, Josh really appreciate it. If you could
Josh Cantwell:
Sure.
Dave Wolcott:
give the audience just one piece of advice about how they could really accelerate their own wealth trajectory, what would it be?
Josh Cantwell:
Look, so I have a very personal story. I can’t go through it all, but I’m a pancreatic cancer survivor. 12 years ago, I was given, I was 35 years old, I was given this wild diagnosis. I had a major surgery. And the surgeon basically saved my life on the operating table. I’ll never forget. after the surgery about six weeks later, I went to meet with my oncologist and I was sitting in front of a computer kind of like we are today. And my oncologist walked in the room and he went through this post surgery summary report. So Dr. Ali is reading about what Dr. Walsh did to me on the operating table. 10 hour surgery. They took out my gallbladder, my spleen, my stomach, most of my pancreas, most of my liver. They had to reconstruct the arteries in the back of my, your back of my pancreas and back of my liver because they were crushed by the cancer, take arteries out of my leg and put them back in. I had to relearn how to eat because I had no stomach. I lost 50 pounds in four weeks. Dave, on the operating table that day, I lost 21 units of blood. To put that in perspective, you and I, as we sit here today, we have seven units of blood in our entire body. So I have everybody else’s blood in my body except my own. I’m literally everybody else. Like none of my blood cells are mine. And I’ll never forget Dr. Ali, he sat back in his chair and looked over at me and he said, Dr. Walsh is a daring surgeon. And I looked at Dr. Ali and I said, what do you mean, is it daring surgeon? And he said, Josh, he’s like, I’m reading this report and now I realize what a miracle you are. 95% of surgeons would have never even tried this surgery. They would have opened you up and saw how complicated it was. They would have sewn you up and sent you home and said, there’s nothing we can do. And I said to Dr. Ali, I said, hey, so you’re telling me the only reason why I’m alive is because Dr. Walsh was daring. And he said, yes. And I cried. I sat there and cried because I didn’t realize the magnitude of what had happened that day. And so I would say, look, life in general, investing strategies, your investment thesis, is going to require two things. One, you have to be daring. You have to be willing to get out of your shell and do something that nobody else has done, because it’s your life. You’re in control. You have to be daring enough to try new things, go and do new things and meet new people. The second thing is I would say, look, in the theme of being daring, you can mitigate some of that risk, because that might sound risky, being daring, but you can mitigate that, like you said, Dave, earlier, with the human and relationship capital. Every good deal I’ve ever done was because I was either referred, I was brought in, I was introduced. or I got some special information from someone else. All right? And so I would say be daring in your relationship building. If that was the one piece of advice to kind of bring all that together, be daring in your relationship building. Be willing to put yourself out there. Go to events, go to dinners, go to be on podcasts, meet new people, be part of investment clubs and build up your relationships. Build up your relationship capital because That will introduce you to incredible investment opportunities and incredible people who are doing wild amazing things with their lives, but you have to put yourself out there. You have to be daring just to put yourself in these new rooms and these new groups and these new clubs. That is going to create so much flavor and color in your life. So many people though just want to live, stand by house and be a hermit. No, be daring, create new relationships. and then new investment opportunities will come.
Dave Wolcott:
Awesome. Such a powerful story, Josh. Thanks for sharing. If people want to connect with you and learn more about what you’re up to, what’s the best place?
Josh Cantwell:
Oh look, I’m really active on LinkedIn, really active on Facebook. You can just look me up there, but you can go to our main website, freelandventures.com, I’m the CEO. And that website is kind of like our home base for everything we do. You can go to freelandventures.com slash passive to learn more about our investment strategies. Freelandventures.com to check out our mastermind groups and our YouTube channel. We’ve got over 700 free videos online. We’ve got 500 podcast episodes. So I would just go to FreelineVentures.com and check out everything we have to offer there.
Dave Wolcott:
Perfect. Thanks again for coming on the show, Josh. Look forward to next time.
Josh Cantwell:
Absolutely, Dave. Thanks for having me. This was fantastic
Dave Wolcott:
You bet.
Josh Cantwell:
and fun. Thank you.
Dave Wolcott:
All right. Thanks. And for all you listeners out there, if you’re enjoying the show, getting good value out of it, please do us a favor and give us a rating and review. Really goes a long way to get awesome guests like Josh on the show. So until next time.
Dave Wolcott:
Hey guys, welcome to another episode on wealth strategy secrets. Today we are joined by Travis Watts. Travis is a full-time investor, passive income advocate and public speaker. As the director of investor education at Ashcroft capital, he’s on a mission to empower investors who want a hands-off approach to real estate investing. Recognized for his outstanding contributions, Travis received the prestigious Lindas industry impact award in 2022. Travis, welcome to the show.
Travis Watts:
Hey Dave, thanks so much for having me. Thrilled to be here.
Dave Wolcott:
Yeah, no, it’s really awesome to connect Travis. We were having such a good conversation. You, me and Jeremy Roll at the Charlotte’s multifamily conference and really thought, you know, we’ve got to bottle this and take this out to the community because there were so many, you know, pearls of wisdom in there and everything that we could unpack. So for folks who don’t know you, why don’t we start, you know, the discussion off with little bit about, you know, your background and your journey. Um, and then, you know, that we could pick it off from there.
Travis Watts:
Sure, happy to share. So first thing I would say is, you know, I didn’t come from a family of wealth or real estate or investing. My parents had split when I was five years old, got a divorce, I was raised by each of them independently and I learned a lot about frugality. Anytime we brought up finance or the term, we were talking about saving money. So grateful for that humble upbringing, but at a certain point from doing my own self-education, I realized that You know, your potential only goes so far if you’re just gonna pinch pennies your whole life. You know, the real reward comes in learning how to multiply your money and learning how to invest. So try to multitude of small business ideas early on that didn’t work out for one reason or another. And I landed on real estate when I was 20 years old, bought a single family home. This was in 2009 and you know, about 40% discount to previous pricing. And I rented it out. You know, first I lived in it a little bit. I furnished it, you know, I updated it. And then I made that my very first rental. And that was the first thing that really started to get the wheels turning. I thought, okay, I’m making whatever I was making, you know, $600 a month cash flow at that, how do I amplify this? And I knew I needed to make more money, or at least I thought I needed to make more money in order to become a serious investor. So I went seeking. jobs that just paid well, that didn’t require a lot of background experience or, you know, a specific college degree. So I ended up in the oil and gas industry and I ended up working 14 hour days, 98 hour work weeks, months away at a time working overseas in the Middle East. It was a crazy time in my life, but that’s where the frugality really paid off and I was saving tons of money, paying very little in overhead for my lifestyle. And I was dumping all of that into real estate, specifically single family for about six and a half years. I did flips, vacation rentals, buy and hold rentals. I had roommates back home that would effectively pay my mortgage when I wasn’t there. And, um, it was an interesting time. I don’t necessarily recommend people take that specific approach, but that was my, my 10 years of darkness, if you will, of just kind of grinding it out and trying to get ahead. And in 2015, I started transitioning my portfolio into multifamily private placements or syndications in layman’s terms and other passive income generating assets as well. And so it allowed me to basically get my time back, something I refer to as time freedom so that I could go pursue still active work, but work that I truly enjoy and that I benefit from and being in a position to really help people. And that’s really what I wanted to do from the get-go, but I had to put in those dark years.
Dave Wolcott:
Yeah, for sure. Did you have any particular like pivotal moments where you either learned something or you had a conversation or you read a book that really just said, okay, now I’ve got to take action on this?
Travis Watts:
Yeah, so I would say my biggest personal regret in my investing journey was starting out thinking, I’m a do-it-yourselfer because my parents were and that’s how I was raised. Why would I pay somebody $30 to mow my lawn if I can do it myself? Why pay a painter when I can paint? So I went into real estate with that kind of mindset. It was very naive. to think, you know, I don’t need a team and I don’t need to be an expert and I’ll figure this stuff out. I can do it. And I realized after six and a half years that real estate really is a team sport and it can be extremely beneficial to partner with people that are more of an expert in one area or another compared to you. So what changed is I started reading books more, I started listening to podcasts more, I started joining real estate meetup groups in person. This was out in Colorado. And I ran into a couple of gentlemen. They run a very big investment club in Colorado and they had become financially independent, probably 30 plus years prior to me meeting them. And I was kind of picking their brain about investments. And I said, what are you guys primarily investing in? Is there one thing that you really focus on? And they said, yeah, it’s well, as a general, uh, you know, bucket, it’s private equity. And more specifically, it’s multi-family apartment communities. And we’re limited partners in other people’s deals. And I had never heard of that before in my entire life. And that was a huge pivotal moment because I was starting to reach a point where I thought, if I sell all of these properties that I currently am operating and I pay all the tax and broker commissions, and I just look at what I might have in cash. and I went to invest that passively, it started to become meaningful passive income, right? So in the example of someone getting started, they got 10,000 to go invest, they go look at a passive income deal that yields them 8% a year. It’s like 66 bucks a month, right? It’s not very meaningful. What are you gonna do with $66 a month? Fill up your gas tank once on your car. So it’s not very motivating to be in that particular position. But if we take the same example, with someone who has a million dollars to go invest at 8%. Now you’re talking about $80,000 a year in additional supplemental income. That starts to be a game changer for a lot of people. And I was approaching that level in my personal journey. And I surprisingly ended up making more as a passive investor than I even did as an active investor. And so that was a huge pivotal moment to realize the power of passive income and what that can do for you.
Dave Wolcott:
Yeah, no, really great points there. And I think so many people struggle with, you know, actually taking action. You know, you, you might hear a good podcast, you know, you read a good book or something, and then you’re trying to overlay that into your own situation, you know, and you might be in W-2, you’ve got a career, you’ve got a family, you’ve got all of these intricacies involved. Um, but it’s really, you know, just having, I think that, that moment, that epiphany. where you can take action and then as you take action, you know, you can start to bear the fruits of your success, right? And then that’s going to open up, you know, new doors you didn’t even think were possible.
Travis Watts:
Yep, 100%, that’s right.
Dave Wolcott:
So Travis, I love your passive investor journey, right? And I think there’s so many different elements of this to really unpack, but let’s really talk a little bit about the psychology, right, of passive income first, right? So it’s a term just like financial independence, right? Financially free, right? What does that actually mean to you? What does having your income exceed your expenses mean to you? Because if your expenses are only $4,000 a month, maybe you’re actually still living in that frugality world, right?
Travis Watts:
Mm-hmm.
Dave Wolcott:
But you’ve technically achieved that financial freedom. So tell us a little bit about what did that actually mean? to you to achieve financial freedom and how has that evolved for you?
Travis Watts:
You know, for me, I was in a job, which was the oil and gas gig that I really didn’t enjoy. I knew this wasn’t going to be long-term. I knew I couldn’t, you know, physically withstand that type of work for, you know, 30, 40 years and make it a career. So my goal was to get out of that job. And I think, you know, what’s cool about passive income is You can start immediately. You can start with low dollar amounts. You can start with that example I gave earlier of $10,000, 8% a year, 66 a month. That’s just step one and you can build upon that. And passive income creates a backstop for you. So what’s cool is as you kind of climb the ladders of wealth, and let me identify that for your listeners what I mean by that. So I think of the wealth pyramid kind of like an upside down. So at the bottom is self-sufficiency. This is where you’re basically your paycheck to paycheck. You have an active source of income, but at least you can pay your own bills without having to be supplemented from some other source. Then you move up to stability. And this is what a lot of the gurus in the finance space are preaching, whether it’s a Susie Orman, a Dave Ramsey, these types of people. So stability is like… you know, pay off your debt and cut up the credit cards and have an emergency fund. And, you know, only at that point, can you start to think about investing right above that is flexibility and flexibility is where you have some investments. You have some passive income rolling in, maybe not enough to live on, but maybe a few thousand per month, you know? And so the flexibility is, what if I get fired or lose my job? Well, at least I have this other source of income over here. What if I want to try a new career and make a pivot? Well, it’s not so scary knowing I have a financial backstop over here. Maybe you want to take some time off and travel. We were just talking about traveling to Italy, you know? Something that both of us value. Financial independence is right above flexibility and that’s what I really teach people how to create. So financial independence to me is the ability… to solely live off of your investments, whether they’re cashflow, passive income investments, or whether they’re just owning some stocks and making sales to live on, however you want to approach it. It’s just that you don’t need active income anymore. And the highest tier is financial abundance. And these are the people, of course, in all the headlines. These are your Mark Zuckerbergs and your Jeff Bezos and your Bill Gates. And they have so much money that they could not. even live on it if they tried. I mean, you can’t spend that much money reasonably. So they’re gonna end up donating, most of them, the majority of their wealth back to society. So that’s kind of what I mean by working up the wealth level. So I think everyone can reach, in my opinion, most people can reach flexibility to financial independence. It’s just gonna be about how long does it take you? So to answer your question about mindset, I would ask your listeners to think about this. How many of, you know, did your parents teach you about passive income investing? Did the school system teach you about passive income? Did Wall Street teach you about passive income? I mean, the answer is usually no to all of those. So it’s a journey of self-education. And yes, it takes willpower, drive, motivation, you know, repetition, consistency. And a lot of people don’t talk about those factors, but they’re extremely important. And I’ve seen this unfold over the years. You know, you go to a conference, there’s a hard sales pitch on the stage. People buy these $10,000 programs and statistically the majority never even use the program, right? They, they attempt it and then they change their mind and go in other directions. So you got to get clear on your why. A lot of people talk about that kind of cheesy, but kind of true. What are you really trying to do? Is it really about money? Cause I hear people all the time talk about their money goals. I want 10,000 a month passive income. I want to be a millionaire. I want this, that, and the other. But what do you really want? So think about if you had a million dollars cash in your bank account, or you had $10,000 a month passive income right now every month, what would you do? Why do you need 10? Maybe you only need five, maybe you need 20. And is one million really the goal? Or is it just generational wealth that you’re looking to pass down? So start by identifying your goals and objectives, and then kind of reverse engineer into them. what types of investments can help you reach those goals, what kinds of companies or people are offering those types of opportunities. And so you kind of start to learn the game backwards. At least that’s what I did.
Dave Wolcott:
Yeah. And why do you think there is such a challenge in this country in terms of basically financial education, understanding passive income, understanding alternative investments, understanding, you know, investing in real estate? Why do you think?
Travis Watts:
I think it all roots back to, you know, why was the education system even created in the first place? It was to have a formalized way to train people to become employees and work for companies. So why would it be in anyone’s best interest as a company owner to empower people to have that kind of knowledge and to go create competition for them, right? Or to quit the job because now they’re financially free through their own investments. So I think it kind of rooted there. And as we’ve moved forward into the more modern era, marketing has really taken a hold of people, especially in America, in terms of you need all this crap. You need the Gucci bag, you need that BMW, you need that McMansion house, you need these things, but do you need them? Or are you just trying to impress other people or feel some kind of elevated level of status? And so again, it takes a little soul searching, but… You got to figure out what really brings you, um, you know, satisfaction and happiness, you know, and, and I’m the type of person that when I did this with my wife, we’ve done it numerous times over the years, we sit down independent of one another, we write down the 10 things that bring the most happiness and fulfillment to us. And I would say 60% of my list requires almost no money, right? It’s like walking in the park with our son. It’s going on a bike ride. at sunset, right? It’s going to the beach, which happens to be 45 minutes from our house, like very minimal stuff. And so when you start to identify that, I think you can kind of lessen the consumerism side of it, which is what’s caused a lot of people to go to paycheck to paycheck living. You know, it’s very interesting to look at excess cash that Americans have leading up to the pandemic. Most people be in paycheck to paycheck, all of a sudden stimulus checks come out. and the percentages fly up. Everyone’s got all this money, right? They’re 1400 bucks or whatever it was. And then two years after, everyone’s back to paycheck to paycheck again, because people spend their money because we live in a capitalist consumerism society. So I would just question that individually and just say, do I really need these things or are they just wants that aren’t really necessary? And it’s worth the internal dialogue with yourself
Dave Wolcott:
Yeah,
Travis Watts:
or
Dave Wolcott:
no,
Travis Watts:
your partner.
Dave Wolcott:
I think it’s really fascinating, right? Because, you know, I was raised in a middle class family as well. And you know, they’re starving children in Africa all the time.
Travis Watts:
Yeah.
Dave Wolcott:
You know, it puts you basically into a scarcity mindset
Travis Watts:
Mm-hmm.
Dave Wolcott:
with everything you do. So like you say, you know, you’re trying to do it yourself. Because if you can do it, if you’ve got the energy, the will, then you know, you can do it. But what’s interesting, right, is as you start to scale and look at things with an abundance type mindset, right, you can realize, as you pointed out, that you start to work with a professional team and now you’re getting leverage by the team, right? And then you’re also now focusing your time instead of doing, say, you know, active management of assets or whatever. Maybe it’s a side hustle or whatever you’re doing. But now you can really focus on what you’re actually good at or your unique ability. And then you can really exponentially grow, you can be more fulfilled, right? Because I think what most people are looking for in life is actually, it’s not only freedom of money, but it’s freedom of time, it’s freedom of purpose, to be able to wake up every day and be fascinated and motivated about the work that you do. It’s also freedom of relationships, like, who do you want to spend your time with, right? You know, you’re a product of the five people that you spend your time with. So are those people, you know, exciting you or are they taking you back, you know? But I think it’s, you know, I think this really shouldn’t be underestimated is that deep thinking around, you know, your why, as you point out, which is such a great, you know, exercise to do with your wife. Another way people could look at it is, you know, instead of creating a bucket list, you know, create your top 100 list of things that you either want to be, do, or have. Right?
Travis Watts:
Yeah,
Dave Wolcott:
So
Travis Watts:
I love that.
Dave Wolcott:
then it takes a little of the consumerism out of it. And then that’s what gives you the drive to move forward.
Travis Watts:
I love that. That’s a great point. And, you know, just to add real quick onto that, it’s like, uh, you know, I use the, the wealth pyramid example, but it’s like Maslow’s hierarchy of needs. At the very bottom, we need food and shelter, and then you start to move up after that and you’re looking for safety and you move above that and it’s relationships. And then, you know, at the very top, it’s self actualization, which is what you’re talking about. Who do you want to be? What do you want to do with your life? What’s your why? What’s your mission? and who do you want to hang around with. So great points.
Dave Wolcott:
Yeah, no. And I think that’s why it deserves some thought, right? Because let’s say you do reach that passive income goal, and this is why it can also be a trap, right? It can be a double edged sword. So if, if I only had, you know, whatever that amount is, 5,000 a month, 10,000 a month in passive income, exactly to your point, what is that going to enable me to do? Right? Because, you know, you don’t want to have abundant complacency. where you say, and there are a lot of people in that fire community that reach that passive income number and then they’re like, hey, I’m just going to sit on a beach and I don’t need to work anymore. I don’t need to do anything, right? But that’s
Travis Watts:
Yeah.
Dave Wolcott:
not necessarily fulfilling. It’s actually rewiring those things that you want to do. So Travis, let’s bridge that also into this dichotomy really of… active versus passive investing, because I think this is also something people really think about a lot. They say, and from the first times that I even got into real estate as well, I thought, okay, I’m going to do active investing. I didn’t even know what passive investing was either. This is like back in 2000, Rich Dad, Poor Dad just came out.
Travis Watts:
Yeah.
Dave Wolcott:
So I’m driving around with my kids at night looking at properties and how is this really going to scale? and it’s that component of time, right? You know, how do you want to spend your time? But how do you really view that and how do you talk to folks about that? Because you’ve clearly lived both sides of the coin.
Travis Watts:
Yeah, pros and cons. I’m not here to bash active investing. It was successful for me. I did it for six and a half years as I talked about. I tried a lot of different things in there. I would say that if that’s truly what you want to do, first of all, maybe try it out. Maybe get one rental property or try to do one flip and just see how it goes. It was a lot of self-reflection for me. So I started realizing that I’m really not the best at this. I’m not finding the best deals. I’m not finding… the good off-market deals. I don’t have the best connections to contractors. I’m not getting the best pricing on things. And so as more institutions started moving into the space and the market started to lift off again, I was getting squeezed out. And that was kind of that self, you know, realization that, you know, maybe this isn’t really your thing. And the other thing I was naive about is to think that I could really scale that business. Meaning, you know, let’s say I bought, I don’t know. one property a year for the next 30 years and then I retire. Well, let me tell you, having 30 single family homes that you manage is more than a full-time job. And even if you have a property management company, it’s a full-time job. And there’s a lot you have to do that’s still active. You’ve got to still find the deals, underwrite the deals, show up to closings, you know, know the markets, be attractive to lenders, you know, have good credit, have solid down payments. I mean, there’s just a lot to it. Managing tenants is only 10% of the equation. There’s a lot more to it. So, the biggest pro, there’s two big pros to go inactive. One, you’re calling the shots. What color do I wanna paint this house? How do I wanna furnish? What’s the business plan? What do I wanna do with the rents? Do I wanna refinance? Do I wanna sell? Full control, that’s awesome. So if you’re a person that needs that or wants that, then consider that. The other thing was in general, I had pretty high returns, you know, go inactive. Now, some of that had to do with where we were in the market cycle, right? We’re talking about 2010, 11, 12, 13, 14, you know, the market starting to recover and bounce up. A lot of my properties, I just lucked out and made a lot of money because the market went up in my area. Passive, though, is way more scalable. it, whether I have one limited partnership investment or I have 300, it’s not that complicated. I’m going to get probably a monthly, uh, email that says, here’s how your property is doing, and I don’t have to make any decisions on anything until we go to sell, you know? So it’s, it’s much easier to scale, much easier to diversify. Uh, I can be in markets I otherwise wouldn’t be in because they’re too far from where I live, but it’s a market I really like and would like to invest in. And to your point, I really get a maximized leverage on true industry experts that live it and breathe it and are trying to build a brand and build a legacy for themselves. And I was never really at that level, uh, on a personal note, you know, to do those same things. So, um, you know, and a lot of our investors, just to be clear, are a hybrid of the two. It’s like, I talked to investors all week long. It’s like, yeah, I got a couple of rental properties, you know, a couple of short-term rentals, whatever. And I’m just looking to diversify and try some of this, you know, passive income stuff. So you can be a hybrid. And in fact, Joe Fairless at Ashcroft where I work, he is too. He’s obviously a GP at Ashcroft, but he’s an LP in a lot of people’s other deals as well. So it’s just a way to maximize your time. We only have so much time and resources and energy in a given day, week, month, year, this is just a way to keep amplifying your income without having to put extra. work and time into it.
Dave Wolcott:
Yeah, totally agree. Do you have a particular investment thesis or a wealth strategy that you’re using personally?
Travis Watts:
I mean, the simple thesis for me is just invest for passive income. And it sounds simple, but if you think about it, again, back to what I was saying earlier, how many people taught you about that, you know, how many people are preaching that, how many ads or commercials and billboards do you see about passive income, right? Hardly any. And most people are investing with the mindset of buy low and sell high, you know, put a thousand bucks in my IRA. And when I’m 65, I’ll take a peek and I hope it grows. You know, or I’m going to buy a house for 200,000. I’m going to flip it for 300,000. That’s buy low, sell high, a lot more risk and unpredictability and that type of investing, nothing wrong with it. A lot of people do it. You mentioned the fire community, you know, doing their index fun thing and selling off shares, whatever. But I like to just live off passive income, keep my initial investment preserved in the deal. So that’s how I’ve always approached it. I’ve, I’ve averaged about over time, about an 8% average, um, cashflow yields. So some deals I’m going into today might be a little bit lower. Some deals I’ve been in for five years are significantly higher. So I just try to average 8%. And then when I have a sale happen or refinance and all of a sudden I have extra liquidity, that’s kind of just the icing on the, on the cake, right? I can, I can pay taxes with that money. I can pay for other things in my life with that money. I can choose to reinvest all of that into more deals and just compound the passive income. So my main focus is just on monthly cash flow. And I think if people really could see it through that lens, really experience it themselves, kind of start at that $66 a month and grow it to $666 a month and grow it to $6,666 a month, you would start to get the big picture that, you know, this is what the ultra wealthy And this is a very viable, long-standing strategy that people have used for decades and decades and decades.
Dave Wolcott:
Yeah, I think the problem really stems with Wall Street and what was frankly told to all of us, to our parents, to our employers, to our peers, which is this whole investment thesis around a 60-40 portfolio consisting of stocks, bonds, and mutual funds. They talk about this accumulation theory, which is getting to that nest egg number at retirement. what is that really then converted to? It’s then converted into income, right?
Travis Watts:
Yeah.
Dave Wolcott:
But you’ve had to actually wait 35 years, right, to either, you know, to access any of that income. So I think that’s where a lot of it really stems from. And people just, you know, aren’t really aware of, you know, passive income kind of strategies. And then also, you know, let’s just talk, you know, more about how you really you create this strategy, right? Because it’s a process of investing.
Travis Watts:
Mm-hmm.
Dave Wolcott:
It’s
Travis Watts:
Yeah.
Dave Wolcott:
not just invest in one deal or another, right? We wanna be doing multiple deals a year and it starts to snowball, like
Travis Watts:
Right.
Dave Wolcott:
you said.
Travis Watts:
Yeah. Yeah, happy to highlight a couple of things on that. So if you think about it, I’ll just kind of pull this example on a whim, but if you start with, let’s say $50,000, you’re investing in something that gives you a 10% return a year in passive income. So what that means in year number two, if you’re gonna just continue this investing journey, you only have to put in 45,000 the next year, because you… had received 5,000 from the previous year in distributions, right? And every year gets a little bit easier because then you only need to put in 40,000, then 35, then 30. Now, as you zoom forward and we look at a decade or so, your investments are, are funding themselves in theory, right? Cause now you’re making 50,000 a year in passive income and you can make an entirely new investment at that point by putting no new money into the deal. And this is obviously just compound interest example, but You know, that’s one approach, right? If you’re looking to truly build up a high net worth over time and you’ve got an active career that you’re happy with and all that good stuff, that’s, that’s one way to do the passive income game. I use the rule of 72 all the time. You know, 72, uh, or the, the yield that you’re receiving divide by 72. So, um, you know, what a 10% return takes, what, seven years to double your money or something like that. So I kind of look at it like that is every few years I’m just adding. new investments without having to put new capital into them. Even though I do put new capital into them. The other thing
Dave Wolcott:
Yeah.
Travis Watts:
to all… Yeah, go ahead.
Dave Wolcott:
I was just going to say, I mean, on the rule of 72, right, with the S&P average, right, it’s about seven years before you double your money, right? But
Travis Watts:
Yeah.
Dave Wolcott:
typically looking at multifamily over the past decade, you could do that in a five-year stretch.
Travis Watts:
Yeah, and many deals have, and I’d like to actually talk about that a little bit. So the reason I’ve got the bulk of my portfolio in value add multi-family private placements is to me, it’s one of the best combinations of benefits that you can have as an investor. You can get monthly cashflow. You can get equity upside participation. You can get tax benefits the whole time. And so you’re utilizing both. the buy low and sell high philosophy, but even if it doesn’t work out on that end, you still have the cash flow side of it, right? And then again, the whole time you’re getting tax benefits to offset that income, or at least having long-term capital gains upon sale if you’re holding longer than a year. So it’s really a fantastic strategy in my opinion. So you look at other things like, oh, I’m gonna go buy some bonds for passive income. Well, no equity upside. or I’m gonna buy the S&P and hope it goes up. Well, no cashflow, very little, right? So that pays like 1% or something a year. So this is just a great hybrid approach. And just real estate in general is, if you treat it that way, it’s an intermediate to longer term play with a lot of packed benefits into it.
Dave Wolcott:
Yeah. And do you think that the asset class, it’s still the right time for it? Clearly, there’s a lot of distress kind of building in the marketplace right now with people who had poor loans, say a couple of years ago, when they took out floating rate debt, they’ve gotten and with interest rates kind of where they are. in the market changing, do you still feel like the fundamentals are strong or what are your thoughts on the current outlook for multifamily?
Travis Watts:
Sure. Happy to share a few things. The first thing to realize, whether we’re talking about a real estate cycle or stock market cycle, the saying goes that the bull takes the stairs and the bear jumps out the window. Meaning it could take 10 years plus for a bull market to fully develop, but then a recession comes and it can collapse in 12 to 24 months and then start a recovery phase again. So I think that we are in the midst of seeing the final. developments of this real estate cycle reset, meaning the Fed went the most aggressive that they’ve gone in US history on raising rates that directly impacts the purchase price of these properties. So we’ve seen cap rates reverse. We’ve seen pricing come way down. We’re about to close on two deals that we’re getting about a $50 million discount on relative to pricing 18 months ago. So if you can still find a cash flowing asset and maybe you can put some fixed rate. dead on it and you’re still going to be cash flowing day one. It can be a great opportunity this year because if the fed stays near the top, you can still execute a business plan like you did in years past when interest rates were three and four percent up and down. If they taper rates back down because we hit a recession or we hit the inflation goal or whatever you might be able to refinance early maybe sell a property for more than what you projected. So I think 2023 is now a much healthier market. than 2022 and 21. I mean, even I was very skeptical in 21 as the stock market’s up 30% and real estate’s reaching all time highs and stimulus money’s flying everywhere. People are gambling, crypto’s going crazy. I thought this is not sustainable. I’m a little nervous to see what’s on the other side of this because markets don’t just go up 30% a year, and rent growth at double digits is not usual. So we’re seeing a… Uh, you know, a flattening, a reset, whatever you want to call it at this moment in time. And yeah, I’m still investing this year, uh, just like I did in previous years. I may even go a little bit harder this year, but I’m very bullish on the future from here. We know the fed can’t take rates, you know, double them again, basically. Right. Or the fed funds rates going to be 10%. I mean, you would implode the economy and the whole world for that matter. So we’re nearing the top. And like I said, you got three scenarios and two out of three can be very bullish. for real estate. And the only one that’s not is if they keep going up and up and up with rates, but again, their other obligation, the Fed is to help the economy in the event of recession. So they go much higher, they’re gonna force a recession, then they’re gonna have to cut rates to bail them out. So you get back to the third scenario of cutting rates anyway. So that’s
Dave Wolcott:
Yeah.
Travis Watts:
just kind of my personal opinion on it. Who knows? I don’t have a crystal ball, but that’s how I look at it.
Dave Wolcott:
Yeah, exactly. And I think one of the things that I’ve learned as an investor over the years is that so much of investing is around expectation management.
Travis Watts:
Mm-hmm.
Dave Wolcott:
If you’re forecasting a certain pro forma to return something and then it misses, what is the attitude that you actually have towards that? Is it that the operator did not execute according to plan? Or are there market dynamics that are outside of your control, such as the Fed doing unprecedented interest rates that we didn’t underwrite to, you didn’t know about for so long? So I think that expectation management is such a key part of investing and really knowing that as you get into these investments, I mean, look, there’s risk and… any type of investing that you do. I mean, look at bonds. I mean, look at the banks, SVB that just failed and everything, with investing in bonds, which was supposed to be one of the safest things. We’ve had two occasions where my wife, and I wrote this about this in my book, my wife was generously gifted a portion of Kodak stock by her dad to
Travis Watts:
Mm-hmm.
Dave Wolcott:
her. You know, a blue chip company that would be recommended by every financial advisor, right across the country, across all firms, they go bankrupt and there’s no recourse, there’s no nothing, right. And what’s Warren Buffett’s number one rule. Don’t lose money. Right.
Travis Watts:
Right.
Dave Wolcott:
But I think, you know, you have to realize that in this, you know, game of investing, not everything is going to be a home run. Right. And I think, you know, managing your expectations that, you know, sometimes there’s some things outside of your control you can’t kind of manage to, and that will actually make you, you know, a better investor and as you kind of allocate capital and build your portfolio.
Travis Watts:
Diversification, those are all great points, is to me the only approach to use, to your point. I mean, there could be a bad actor out there, there could be a fraud case out there, there could be an economic thing, there could be a natural disaster in a particular market, there could be a GP that fails to do their job. I mean, these are all risk points, right? So this is why, number one, I recommend that people invest in what they know and understand the best, primarily. Right. So the more, you know, the less risk you take on a particular asset type, but that you also pay attention to branching out a little bit. So over the years, um, for no other reason than learning other asset classes and having a step to pivot to, if I need to, I’ve gotten more into car washes and ATM machines and self storage and mobile home parks and, you know, covered calls with my brokerage account and ETFs that do it for me and different things. Right. So that. If my primary asset class stops making sense, let’s say a multifamily deal in 10 years says, hey, we’ll pay you 1% cash flow and 2% upside. No, I’m just not gonna do it. So I need to know what else I can do to get a healthier yield and not be a one trick pony, so to speak, but those are all great
Dave Wolcott:
Yeah,
Travis Watts:
points.
Dave Wolcott:
yeah, no, totally agree with that. What do you think is the biggest risk in investing in multifamily right now?
Travis Watts:
it’s gonna come down to debt structure and operator. So it’s the ability that the operator can actually execute the business plan that they’re proposing to you, okay? So that’s usually like, if I look at a multifamily syndication, I’m looking at really three macro level things. I’m looking at the operator, the market and the deal. They’re all really important, but I put about a 50% emphasis on the operator and that’s based off my own experiences of seeing a newer operator that couldn’t execute and what happened to our overall returns and getting into like a so-so deal, but the market was just crushing it. And we all did well. What impact that’s had in my single family days, things like that. And then the common sense of just doing a good deal, you know, that makes logical sense that cash flows day one and stuff like that, the debt structure, a lot of people now, of course, are moving to fixed rate debt on a longer term than doing these, you know, one to two year floating rate. Um, deals, you know, but what was interesting about 2021 and 2020 is if you really looked at the forward projected curve on interest rates and you really tuned into quote unquote, some of the smartest people that are out there, none of them predicted what happened. I mean, and when I say none, I’m sure there was someone that’s, you know, taking claim to fame there, but the majority were saying, yeah, they might ease up a little bit, but it’s not going to be crazy. And then all of a sudden we take them up to what? five, five and a quarter fed funds rate. So a lot of people were caught off guard with that. And that adjustable rate debt had made logical sense in all the years prior, and it had been working and working and working, just like the bond example with SBV, it had been working, but all of a sudden, things quit working because you’re gonna have a cycle reset. So something to be mindful of, and to again, just diversify if you can.
Dave Wolcott:
Yeah, totally agree. So if you could design the perfect investment, what do you think it would look like?
Travis Watts:
Ooh, it would be a real estate deal because I always like to think of things like, is what I’m investing in really needed? Is it really necessary? And this is the problem I have with so many stocks that are in the stock market. Do you really need Coca-Cola? I don’t know. Do you really need McDonald’s? I mean,
Dave Wolcott:
Tesla.
Travis Watts:
truth is we just don’t. But do we really need affordable places for people to live? Has that really been around for a long time and been working and have a long track record of success? It has. And I’ll tell you a quick story. Two weeks ago, we were out in Colorado. I was visiting some family. I grew up in Fort Collins, Colorado, and we were downtown Fort Collins. And I hadn’t been there in years and years and years, but I’m looking around at all the retail shops that I remember as a kid. And I would say at least 50% have changed hands. You know, they’ve gone under for one reason or another, and we walk by the store and on the window it says, we’ve been here in this location for 90 years in Fort Collins. And that happened to be a flower shop. So,
Dave Wolcott:
Hmph.
Travis Watts:
you know, it’s worth considering, you know, are people always gonna want flowers for one reason or another, whether, you know, wedding, funeral, Valentine’s Day? The answer is yes, you know, that usually works. The same with like a liquor store, generally speaking. you know, if we exclude the prohibition days, but you know, those typically work in up markets, down markets and sideways markets. So to go into an investment of like, I have this new trendy idea. No one’s ever thought of it’s a little hipster bar and we’re going to have little sparklers in the martinis and neon lights. I I’m not going to invest in something like that because that’s a fad and a trend and doesn’t have a proven track record of success. So back to your question, it’s a real estate deal. It’s got a hefty amount of cashflow to it. It’s got fairly low leverage, maybe 60% leverage. It’s got fixed rate debt on it. It’s got great equity upside. We’re buying it off market at a discount and it’s going to have some lucrative tax advantages that are in the tax code currently. And I just personally don’t think it gets better than that for me and what I’m trying to accomplish.
Dave Wolcott:
Yeah, yeah. No, well said, Travis. And I think really, you know, understanding the, you know, macroeconomics and fundamentals of an asset class is really where you should start. Right? We’ve
Travis Watts:
Yes.
Dave Wolcott:
had countless people talk about, you know, people always like to talk about, okay, what was your worst investment? Right? And why did that go wrong? And in a lot of cases, people really just point out they invested in something they didn’t know enough about.
Travis Watts:
Yep.
Dave Wolcott:
Right? So you’ve got to be kind of smart on that. But when you can start from that kind of macro view and realize we have a shorting, housing shortage in the country of, what is it, six million units,
Travis Watts:
Yeah.
Dave Wolcott:
currently something like that, right?
Travis Watts:
Yep.
Dave Wolcott:
You’ve got some supply demand imbalances. And then, we talked about earlier, markets like Florida, Texas, Arizona, right, some of these hot markets where people are just leaving, you know, the north and tier one cities because they want to pay lower taxes, they want a better lifestyle, you know, so a lot of things kind of driving that. So appreciate that point. Travis, if you could give just one piece of advice or your biggest insight that you could share with the audience in terms of how they could accelerate their own wealth journey, what would it be?
Travis Watts:
Oh boy, that’s a tough one. Um, a mentor of mine years and years ago said double down on what’s working. And I guess I would just happen to be at a time in my life where really nothing was working except the real estate. So I, I shut down all these little small businesses I had and, um, and I just, I went full force into it, but again, I had to do a little reflection on what we just discussed, you know, is it necessary? It doesn’t have a track record of success. Like you want to try to put. the odds in your favor. Pretend like you’re the casino in Vegas and not the consumer, right? So the odds have to be in your favor. So I like to look at any investment with maybe three outcomes and two being in my favor and one not being. But the fact is when people go try experimental businesses, the majority of those fail. So you’re starting from the opposite perspective of… Everything’s stacked against me. I hope this works. And I would just say to that person, why?
Dave Wolcott:
Yeah. Yeah, no, I mean, really sage advice there, right? Because and I think there’s a lot of misnomers and people just need to get smarter out there. And just look, you know, Wall Street is really, you know, such a culprit. And this is why I get really passionate about this topic too, because there are certain things, right, that they talk to you about, which is, you know, that accumulation theory, right, and save and save and save and defer your taxes along the way, by the way, right? Well, the only thing I’m certain of is taxes are going to go up in the future. So wouldn’t you rather pay the taxes now versus at the harvest time?
Travis Watts:
Well, you look at like a traditional IRA, which a lot of people have been sold or a traditional 401k, and you’re like, so you’re gonna make investments that otherwise would be treated in a favorable tax way, right? Long-term capital gains, things like that, real estate having all these tax advantages, and you’re gonna put it in an account where you’re gonna get taxed at ordinary income levels. So again, why? It’s like, if you just did it in cash, you might pay 15% on your tax for example purposes. but now you might pay 30 or 40% tax because it’s in an IRA. And the whole name of the game, I worked for a very large brokerage firm, one of the biggest in the world for a short period of time, is assets under management, man. Here’s the business model. And if this doesn’t make sense from a business perspective, I think you’re crazy, but here, give me your money. Let me take a 2% fee, no matter what happens to your investment or your money,
Dave Wolcott:
Yeah.
Travis Watts:
and just give me all of it for the rest of your life. How about that?
Dave Wolcott:
Yeah,
Travis Watts:
That’s the business model.
Dave Wolcott:
exactly. Yeah. Well, and another one that’s even better. Think about the government.
Travis Watts:
Yeah, right.
Dave Wolcott:
We want you to put all your money in 401ks, IRAs, all of these different vehicles. And then when you turn 65, I know exactly how much revenue you’re going to pay me. And if I’m short on revenue, I can actually tell you, you need to pay me more. And
Travis Watts:
Yeah.
Dave Wolcott:
then I can even You have to take out so you can pay me. So talk about the ultimate passive income scheme, right? It’s a beautiful business plan, like you say, on the other side of the fence for basically for the government and for Wall Street.
Travis Watts:
Yeah, yeah. And you know, there’s always, you know, not to bash these accounts entirely. Like there’s reasons you might have them. There’s opportunities, let’s say your employer matches dollar for dollar on your 401k. Like there could be a reason to do that stuff. You know, you put in a thousand, your employer puts in a thousand, you know, whatever. But as far as like going hard and heavy and maxing it out to its max potential and putting all your eggs in that basket, like to me, if you read the book, 401 Chaos by Andy Tanner, It’ll vastly change your perspective. Let’s just put it that way
Dave Wolcott:
Yeah. Awesome. Travis, such a great conversation. I know the audience is really going to enjoy this one. If people would like to, you know, connect with you and learn more about you know, what you’re up to, what is the best place?
Travis Watts:
Yeah. So whatever your preferred platform is, I’m on Instagram and Facebook at passive investor tips, and I’m on bigger pockets and LinkedIn and other platforms, Travis Watts, and I have a landing page it’s Ashcroft capital.com forward slash Travis, and I’ve got my calendar on there and we can talk about whatever you want to talk about. You don’t need to be an accredited investor. It doesn’t have to be a conversation about Ashcroft capital. Just that’s where I put my calendar publicly. So I encourage you to reach out with any questions. that you didn’t fully understand, that I didn’t do a good job articulating or anything you want to learn from here and be happy to help.
Dave Wolcott:
Awesome. Really appreciate the discussion, Travis, and we’ll see you the next time.
Travis Watts:
Thanks, Dave. Thanks, everybody.
Hey guys, welcome to today’s show on wealth strategy secrets. Today we’re joined by Lewis O’Connor. Lewis is the founder and principal of Strategic Metals Invest, providing a unique opportunity for private investors worldwide. They’re the sole industry supplier that allows individuals to purchase and benefit from owning strategic metals. With their Europe-based operations, they offer North American clients the much needed advantage of geographic diversification. Lewis, my friend, welcome to the show.
Louis – Strategic Metals Invest:
Thank you very much, Dave. Delighted, very happy to be here with you. Thank you.
Dave Wolcott:
Yeah, no, I’m super excited, you know, to talk about this, you know, really unique offering that I think most people probably aren’t aware of. You know, most folks are just kind of inundated by, you know, Wall Street and stocks bonds and mutual funds. And I think, you know, the first thing that comes to mind when you talk about precious metals is people will think about, you know, gold and silver. So really looking forward to kind of understanding, you know, the market dynamics and the specifics around some of these precious metals. But before we start to unpack the precious metals, you know, tell us a little bit about, you know, your background, your journey, and how you really got into the space.
Louis – Strategic Metals Invest:
Sure. Well, as you can probably tell from the accent, I’m not Ohio based or born. I’m Irish. I’m from Dublin originally. Coming to you today from Tipperary. Our business is European based, but we’ll talk about that more in a minute. So, yeah, I’m just back to Ireland, Dave, actually, after 25 years traveling the world, really. I lived in Germany for 10 years. and speak German. And then I went to Latin America and mostly based in Panama, Central America, but also sort of had some did some business and stuff in Columbia, Nicaragua, Belize, and actually usually are mostly working with North Americans and Canadians. Central America was more property and real estate. And but although I’ve never lived in the US, funny enough, I’ve worked with North Americans most of my life, even when I was in Germany. So, so, um, I came back to Europe three years ago specifically for this business, because it’s a sort of a relatively new asset class and, you know, there’s a great story behind it, which happens to be true in terms of supply demand, which, which we get into. But yeah, that’s, that’s pretty much it.
Dave Wolcott:
Interesting. So was there something that kind of got you into the precious metal space kind of in your career that led you this way?
Louis – Strategic Metals Invest:
Um, it was just really, you know, I always, you know, I, we, we always live in an age where there’s something new coming around the corner. Right. Not everything works out, but I mean, you know, we look at just the last 20 years, some of the companies we know so well today probably didn’t exist maybe 20, 25 years ago. So just, you know, I’m thankfully still curious, you know, although I’ve traveled all over the world, I love to hear anything, a new book, new movie, whatever it might be. From a business perspective, I’m always looking for a niche, I suppose, something new and something where there’s a real story of, you know, in this case, it’s the demand supply dynamics. There’s a genuine, nobody in the world would argue demand for these raw materials is increasing, while at the same time, we have one country that monopolizes the market. And the next sort of five, 10 years, I mean, the last 10 years have been very profitable. And As we discuss, there’s about another 5, 10, 15 year window of opportunity there as well, specifically in rare earth elements.
Dave Wolcott:
Right. So why don’t we start with kind of just talking about, you know, what are precious metals specifically, which ones are you talking about? Where can you find them? And let’s kind of begin there.
Louis – Strategic Metals Invest:
Yeah, well, I’ll break it down because you’re using the right term there. Precious metal. So they do come under that umbrella term, right? My company is called strategic metals. And the reason for that simply is strategic. Obviously, it’s not a scientific term, but strategic is strategic to our daily life. I mean, just to give you one example, like the same my smartphone here. There’s in every smartphone today, there’s 12 or 13 precious metals. And there’s some gold in your phone, there’s a bit of silver, but the other 10 are the ones that we offer as physical assets. And the same, for example, you know, you couldn’t, we see and touch them and feel them every day. One of them is indium. You can swipe your phone because of indium. There’s gallium, germanium, hafnium. And, for example, the metal or the oxide in the speaker. in your smartphone, to be more precise, in the permanent magnet, is the same metal that’s in permanent magnets in electric cars, in wind turbines, in solar. So they have multiple, multiple applications, yet we just sort of rarely think about them. We generally just think about gold and silver, and you know, gold, you know, is most, does have some industrial use, but mostly jewelry, but silver has more industrial use. But these raw materials are specifically used in the industry. And you quite rightly said, Dave, most people wouldn’t have heard of them as physical assets. And the reason for that is, as I said, it’s a relatively new asset class. It’s only since about 2010, private investors can physically purchase them. It’s the exact same paradigm as gold and silver, except you’re buying and purchasing rare earth elements, which are, you know, supposed to have an intrinsic value as opposed to… In many ways, gold has a sort of an extrinsic perceived value because it’s mostly purchased as a store of wealth, whereas these raw materials have an intrinsic value. And, you know, there’s probably not an industry they’re not used in. I mean, you know, semiconductors for computers and, you know, all modern technology, medical devices, electric cars, aviation, rods for nuclear reactors, you know, the space exploration has become a fully fledged sort of space industry over the next sort of 25 years, so they’re critically needed there as well. So yeah, we just, you know, a lot of people are surprised and go, yeah, how come I didn’t think of that before? Because in your phone, you touch them and see them every day, you know.
Dave Wolcott:
Yeah, sure. So where do you typically mine these, right? And what is the supply side actually look like? Are some of these, you know, plentiful? Are they still rare, you know, like gold would be, for instance?
Louis – Strategic Metals Invest:
Yeah, good, great question. So despite the name, they’re called rare, the scientific term is rare earth elements. So they come in metal form and oxide form, which is powdered, even liquefied and in nitrate form. But despite the name, they’re not all that rare. And there’s plenty of them in North America. And Mountain Pass in California, actually, until the 1980s, was the largest producer of rare arts in the world. But what happened was, Rare Earths really, we only found applications from them, believe it or not, in the 1960s, when we went from black and white TVs to color TVs. That’s when we really started to use them. But I mean, as we all know, 20 years later in the 1980s, when the technology, this is when they really came in to being needed in just about everywhere. So, since the 80s is when they’re… Everything from a toaster to a microwave pretty much nowadays has a mini computer in it. And these are critical in all technology. But where the supply demand dynamic comes in, and I’ll just tell you, like China is responsible for 90% of the world’s rare earths. And obviously, that’s not a good thing, because I suppose really what happened, Dave, as an unintended consequence of globalization. I mean, for the last two or three decades, when the world was sort of high on globalization, we sort of didn’t worry too much about the fact that it wouldn’t be a good idea for one country to control one raw material that’s critical to any nation’s economic prosperity and increasingly military capability. So what happened during the 80s was China actually did People can Google and you’ll see this, the premier of China at the time, Deng Xiaoping, standing on a rare earth mine, said that the Middle East has oil, China has rare earths. Now that was a very, very shrewd statement in 1987 because right after that, you know, the technology industry sort of exploded or was already happening. And really what happened was China understood before Europe and before the US, that these rare earths would become literally the backbone of manufacturing in the 21st century. So they were about 25, 30 years ahead. Now at the time, and I’ll speak about the US just because I know your audience is North American, but at the time the US government thought, you know, because we were a little bit high on globalization, we thought, well look, what China started to do was move all the refining from actually from Mountain Pass in California to China. Now, at the time, I think the US government thought, well, look, separating and extracting and refining these raw materials, it’s complicated, it’s messy, it’s expensive. Why don’t we let the Chinese do it inexpensively and we’ll just buy the raw materials cheaply for them? So what happened then though was the US set up… a bureau of mines to keep an eye on, so the US could remain competitive. And that bureau was defunded in 1996. And literally what happened since then is China now monopolizes rare earths. And the key thing I need to tell you why is the refining important is because rare earths don’t occur naturally. And they’re always a byproduct of another raw material. So for example, gallium. is a byproduct of aluminium or you guys say aluminum, we say aluminium. Gallium is a byproduct of aluminium mining. Hafnium, which you need in jet engines and rockets, is a byproduct of zirconium mining. To give you some context, the ratio is 50 to one. So for every 50 tonnes of zirconium, you can only get one tonne of Hafnium. So they’re rare in that respect, although you could find them in any continent. finding them in sort of high grade, you know, they don’t occur naturally and that they’re chemically, they sort of exist together. So they have to be extracted, they have to be separated, they have to be refined. That’s complicated, it’s expensive. And we’ve allowed the Chinese to sort of run away with the circus there. But very, very recently, both Europe and the US have realized, you know, we have to wean our dependence off China. And that’s why they’re a good investment right now. and over the next five or 10 years, I think I covered everything there.
Dave Wolcott:
Yeah. Okay. So that’s, that’s pretty interesting, right? So where can, I mean, you talked about California as one of the mining locations. I’m assuming there’s others kind of across the world outside of China. Talk to us a little bit about the infrastructure. It’s kind of interesting that it’s really a byproduct, right, of something else. But tell us a little bit about the infrastructure. I mean, is it, is it miners, you know, similar to, you know, gold and other things that you hear, how we’re actually extracting these precious metals. And then what does the supply chain look like? How are they getting it to market? How are they making it? You know, are they selling them direct to semiconductor companies, car companies like, you know, like Tesla or whatever? How does that work?
Louis – Strategic Metals Invest:
Okay, so, yeah, you’ve just touched on a good point there, like, first of all, like who we are as well, and what we have an offer. So it’s probably the most important thing I might say today, and is the fact that, and it just might sound like a little contradiction or a paradox, but the most important thing about us is, is not this investment offer that we have. It’s the most important thing is that our core business, what, you know, 80% of our activities on a daily basis. is we’re a supplier of rare earths. So we turn over on the industrial side of the business about $100 million a year. So our office is in Frankfurt and the vault is in Frankfurt. So what we’re doing and what we have been doing for the last 30 years is we buy the raw materials directly from producers who are mostly in China, but also in other places as well. And then we resell them to industry buyers. So to be exact, We’ve 2000, at last count, we’ve 2480 industry buyers in 70 different countries. So we’d have plenty of clients in the US, plenty in Europe and the Far East. So, so that’s our core business. That’s what 80%. That’s what we’re doing 80% of the time. And it’s only because of that, that we can offer, as you guys in America like to say, the side hustle, the side hustle is the investment. And, but if we weren’t in the industry, if I was just A sales and marketing guy in Tipperary in Ireland. I’d be crazy because I’ve no connection to the industry. The only end buyer for these raw materials are industry buyers, as you said, Apple, Siemens, Volkswagen, Ford Motor Company. So the only way this works is if you’re buying from an industry supplier, unless you’re a hobbyist and then you go to eBay or Amazon and you buy small amounts and
Dave Wolcott:
Yeah.
Louis – Strategic Metals Invest:
you would have no idea what the purity of those are anyway. But to give you just some context on what you said about the sort of infrastructure, there’s one mine in America, North America producing rare earths, and they still, which is mountain pass, but they have to sell all the raw materials to China to be refined because the human capital, the engineering expertise that existed in America in the 80s is completely gone. To give you some context on that. Now, that’s all going to change, Dave, because In the Inflation Reduction Act, there’s billions of dollars in subsidies for people to refine Earth’s North America. You will see some investment coming into North America, but the current status quo is China refines 90%. To try and give you an idea, there’s 39, the critical type of person you need is a metallurgist. You need geologists and a metallurgist, which is the degree needed for the refining. China has 39 universities graduating degrees in critical minerals. You know, they’ve probably got about 200 degrees, 200, um, metallurgists graduating in a week, every week for the last 30 years. The U S only has a handful of universities with degrees in critical minerals. So I suppose to give you further context, there’s about 300,000 metallurgists in China. There’s maybe. 400 in North America and none in Europe were completely dependent on China. At the moment. Now Europe wants to change that America wants to change that. And this is why it’s such a good opportunity for investors right now is, it, you know, it took China a generation to become a sort of a global rare earth superpower so much so that they can weaponize rare earths now they just by restricting them. So we’re in this sort of very unique window of opportunity for the next five, 10 years. and where investors can hold them, physically store them, and just watch them go up in value and then liquidate them, you know, once they’ve, you know, realized, you know, whatever number they want.
Dave Wolcott:
Yeah, got it. So how does the investor participate, you know, in this type of opportunity?
Louis – Strategic Metals Invest:
Okay, so it’s the same paradigm, as I said, as gold and silver. So the investor physically owns the asset. They, it’s not a, you know, a share or a piece of paper. They physically own the asset. And so what I suppose you could say we’ve three guarantees or maybe our warranty statement is three things. One, we guarantee that the client is purchasing industrial grade, high value gallium or germanium or indium, whatever it might be. We’re guaranteed to purity levels, we’re guaranteed to chain of custody, and we’re guaranteed that what they purchase can be liquidated to an industry buyer at any time. So they qualify for that industrial grade. And obviously, as an industry supplier, we know what industry buyers want. Just like gold, there can be different purity levels. There’s also different forms. Some of them are in powdered form, but we know what we can liquidate, and we also provide the exit. But in the meantime, there’s storage. We have a storage facility in Frankfurt in Germany. It’s in the banking district. It’s two levels below ground. It’s one above. It’s a bank level secure vault with two meter walls and two meter door. It actually was a bunker in World War II and then after during the Cold War. And we bought it in 2010 and invested in it. And now it’s a fully sort of secure. fully insured, you know, we store precious metals there as well. So we also provide storage, um, in a sister company of us. And then the last part is the exit, which is we guarantee to liquidate the raw materials when the client is ready to sell. Now that’s not their only option. They own the raw materials. If they want to find the buyer themselves, they can, but, but since we’re an industry supplier and that’s really the only end buyer we do obviously. responsibly have to provide that option. So we guarantee to repurchase them at a current pricing, whatever that might be.
Dave Wolcott:
Okay. So how is the investor really, you know, kind of making money? Are they looking at appreciation off of these metals? Is that the primary play? Is this a hedge play by saying, you know, okay, now you have strategic metals in your portfolio, right? If the dollar continues to devalue, you know, now I have a certain allocation set to these strategic metals. So is it more of like a hedge play? Or is there anything else in terms of, you know, how investors really can profit from
Louis – Strategic Metals Invest:
Okay, so at the very minimum, it definitely is a hedge against inflation. It’s a store of wealth because you own an asset, a hard asset that has an intrinsic value that’s in demand in every country in the world. So at the very minimum, yes. However, because of the political instability, because of trade tensions, there’s other dynamics that come into play. But just to give you an idea, there’s 10 of them that we offer. If you’d purchased say $100,000 of all 10, so it means you’re diversified in different sort of industries, five years ago, your portfolio would be up an average of 34.25% a year. Some of them are up one, one metal is up 500% in the last three years, one’s up 6%. So that’s just the average numbers. So because of this, you know, supply demand disparity. They actually have been historically increasing in value. Now, what’s coming next? What does the future hold? Well, as I said, just three weeks ago or less than three weeks to August 1st, China has restricted the export of gallium and germanium probably to the US, Japan and Holland because they’re sort of in a retaliatory situation at the moment. So, you know, it’s a speculation, you know, much like everything else. There’s no guarantees. But if you do your homework, if you really see what’s hidden in plain sight, you’ll see that demand is off the charts. And gallium, as an example, between now and 2030 in Europe alone, we’ll be consuming somewhere between seven to 26 times more gallium than we are today. And there’s probably just not enough of them. What’s very interesting for the moment, Dave, in the next 10 years is what we call the energy transition metals. There’s five of them. which are the raw materials for electric cars, solar power and wind power, also needed in batteries and stuff. There’s going to be huge growth there because there literally will not be enough of those raw materials for every car manufacturer to go electric, which is what they want to do. So I can’t say, oh yeah, they’re going to go up X amount in value. I just can’t because they can also be sort of volatile in the short term because China China sort of controls the pricing. But in the long term view, and we suggest to anybody that’s purchasing them, please, if you do purchase, plan to stay in for at least three to five years. And then, if you look historically, you’ll see the gains.
Dave Wolcott:
Got it. Is there any tax efficiency strategies in terms of purchasing these metals or like you had talked about, or is the government putting out any subsidies or incentives in the form of
Louis – Strategic Metals Invest:
Well, if you store with us in Germany, our vault is a zone lager, which is a duty free zone. So it’s exactly the same as if you’re storing in Switzerland or Singapore. And if you hold the raw materials for a minimum of a year, then there’s no taxes when you purchase and there’s no taxes when you sell or when you liquidate. However, obviously, Uncle Sam, I know, has global taxation. So… And you know, capital gains would come into it for North American clients. And we have had recently a number of our clients go to a custodian and use a self-directed IRA, a checkbook, I think they call it a checkbook IRA to purchase, which means when they sell, then I guess the gains and the profits go back into the, into the pension and the taxes either deferred or I’m not sure obviously you don’t have take tax advice from an Irishman in Tipperary. But yeah, I mean, I do know the US is one of the, maybe one of two countries that has global taxation. So they’re tax free in Europe if they’re held for a year, but after that, then the client has to do their own reporting in their own jurisdiction.
Dave Wolcott:
Yeah, got it. So you’re basically looking for, uh, that appreciation play and within a three to five year period is.
Louis – Strategic Metals Invest:
Exactly. Yeah. I mean, gallium and germanium in the last sort of three weeks are up 10% and 15% since China announced these restrictions. So yesterday, US president announced some sort of retaliatory measures. So we think things are really going to escalate. The last time China restricted the export of rare earths was over 10 years ago. In 2011, the the Japanese detained a Chinese captain of a trawler who was fishing in sort of disputed waters. And in retaliation for that, China restricted the export of rare earths to Japan. And we saw prices sort of, you know, 5X, you know, in the space of a few months. So for the first time in over a decade, China is now weaponizing rare earths again, this time against the US, Holland and Japan again. So like… Mostly my conversation with clients is to say, look, for sure, at the minimum, this is a good store of wealth. And then in the middle, likely, you should comfortably see maybe 15%, 20% a year, just because demand is increasing and supply is limited. However, if things escalate and China decides to really weaponize them, you could, like I said, like Turbium is up 500% in three years. even without restrictions, they’re outperforming precious metals, you know.
Dave Wolcott:
Lewis, what would be the biggest risk in this type of investment?
Louis – Strategic Metals Invest:
Okay, so I’ll start with the business itself. I mean, you know, you’re purchasing from an industry supplier. Any business can experience difficulties or go out of business. What all I would tell you is that, you know, we’re in business since 1999. We’ve held a ISO 9001 QM management certificate, quality management since consistently since 2003. Our product is a product that’s in demand worldwide and is increasing. So the business itself is as safe as any business can be. I mean, it’s actually growing. We’ve moved to a bigger office this year, or we’re purchased land where we’re actually gonna build another storage facility, another vault also in Frankfurt. So the business is growing, and I would say it’s as safe as any business can be. It’s a German company. Germany is one of the most industrialized nations in the world. and revenue is continually going up. So that respect, I think it’s as safe as anything can be. In terms of the metals themselves, you could find, for example, indium, let’s say the one I mentioned that you need to swipe your phone, possibly, you know, better technology might come along that will make that easier. So demand then for indium could go down. So you could find one of the raw materials being replaced or being substituted. you can possibly, you know, I mean, supply demand. You know, the US and Europe, I mean, they reckon there’s a lot of rare earths in Vietnam. They’re saying down north of Sweden or the Arctic Circle, there’s a million tons, you know, down there. You know, in fact, Japan is mining the seabed for rare earths. There’s companies talking about mining them off comets in the outer space. So, you know. They are the backbone of manufacturing in this century. So there’s a huge demand for them. And there’s a sort of a very manifest poignant sort of an effort everywhere to where can we get more rare earths? So, so you will see more come in to the supply chain, but it’s just going to take time. I mean, this, this thing in Sweden, they mentioned, I mean, it’ll be at least 15 years before they, they reach, you know. production, you know, or sorry, before they’re in into the market. And you’ll probably hear in the US of some mines and Linus Corp from Australia just signed an agreement with the US Department of Defense to build a refining facility in either Florida or Houston. Not sure, but this is the US Department of Defense just basically securing their own, nevermind private industry. One F-35 fighter jet has three quarters of a ton of rare earths and is not one refining facility in North America. So we will see more come into supply, but prices will still rise because one, you know, labour costs in the US will be more than China. I mean, the reason China took over is we know they can do things cheaper, right? But that is not going to work anymore because, you know, they’re critical to… to each nation’s economic prosperity. So either way, again, the next five, 10, 15 years is a very good time to own them. And also you can use, our clients can use our platform, if you will, like an exchange, they can buy and sell, it’s a tax-free zone, so they can buy like 10 rare earth metals, they can buy PGMs, the platinum group metals, they can buy gold, silver, they can buy and sell. tax free within what we offer. So yeah, and that’s really, I think, the risks covered.
Dave Wolcott:
Got it. So if an investor was trying to make a decision in terms of, okay, hey, I’ve made the decision now that I want to hold strategic metals in my portfolio. But do you guys create any, you know, guidance or anything to say that, hey, you know, based on, you know, your risk profile, your timing, your outlook, we recommend like these three metals, or, you know, you should just go into one or something like that. How does that work?
Louis – Strategic Metals Invest:
We recommend two things. One, diversification is purchase maybe all 10 metals. And two, what we call maybe an extreme view, which is three to five years minimum, even 10 years. I mean, a lot of our clients now using self-directed IRAs, it’s a perfect vehicle because they won’t use the funds anyway for seven or 10 years. But what’s interesting is the clients that are sort of excuse me, are coming to us mostly are people who are probably using the raw materials. So we’ve a lot of, for some reason, we’ve a lot of surgeons, plastic surgeons, I guess they’re using a lot of reverts, engineers, and from NASA we’ve some clients who are, you know, with NASA, Google engineers. So a lot of people come and they already know a little bit about them and they probably know demand is sort of increasing. But if somebody’s not that familiar I’ll talk privately and individually with each person and they might like a particular industry, for example. They might say, well, electric cars or solar, this energy transition, there’s five metals and I tell them which they are. Somebody might be more interested in aviation or the space industry. But the safest bet, as you know, Dave, usually is diversification. But having said that, if a client knows something we don’t, wants to buy just one metal and buy X amount, we’ll happily accommodate that as well. But yeah, we tend not to give to say buy these ones because to be honest, because the market is purely driven by supply and demand, we really don’t know what’s coming from one week to the next. You know, they can go up and down a little bit in the short term, but in the long term, they’re always the arc is over, the trajectory is already… is always upward, you know, since about 2010. If you’ve held them, you know, you might have had some dips, but you would always be ahead.
Dave Wolcott:
Hmm. Interesting. So how would an investor really engage with you if they were looking to, you know, uh, make a purchase in this strategic matter?
Louis – Strategic Metals Invest:
Okay, so they could go to the website, which is strategicmetalsinvest.com. They can come visit if they want to come to Frankfurt and see the vault. But my suggestion would be send me an email. It’s louis at strategicmetalsinvest.com. And I’ll happily schedule a Zoom call or a phone call or just, you know, our first suggestion is for people just to go into information gathering mode. just to, you know, and we’ll happily educate people. We, you know, a lot of what we’re talking about, everything we’ve talked about, it’s not hidden anywhere, but it’s sort of hidden in plain sight. But once you do a little bit of digging, you’ll see, you know, the dynamics of it. But what we like, first of all, for people just to sort of inform themselves, go into information gathering, and after that, then when they feel they’re sort of fully informed from us, but also maybe independently. then maybe start to think about a purchase and you know, we’ll be with them all the way.
Dave Wolcott:
Yeah, such a fascinating asset class, Louis, and all you have to do is look around to see the demand that’s increasing. And like you say, in the 21st century, all the metals that are going into all of the products that we’re using and with technology advancements, that’s only going to be accelerating over the next two decades. So what would you say if you could give only one piece of advice to our listeners about how they could accelerate their wealth journeys? What would it be?
Louis – Strategic Metals Invest:
question. I don’t like to, you know, the expression advice is the worst advice. I really don’t like to give advice. But I suppose if you’re asking me if there was one word, I’d say diversification. I’d always come to that. I mean, my first purchase was property when I was in my early 20s, 23. which is my first apartment, and I sort of honed in on property for about 10 years, and bought properties in Ireland, in Germany, in Panama. And then I think I got a bit more curious maybe, and learned a bit more, maybe a bit more educated. I’m always, yeah, diversification. And, you know, I think that at any given time, there’s always a niche where there’s a product that’s coming in or maybe already exists, where the demand is increasing and the supply is limited. I tried to stick to that little formula, which I found in the metals. I’m also into agriculture as well, but it’s the same sort of red thread that runs through everything I do, which is, you know, demand and supply. And there’s always sort of maybe one door closing, but usually another one opening. But yet diversification, yeah, I don’t think, I mean. It’s up to people’s personal preferences as well. They get a good feeling about a certain asset class, you know. So, yeah, definitely diversification.
Dave Wolcott:
Sure. Yeah, no, if you don’t call it advice, I mean, you could call it insights, right. But, you know, part of our mission on the show is really to, you know, try to help investors get these unique insights from, you know, people who have been super successful investors and, and it is always fascinating to look at different asset classes like, you know, strategic metals, and then you’ve had experience in other asset classes and what are the parallels. right, that even stand out between the asset classes. What are the things that we can kind of take away to become better investors ourselves? So point well-made in terms of diversification, right? I think that’s key. And then that’s even a subset, right, that you talked about earlier in the strategic metals themselves is diversifying even within the asset class. So amongst asset classes and even within the asset class. So… So really appreciate your thoughts today, Lewis. You know, super, super interesting asset class, something that I think people should kind of look at and consider in terms of their portfolio. But same thing, we’re not offering advice on our show, just trying to provide some different insights and ways to think about it. And then can you just throw out one last time the best place for folks to find you?
Louis – Strategic Metals Invest:
Yes, my email, louis. at strategicmetalsinvest.com or they can just go to the website, again, strategicmetalsinvest.com and they can download a digital prospectus and if they leave their number or email, I’ll get back to them and mention they’re on the show or that they came through you, I’ll be happy to take care of them.
Dave Wolcott:
or probably at the local pub in Ireland, right? Yeah.
Louis – Strategic Metals Invest:
Well, I knew we’d have to talk about the pub at some point.
Dave Wolcott:
You’re Irish for sure. So Lewis, thanks so much for coming on the show and really providing great thoughts to the audience and look forward to keeping in touch.
Louis – Strategic Metals Invest:
Yeah, thank you very much, Dave, for taking the time. And I mean, as you said, even just having a conversation like this and taking advantage of the technology we have, you know, to talk about stuff like this is a great service all by itself, even if, you know, it’s just good to be to be getting the information out there. So thank you.
Dave Wolcott:
Awesome, thanks again, Louis.
Hey everyone, welcome to today’s show on Well Strategy Secrets. We’ve got another awesome show for you guys today. Today we are joined by Paul Carger. Paul is the co-founder and managing director of Boston-based wealth advisory firm TwinFocus, where he manages an over $7 billion portfolio for ultra high net worth families and individuals. Before founding TwinFocus in 2006, Paul founded the Carger
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them through a broad range of complex business, financial and life decisions, including generational wealth transfers, extreme tax planning, investing and more. Paul also leads the firm’s direct investing efforts in private equity and real estate. Paul, welcome to the show.
PK 🥋:
Thanks, Dave. Great to be here. Thanks for having me.
Dave Wolcott:
Yeah, no, awesome to have you on the show, Paul. I’ve been really looking forward to this discussion. I knew we both grew up in the New England area and have some similar values and I think some shared experiences and really some, you know, powerful learning lessons that you’ve had through your journey that I think you can impart to the listeners to, you know, help them get some value out of the show. So So why don’t we start things off and for folks, you know, who haven’t heard of you or TwinFocus, you know, tell us about your journey, how things started for you, how you even got into this space of wealth building.
PK 🥋:
Sure. Again, thanks for the time. Great to be here. So TwinFocus, as you mentioned, today is a firm that I founded about 17 years ago. I was previously, well, early days a broker at Payne.
Dave Wolcott:
I think you’re back in now. We can edit that if, yeah.
PK 🥋:
Apologies. Do not disturb. I really apologize on that.
Dave Wolcott:
Yeah, no problem.
PK 🥋:
Okay, we’ll try again. Dave, thanks for the question. So as mentioned, and as you mentioned early on, I founded TwinFocus about 17 years ago. I was previously an investment advisor. The early days were called brokers. I started my career at Payne Webber in the late 90s. Payne Webber was subsequently bought by UBS around 2000 or 2001. And I was a young broker. I didn’t have the benefit of having a deep network of folks. I really started my career. Dialing for dollars, I started with a phone book and working nights and weekends. Back 25 years ago, you could actually cold call people. Today, it’s become much more difficult. But I built up a small book of business. I think like all of our careers, you have these lucky breaks along the way. You meet interesting individuals or folks that are able to change the trajectory of your career. I had a couple of those lucky breaks early on. tend to be a pretty good storyteller and I hit some early success within a few years or 23 or so, 24 years old, I became a vice president. And I went on to at a young age around maybe 25 or 26 start my own group within UBS. We were pretty different than a lot of the other folks that were kind of in my role at that time. I pursued getting a CFA, which is pretty different for a financial advisor. Most of that happens really on the buy side or money management side. But pursued the CFA and added to my credentials and slowly, slowly climbed the curve of learning the industry and garnering bigger and bigger relationships. I met a gentleman through a referral through another client that had just sold his company for $150 million. In those days, I was managing clients in the $1 to $10 million range. So it was a pretty foreign subset of clients for me, but I jumped at the opportunity to work with this gentleman. As luck would have it, it turned out that another advisor in my office had actually cold called this gentleman about a week before I was introduced to him. Nonetheless, I went down to see him from Boston. He was based in New Jersey. And he asked me what I thought he should be investing in. And I actually told him I had no idea. I think he needed to really think about building a team first and putting a plan together. And I said, I want to do that for you. And because this other advisor had met him before me, my managing director actually called me into the office after I got back to Boston and said, listen, I want you to split this relationship. And I said, not for me. I think that margin is going to be too skinny to split. I feel like I’m going to do all the work, but good luck. Have at it. I wish you guys the best of luck in trying to capture the relationship. At that time, I went to my twin brother and I said, Wes, we should leave UBS. I said, there’s got to be more people out there in the world like this that have big issues, big issues on and above what goes on inside a brokerage account. It took some convincing, but after about a year and a half, I convinced my brother. that we needed to leave and we charted a plan to launch our own advisory firm and put that plan together kind of early days 2006 and then subsequently resigned from UBS in June 2006. I was sued by UBS. It was the first time in my life that I had ever been sued or pursued legally and learned a bit about that and pretty quickly settled with them. And it was kind of off to the races. It was my brother and I, a couple of interns that were working for free, an assistant, and a couple thousand square feet of office space atop one of the big buildings in Boston that we could barely afford. But I cashed in my 401k, which I wouldn’t normally advise folks to think about doing. But I cashed in my 401k and Wes and I were able to borrow some money from some friends with our own savings to get the business off the ground. Shortly thereafter, you know, once I settled my lawsuit with UBS, I called that gentleman up that I had met a couple years before and said, you know, hey, remember me? And he said, yes, where’d you go? I told him the story of internal, some internal politics. And I said, what did you end up doing? He said, well, I split the money across four or five different brokers. He said, I can’t track it. Everybody’s giving me conflicting advice. I really need somebody to help me oversee the big picture. And so my brother and I went down to see him in New Jersey. And inside of a couple of our meetings, he signed up with us. And that was our first $100-plus-million relationship. And it was a lot of learning. Seventeen years ago, this industry of working with the ultra-high net worth and developing this kind of family office model was very new. This was just kind of the earlier days of this large proliferation of wealth that we’ve seen really over the last 15 or 20 years. And so, you know, there are just, you know, 25 years ago, you know, to have a $100 million relationship in Boston, there was only a few folks in Boston with that kind of network. And today, you know, there’s many families that have worth of $100 million, not just in Boston, but around the US and around the world. And so there’s been this just big proliferation of wealth globally. And families like this have, you know, institutional type complexities. We often call them internally, individuals, because they have these. institutional type complexities while they’re still being individuals and at least in the U.S. paying U.S. taxes. So really, the last 17 years, starting with that one significant family, we built the business really brick by brick, client by client, to where we are today, overseeing little shy of about $8 billion for about 40-something families.
Dave Wolcott:
Yeah, wow, that’s such an awesome story. Did you, as an entrepreneur, did you have a certain light bulb moment or burning passion to say, hey, I wanna solve this certain problem or I wanna deal with this certain clientele and so I have to break free from UBS in order to do that?
PK 🥋:
You know, I noticed it when I, as I became kind of senior at UBS, running my own group, I noticed that my challenge in competition was not the other brokerage firms. It was not the Goldman’s and Oregon Stanley’s and Merrill’s. I’m sure they were at the table, but I felt like we were differentiated enough to, you know, to compete against those types of offerings. I continued to feel that the competition was the folks that were truly independent. that we’re not trying to hawk product to their clients. It was kind of product of the day that was being pushed down by the sales managers. And I also noticed internally, the fee structure issues were just very confusing for clients. And I said, in and around 2004, when I had met this large individual, I said, geez, there’s got to be a better way to do this. And so I spent about a year and a half meeting with other firms. thinking about, you know, should I open somebody else’s firm in Boston? You know, should I be there? Should I franchise? Should I, you know, figure that out? And pretty quickly, I realized that, again, this was early days of this family office concept. I said, I can do this myself. I’ll figure it out myself. You know, I’m willing to take the risk of myself. You know, always, my brother and I have always had, you know, very kind of an entrepreneurial spirit. And, you know, probably because of our upbringing, where we didn’t, we never really had a safety net with, you know, wealthy parents who were raised really by a single parent, a mom, that taught us the value of kind of hard work. And I never really considered like failure an option in my life. It was always, I knew I would just keep figuring things out. And sure you have little failures along the way in life and that’s kind of how you learn, but you just, you know, you just got to pick yourself up and kind of keep going and kind of learn from that mistake and say, geez. I won’t do that again or I won’t do it that way again. I think all of that is really in the ethos of our firm today. Any company is really the genesis of the founders. I think that’s very true of TwinFocus, this kind of hustle mentality. Frankly, our client base reflects that because I say all the time that people do business with people they like and people do business with people like themselves. And when you look at a lot of our clients at TwinFocus, they’re folks that are, in many respects, just like my brother and I.
Dave Wolcott:
Yeah, no, 100% Paul. So can you tell us also about, you know, your journey into the investment world? Because I know for me, you know, I was the same thing, right? I was raised as a middle class family in Connecticut. Once I got into the working world, all I was told that the only option was to invest in Wall Street, stocks, bonds, mutual funds, right? And that was really the option. Until I really started studying the 1%, right? And how they’re truly building wealth, how are they allocating capital? And that’s when I began to discover other asset classes like real estate, private equity, alternatives, right? And how to then really create a
PK 🥋:
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Dave Wolcott:
portfolio. And I know that you guys focus on real estate and private equity in addition to equities. So can you tell? tell the audience a little bit more about your journey and how you view the different asset classes.
PK 🥋:
Sure. Yeah, I mean, listen, we learn over time. And as much as I would love to tell you that I started my career working with $100 million plus families, it’s just not the case that my first relationship was the local liquor store owner that bought $20,000 of stocks from me, and I got a commission on it. But slowly, slowly over time, you kind of upgrade your relationships and your client relationships over time. And you learn, you learn based on what their needs are and trying to offer really a differentiated offering and services and products. And I learned over time as a function of what I needed to do. On the real estate side, we were investing in direct real estate opportunities on behalf of clients for the last. decade or so, but not really formally. We were kind of co-investing until 2008, I’m sorry, 2018 when the Trump administration brought this qualified opportunity zone program to the forefront. And it was a really an ideally suited program for many of the families we work with. And so we formalized our efforts around investing in real estate. You know, on the general alternative side, you know, for sure I understood alternatives, getting you know, investing in those types of products as a broker, as a financial advisor while I was at UBS. But it wasn’t really until I started my own firm that I needed to formalize our research efforts around identifying those types of managers and being able to diligence those managers. And as you know, that opportunity set is constantly shifting. You know, when you look 20 years ago, long short equity investing was very substantial. And today, it’s become harder to differentiate as a long short investor. And frankly, from an after-tax perspective for US taxable investors, it’s really hard to make sense of long short returns, even if you’re delivering north of 10% or mid-teen returns after taxes because of the way the tax profile works today. You basically don’t get to deduct the fees you pay. You actually end up, for most investors, you end up receiving a net return but paying a tax on a gross return. which is a killer. So it was really out of necessity, learning those various asset classes. And it’s interesting when you look at the CFA curriculum, how the CFA curriculum changes over time based on what the current opportunity sets are. Maybe this is reserved for a little bit later in our conversation, but today, with the rise in interest rates, there’s a significant opportunity in credit. There’s different managers playing different areas of the credit world and the spectrum of credit, whether it’s real estate credit or corporate credit. But it looks like, especially as the Fed is indicating higher for longer, there’s going to be some stress in the system. And companies that finance their businesses or finance assets in a much lower interest rate environment decades ago, 15, 20, or even 10 years ago. are now facing this day of reckoning where they’re going to have to finance assets at higher rates. And some assets may not make sense to finance at higher rates. So there’s going to be a lot of interesting opportunities out there and probably some pain for some folks.
Dave Wolcott:
Yeah, agree. So have you formulated a particular wealth strategy that you guys have or an investment thesis or current mandates that you pretty much, you know, operate with for the man, the families that you’re managing?
PK 🥋:
Yeah, so we largely split our allocations in kind of three buckets. Obviously it’s going to shift from client to client and clients that have just come into wealth and are starting today with a pile of cash is very different than a legacy portfolio that you’ve been investing for a decade plus. But largely we look at the world in terms of kind of equity, general equity exposure, cash, fixed income. provide liquidity and not take a lot of risk. And then last, this kind of alternative bucket, which is a very wide-encompassing bucket. On the equity side, we try to keep it simple. We try not to overthink it. There’s too many other things that can go wrong in the investing world and running family offices. So we use a lot of tax-managed products. We are able to harvest losses regularly, and you maintain some type of cheap exposure to beta. We use a lot of ETF type products, low cost mutual funds where we’re looking to get some kind of satellite positions with inequities. But we just don’t overthink it and we rebalance those allocations on a regular basis. On the fixed income side, obviously, the world has shifted there and you had to reach for yield the last 10 years. That’s all changed in the last 18 months. And I mean, even as of today, you’ve got the… 10 years is topping three and a half. 30 years looks like it’s going north of four. It is north of four today. Very different world, right? I mean, historically, there was no cost to investing in riskier assets because you were getting no return on your cash. Today, there’s a big opportunity cost. You could sit in short-term treasuries and make five or six percent, which is interesting. I’m not sure how long that short-term trade lasts. The Fed seems to be indicating higher for longer, so maybe it’s here longer than most folks think. But I think now is a time to think about kind of broadening out or kind of reaching out in terms of duration. I think it’s pretty interesting to be able to lock in almost 4% risk-free on 10 years. You were trying to get that in real estate a few years ago. You were buying for capital estate. Today you can get that in risk-free treasuries. And then this last bucket is alternatives. And we think of that as a bit more tactical in terms of looking at kind of what’s working today. We’re big believers as I think, you know, most allocators of capital are in terms of diversification. You know, as they say, diversification is the only free lunch. And, you know, I think one of the advantages of working with ultra high net worth families is the ability to take. really long-term views on things and to make long-term bets, you know, where you don’t necessarily need capital tomorrow to meet living expenses. You’re budgeting for those living expenses in other areas. And so, you know, today as mentioned, you know, I think the stress credit is pretty interesting. Commodities are pretty interesting as well. And you know… We’ve gained exposure to commodities in all different types of ways, from liquid to illiquid to trading managers and such. And then of course, real estate. We believe in the benefits of real estate, especially for US taxable investors, where you’re able to ostensibly lock in a yield that has some type of inflation protection, right? That’s, you know, with hopes is going to increase as rents increase over time. But that world has been turned upside down with the current state of interest rates. It’s probably going to take some time for the ship to be righted there and for some opportunities to emerge that are more evident. Today, you kind of have to take some risk on some of the hairier stuff. With the pandemic and… with shifts in kind of where folks are living and where they’ve migrated to. It’s also changed the game in terms of opportunities in multifamily and industrial and so on.
Dave Wolcott:
Yeah. And so for your clients, do you actually, you know, have some type of return profile, like an average kind of return profile that you say, you know, you’re yielding maybe an average, you know, IRR or something like that, or rate of return across all of these assets? Or are you more talking about basically, you know, wealth preservation strategies, you know, risk mitigation, in addition to you know, capital appreciation.
PK 🥋:
The answer is all the above. I think, as the old saying goes, if you’ve seen one family office, you’ve seen one family office. I would say the majority of the time, our clients don’t show up with a pile of cash. The majority of the time, they show up with a legacy of investments and a pretty fully built-out investment portfolio. So yeah, can you give me a minute? I’m sorry.
Dave Wolcott:
Yeah, yeah, no
PK 🥋:
Yes.
Dave Wolcott:
problem.
PK 🥋:
Sorry, Dave.
Dave Wolcott:
Yeah, no worries.
PK 🥋:
Yeah,
Dave Wolcott:
We can
PK 🥋:
we can
Dave Wolcott:
edit
PK 🥋:
edit
Dave Wolcott:
that
PK 🥋:
this. Yeah,
Dave Wolcott:
and we’ve
PK 🥋:
cool.
Dave Wolcott:
also got,
PK 🥋:
Cool.
Dave Wolcott:
we can up convert on this platform.
PK 🥋:
Good,
Dave Wolcott:
So we’ll be
PK 🥋:
good.
Dave Wolcott:
able to pull out all the background noise. So no worries.
PK 🥋:
Amazing, amazing.
Dave Wolcott:
Yeah.
PK 🥋:
So, should we start again? Yeah.
Dave Wolcott:
Yeah.
PK 🥋:
Yeah, so as mentioned, we look to diversify across these asset classes. But I think the other thing to keep in mind, when you’re dealing with family offices, despite the fact that you’ve got the ability to really think long term and make long term bets, you really need to manage liquidity. And liquidity profiles are different from family to family. And as a result, portfolios look different. Certainly over time, there is some continuity across our portfolios because we’re pursuing similar trades, similar themes. But as I said, some clients have legacy positions. So it wouldn’t necessarily make sense of doubling up exposures or telling clients to sell one type of exposure that they may come into our relationship with if it doesn’t make tax sense. And the beauty of the family office model, at least our model, is that we can think really objectively and independently. And from kind of an incentive standpoint, we’re paid on the broader relationship. We’re not paid on based on the investments that we’re making necessarily. And so we’re paying just as much to tell our client, no, don’t make this investment or keep an investment you may have had before our relationship as we are, yes. And so, we don’t have any kind of perverse incentive to push them into any specific sector, product, fund, or whatever.
Dave Wolcott:
Yeah, that’s a great model because frankly, the majority of typical advisors out there just collecting that assets under management fee and not really having mutually aligned interests with investors, I think is not the way to go. We want to be advocates and real fiduciaries to the clients so they can objectively make the right decisions. Tell us Paul, a little bit about, so you mentioned extreme tax planning. It’s one of my favorite topics. I never thought I’d be so excited about talking about taxes, but over the years I’ve figured the more taxes you make, definitely tried to determine tax mitigation strategies and having exited a business myself and having some significant mitigation to go there. Are there any typical strategies that you guys are advising clients on that you can share with the audience?
PK 🥋:
Sure. You know, in building that kind of foundation for a complete kind of wealth management solution, family office or otherwise, I often say that it’s analogous to kind of cooking. I love to cook. And you don’t just show up in the kitchen and start throwing stuff on the grill. There’s a lot that goes into cooking before you actually… do the cooking, right? I mean, it starts at the grocery store, right? And you’re thinking through how many guests you have and who eats what and any restrictions that may occur. I apologize. I apologize.
Dave Wolcott:
Yeah, no problem. No worries.
PK 🥋:
And yeah, and you know, and so analogous to cooking, you know, again, it starts in the grocery store, you’ve got to think about who you’re feeding, you know, if there are any preferences, any restrictions, you know, you’ve got to think through, you know, various types of ingredients, because you’re trying to offer a diversification. From the grocery store, it goes into the house and, you know, it’s all about the prep work before things go on the grill or on the skillet. And maybe the fun part is on the grill, the fun part is eating the cooking. But it’s the same thing with wealth management. I say to folks that come into a windfall of cash that the last thing that you should be thinking about initially is how to invest the money. That’s kind of the easy part. I don’t want to diminish the fact that investing is not completely easy, but it’s a little bit more formulaic. You know, the harder part is really planning around the wealth and thinking through what are your longer-term objectives? Ensuring that you have suitable estate planning documents, you know, if you were to get hit by the proverbial Ferrari or bus and And you know and how those assets would flow over time and so when new families come to twin focus We spend a lot of time initially on setting up the estate infrastructure and ensuring that estate infrastructure is consistent with our clients’ goals and objectives. And a lot of that is your thinking through tax planning, you know, efficient transfer of wealth to next generation, charitable planning, you know, around charitable intentions. And then, you know, only then, once you’ve got that infrastructure established, those various buckets that will, you know, receive piles of cash over time, can you really think about investing? Because undoubtedly, those various buckets in your life, whether it’s charitable vehicles or trust for kids, they’re probably going to have very different risk profiles and liquidity profiles because you’ve got different time horizons and different beneficiaries in mind. And then you can think about how you’re going to invest the capital, but you’ve got to really kind of lay the groundwork. You’ve got to understand the tax profile. In terms of tax strategies, for sure. us and most of the high net worth world is thinking through how you efficiently pass down wealth to future generations. It was much easier in a lower interest rate world. There’s a lot of techniques that really rely on interest rates, on interest rates being low because effectively what matriarch and patriarch look to do is effectively kind of loan the money in certain ways to future generations and then receive back an interest payment. And then hopefully that future generation is able to make the spread tax-free, estate tax-free. So, on one hand, on the investment side, perhaps you benefit from higher rates because you’re able to invest in fixed income and assets hopefully yielding higher returns. But on the estate planning side, there’s a higher cost to doing so. And so some of these, the Gratz and Klatz and these types of vehicles are not as efficacious in a higher interest rate world. That said, there’s still lots of interesting estate planning techniques that you can use to kind of push assets to future generations and help mitigate taxes. I mentioned earlier in our conversation the Qualified Opportunity Zone program that has come into effect really over the last five or six years brought on initially by the Trump administration. It really received bipartisan support. investors to take gains, capital gains that are generated in all sorts of ways from selling your Apple stock or selling your widget manufacturer or even capital gains that you receive on a K1 from investing in a hedge fund or a private equity fund. You’re able to take those gains, roll them into investments, not pay a tax on that initial capital gain until 2026. And then there’s all sorts of tax benefits on the investments that you make. And so if you north of 10 years, you actually receive the benefit of having to pay no tax on your gain on your gain after 10 years. So we’ve used that quite a bit for our families that have had recent windfalls from selling businesses or certain types of assets, as well as many of our clients are actual professional money managers, hedge fund managers, private equity managers, and receive their annual paycheck or their annual income via K-1, via gains. So that’s been really kind of a tax nirvana over the last five years. And it’s been great for our country and it’s been great for our communities that have been able to kind of foster economic development and housing and infrastructure needs in areas that have needed the most.
Dave Wolcott:
Yeah, that’s exactly what the tax code is, right? It’s 6,000 pages of really a series of incentives, right, for business owners and investors who can understand it and then really put it to work. And sadly, there’s not enough good CPA firms out there that are really providing the right advice to help clients with that. But such a key part of really preserving and growing wealth you know, if you’re high net worth, ultra high net worth, right? The taxes are everything and especially the way the government is spending money. Uh, that’s probably the only one thing I’m certain of in the future is that taxes will continue to go up. Uh, so that tax planning is so key. And as you point out, um, you know, going down to, you know, G2, G3, G4, right. And, and really having that long-term view, I think is critical to success.
PK 🥋:
Even, you’re seeing this significant exodus of high tax states in America. As you know, folks
Dave Wolcott:
Yeah.
PK 🥋:
leaving Massachusetts, leaving
Dave Wolcott:
I live
PK 🥋:
Connecticut,
Dave Wolcott:
in one. Yeah.
PK 🥋:
leaving New York, leaving California where Massachusetts, for example, at the beginning of this year recently instituted this millionaire’s tax. So you end up paying an extra 4% on all income over a million dollars. And income is characterized by any kind of gain that you may have had if you sold a business or whatever. And so Florida, for example, Texas, Tennessee, these states have been huge beneficiaries where folks, back to our conversation around real estate, folks are leaving these high tax jurisdictions and moving to places like Florida where they don’t have significant estate taxes, they don’t have significant income taxes. So those states have been beneficiaries. anecdotally that actually moved from Boston down to Florida. They told me they were waiting in line at the RMV. When they got up to the RMV window, the woman said, what is it with Massachusetts? You’re the 24th person today I’ve seen
Dave Wolcott:
Yeah.
PK 🥋:
relocating from Massachusetts and needing to get a Florida license. So.
Dave Wolcott:
Yeah, I’ve got a friend in Maryland who actually had an $80 million exit. And he was able to purchase a $20 million home in Florida and still have money left over versus had he stayed as a resident in Maryland, you know, paying the state taxes there. Right. So he was able to put that money to work, you know, for him, uh, and do some of that, you know, geographic arbitrage. So. another key strategy. And, you know, I appreciate you sharing the insights because I think, you know, everyone is trying to get educated, right? We’re trying to learn, you know, how are the new tax laws changing? How does that impact our wealth long term? And as you so well pointed out earlier, Paul, like this all should be designed, you know, around your long term goals, your vision, you know, does the family have this vision? And really how can you align your portfolio to do that? So, you’re really living that ideal wealth, that life that you actually set out to create in the first place.
PK 🥋:
Yeah, Dave, thinking about charting a strategy for folks that come into money or have funds and are thinking through how best to allocate. Of course, it sounds like I’m talking my own book here, but I can’t stress enough. You need to hire good advisors. Analogous to getting sick, and you’re not going to go to medical school if you get sick. You’re going to go and find a great doctor and somebody you trust, somebody that you think knows what they’re doing, but somebody you trust. It’s the same is true with a wealth advisor or a tax advisor or a legal advisor. Absolutely, you should be educated on the issues, but you’re probably not going to go get a law degree or get a CPA in the time that it’s going to take you to come up the curve and make some good decisions. It’s really about going hiring some good advisors that are around the table and can help you think through really all of the issues. Because many of these issues are just, they’re multifaceted. It’s why firms like mine exist, because we’re able to help our clients think 360 and solve for these blind spots, where it’s not just legal, not just tax, not just investment, but it’s really all of these issues at once.
Dave Wolcott:
Yeah, it’s, it’s the upstream, the downstream effect, right of making one chess move. How’s that going to impact something else? And having that visibility is key in my book, the holistic wealth strategy, we talked about that as basically building your own dream team, right. And it’s so hard to find great advice, especially when you’re talking about, you know, this whole world of you know, alternative wealth strategy, wealth building, right? That’s beyond, you know, your typical advice that’s kind of coming out of Wall Street. Because like you say, you need to look at things holistically. It includes the lifestyle. It includes health, right? It includes tax, right? All of these different components. But when you get it right, and it’s such a great analogy around cooking, you know, you get all of these right ingredients together, you know, the outcome, you know, can be just, you know, really elegant.
PK 🥋:
Yeah, for sure. Yeah, for sure. Yeah, it’s hiring the right advisors and then going slow. You know, you spent your whole life trying to, you know, earn these funds or, you know, you build a business and you have a big exit. There’s no rush. You know, of course, it’s easier to say today in 2023 where you can get 5% sitting in a bank account versus a few years ago where you felt like the money was burning a hole in your pocket. But it’s When you’re high net worth, ultra high net worth, you should not be trying to optimize to a benchmark. The S&P or whatever, it has no relevance to your life. You should be optimizing to sleeping at night and ensuring that you can sustain the lifestyle that you want. You can’t reach for return. Returns are really a function of what the markets give you. You really need to just kind of manage risk and manage liquidity is really what it comes down to.
Dave Wolcott:
Yeah.
PK 🥋:
So, and that’s easier said than done, but that’s really the goal.
Dave Wolcott:
Yeah, well said. And it’s, you know, I think it’s just so challenging in today’s world, right? Because it’s worse, it’s so reactionary, right? And if you’re, you’re running a business, you know, you’re working at a high stress job, right, it’s hard to really carve out that time to determine what is it that you really want to have in life, right? One of the exercises that, you know, we help clients with is, you know, talking about, you know, build 100, you know, your 100 list of things that you want to either be, do, have, right? And try to get some clarity on that because it can really be your guiding compass, right, in terms of how you achieve these things. And like you say, once you really kind of hit a certain threshold of wealth, making more money isn’t necessarily going to change your life, right? So what are those levers that actually can drive towards those things that are really meaningful to you and important to you?
PK 🥋:
Absolutely, absolutely.
Dave Wolcott:
So Paul, if you could give just one piece of advice to our listeners about how they could accelerate their wealth, what would it be?
PK 🥋:
That’s a good one. Maybe because I’m always thinking about the downside for my families and I kind of say I let the upside take care of itself. I tell folks all the time when they’re looking at investment opportunities, number one, don’t fall in love with any investment. It doesn’t love you back, so don’t fall in love with any investment. And number two, everything in life takes more money and more time than we think. And you need to think about that when you’re allocating capital, especially the earlier stage opportunities. You may be like, oh, I’m getting in at an amazing value each year. I should put all my, I should go all in. And the truth is everything’s going to take more money and more time than you think, so there’s going to be another bite of the apple, you know, a chance for another bite of the apple. And so I think it’s really about being kind of measured and ensuring that any of these investments you make, especially once you’ve made it, quote unquote made it, that it’s not going to materially impact your life. Negative or positive. You know, you don’t want the investment to be so small that it doesn’t move the needle, but you also don’t want it to be so large that you’re gonna have to think about going back to work.
Dave Wolcott:
Yeah, well said. Paul, really appreciate you coming on the show today and sharing your wisdom and sage advice with the audience. If people want to learn more about you or Twin Focus, what’s the best place they can connect?
PK 🥋:
You can go right to our newly launched website, just www.twinfocus.com. I think you’ll find it pretty informative and there’s a contact button there if you want to get in touch with us. So really appreciate that, Dave. Thanks for watching.
Dave Wolcott:
Awesome. Thanks again, Paul.
PK 🥋:
All right.
Yes, I mean, to that point, Dave, I mean, I think my first experience with kind of credit was at a subprime consumer company that I worked for a number of years where I was responsible for both bringing in capital, but also responsible for overseeing the delinquencies. But I got my real first taste for how the underwriting was done and how to manage a collections team and things of that nature. And it’s kind of what drew me to merchant cash advances in business. Merchant cash advances. as a industry that didn’t even exist 20 years ago, but is doing about 20 to $30 billion in this year. And there’s a very natural progressive reason for that is that it’s traditionally hard for banks to move quickly or as quickly as a small business actually needs. So starting my own business, I experienced this myself. If you think about a business that needs capital in a short period of time, there are many, many reasons why Getting a merchant cash advance while it costs a bit more is just a much better decision for the business than it is to wait three or four months to go through underwriting. And so we participate in merchant cash advances and do so in a very diversified way in that we’re participating on a platform that a number of other hedge funds or other institutions will participate in. Our credit funds will traditionally participate in five to 10% of any specific deal to provide that. diversification, but also to provide that kind of asymmetric upside where it’s an investment that has a high rate of return, but is spread out and diversified across a number of industries.
Dave Wolcott:
Yeah, no, I think the point that you make right about the industry, right? I mean, this was a really a nascent industry, right? That’s just been growing. You know, the combined annual growth rate is well over 15%, and continues to accelerate, you know, all of the issues with the banking crisis that happened earlier in the year, you know, just further propel, right, the business case for merchant cash advances. So You know, we expect as a sector that this is going to continue to develop. And, you know, as you rightly pointed out, I mean, you know, being a business owner, you realize like how important capital is, right? It’s the lifeblood to expanding a business. And, and that’s the type of capital that’s being lent, right? It’s it’s businesses that are growing. right? So, so they’re doing well, they have a proven model, they’re looking for additional capital to be able to scale their business. And if you go to a traditional bank, you know, it might take three to six months to actually get the funding if you can even get the funding. And in the meantime, you turn around, you know, cash advance, they’ve got the capital in a week. they start paying that back to investors pretty quickly. So I think it’s a really nice play for a couple of reasons. One, really nice diversification across asset classes, that you’re in something else. And then the risk mitigation in this is interesting as well. So tell us a little bit about the default rate and how that kind of works. What has it historically been and how does that work?
Jason Nees:
Yeah, so, you know, kind of historically, if you kind of look over the last five years, the default rate will run anywhere between, you know, five and six percent, sometimes a little cooler, sometimes a little hotter. That’s been the general average. You have to think about the fact that a business is repaying a loan kind of on a sometimes daily, weekly or bi-weekly basis. So you have a lot of factors playing in that you can see play out and you can see that if a business hits a… a road bump or a speed bump or something happens, we have the ability to adjust and say, okay, business, you have a week or two to kind of get your affairs if some one-time event happened, and then they get right back on track. And so to that point, from a delinquency standpoint, as soon as a payment may be having NSF, we have a third party team that immediately reaches out to the merchant. tries to identify what the issue is and figure out how to solve it. In some cases, it’s something silly, like they blocked a checking account from a large check coming in or something of that nature that can be easily quickly mitigated and got back on track. We’ve experienced a couple of those. But it’s the nature of lending is that so there will be delinquencies, they will be cured and things will default, but there is a reason why we’re mitigating risk and spreading that over a number of… merchant cash advances. And we deploy new money on a daily and weekly basis to continuously doing that and participate in the asset class. But obviously risk mitigation is very important to us and providing that and doing that in a reasonable fashion, making sure that they go through all of our underwriting criteria before we actually participate. All things are there to kind of protect the portfolio, the health of the portfolio, as well as protect the returns for our investors.
Dave Wolcott:
Yeah, so that’s a great segue. Why don’t we transition into just, you know, overall how you’re really analyzing investments. How are you mitigating risk? What are the things you’re looking for when you’re trying to identify opportunities?
Jason Nees:
I will tell you this is one of the more interesting markets that I’ve seen in a number of years. And I’ve, again, I’ve been watching the market in all facets for a number of years. And it’s a unique time in investing for us in that we’ve had interest rates rise kind of faster and higher than they ever have before. We’ve gone through a period where 13 years of near zero interest rates has suddenly just kind of been over. And so, you know, Dave, we get a number of deals that we look at on a weekly basis. And it is a tough environment in that when I even talk with other allocators, I hear the same phrase over and over again, I just can’t make this pencil. And so part of that is an adjustment in the market, I think, that cap rates will naturally start to go up as we go through this and there will be pockets of stress in the market. But doing that work of kind of… due diligence, so Pantheon has a 50-point due diligence kind of framework that we go through to analyze these deals and make sure we’re considering all the factors before we put capital to work. And I will tell you that of the ones that we’ve reviewed, most of them at this specific moment haven’t passed. But I have the fundamental belief that when you find yourself in a market like this, if you just continue to look for opportunities, there are opportunities out there. We just have to keep searching for them and keep doing the work behind it. There are good deals and there are good places to place capital.
Dave Wolcott:
Yeah, what would you say would be like, say your top three, if it’s a 50 point, you know, kind of cycle around due diligence points that you’re looking at, what would you say are some of the top three things that you look at?
Jason Nees:
Yeah, so I think it’s always very important, especially if you’re participating with another general partner is, you know, who is the actual sponsor and what is their track record? You know, kind of always the big red flag for me. If you’ve only got, you know, maybe one full cycle under your belt, you’re probably not going to be where I’m going to be looking to allocate capital. So track record is certainly important, but character is another one. I mean, obviously, if you’re entrusting somebody as an expert. having reliable references and investors who have successfully invested and participated with them is a big deal. And moving past that would go down to kind of the property as well as the debt structure. I would say debt structure today is more important than it’s been in the past. Again, with zero rates moving to five, five and a half, it makes for a different market. And so, you know, trying not to identify properties that aren’t in variable rates. with shorter timeframes because as we go through this period of adjustment of higher rates and cap rates come down and prices come down, it’s just a reset of expectations. And so what we’re really looking for is a margin of error for the unknowns that are going to happen in the next three, four or five years. I would look at it from the standpoint of kind of character analysis and track record, property specific and what’s the business case? Does it align with real? realistic expectations and overall debt structure. Does this financially work and make sense?
Dave Wolcott:
Yeah, for sure. And then in terms of, you know, other asset classes, do you see any other opportunities, right? So, you know, given the interest rates, right? You know, real estate multifamily has definitely been impacted, right? You know, based upon the interest rates, but any other sectors that, you know, have less exposure to interest rates or that, you know, you’ve been kind of tracking that look to be good asymmetric opportunities.
Jason Nees:
Yeah, I still keep an eye out for multifamily because as we progress through this, I expect to see some distressed assets that we may have an opportunity to pick up some bargains. But the same would apply in self-storage. There’s going to be some, as we look through, moving these interest rates from zero to five. For anybody who structured a deal that was over leverage, we may find some diamonds in a rough there. But I do think, you know, kind of self-storage as an asset class, car washes are a unique opportunity as well. I have a number of investors who kind of talk about different ATM funds. So as I start to look through them, some of them have all of the characteristics of the things that we typically look for in that upside value, that passive income, as well as the tax benefits. And so I do see opportunities out there. it’s again, it comes back to the overall structure and continuing to look at new and different asset classes because real estate is going through kind of a transition, but also because it’s important from a diversification standpoint to help our investors not be too over leveraged in any sec.
Dave Wolcott:
What would you say is your current take on the market? There’s just been so much kind of going on this year. It’s almost mind boggling, right, when you really think about all of the different, you know, from geopolitical events that are happening across the world, bipolarization, you know, rise in interest rates. I mean, just so many different things happening at the same time. How do you make sense of it all? And what would you say is your outlook for the remainder of the year going into 2024?
Jason Nees:
Yeah, so when it comes to the stock market, it is one of the most confounding things to me at this specific moment. And really, as the year progressed, I mean, if you looked at the start of the year, everybody was kind of universally bearish across the board. And the market just, you know, first half up 18%. You know, a lot’s been kind of speculated and talked about on kind of the big eight, the big eight stocks essentially driving the entire market higher. S&P would be flat to down if it weren’t for those eight specific stocks. It’s been talked about quite a lot. But, you know, one of the things that does confound me is that, you know, theoretically, as Fed rates move up, the risk premium generally for investing goes up. So your risk-free rate, which was zero, is now five and higher. But investors continue to plow money into the stock markets at very high elevations. You could take Nvidia, for example, you know, at the… to earnings that you pay for that. It would take 40 years at their current rate to actually get that money packets. And now again, the expectation is that the E part of that multiple of earnings goes up through AI and demand. But I see this at a lot of places in the market where the valuations just don’t make sense. So, I don’t have a favorable outlook for the latter half of the year. I don’t see the risk reward there. It seems more risk than potential reward on the upside. Historically, when we get to the end of kind of a zero market cycle, you’ll get a reversion to the mean. I may be wrong on the timeline, I may even be wrong on the direction, but that’s my personal outlook is that I think there are better, more efficient places to place your capital with less risk.
Dave Wolcott:
Yeah, good, good observations. You know, one of the things Jason, for me along my journey was, you know, you hear some good podcasts or some people talk about things, you kind of get some ideas, you get a little excited to take place in an opportunity or something. And, you know, there comes this point where you just kind of have to, you know, you can’t be in this mode of paralysis by analysis, right? You just have to kind of, you know, move forward. But one of those things that really helped me do that was just objectively looking at the numbers, right? And really trying to break down a particular investment and then compare that versus another investment and then make some assumptions based on your comfort level, based on your risk tolerance and what you think kind of works for you. And then when you do that, and you can kind of compare apples to apples, you know, for instance, when I exited my 401k, I thought it was really interesting to compare that against, you know, if I progressively invested in multifamily assets, you know, for a period of time, I would, I would reduce my taxes, I would increase my return. And then that return just becomes kind of exponential, right? With a compounding kind of over time. And I’ve been so excited to bring to investors in our mastermind and virtual family office community, the wealth strategy dashboard, right, which is essentially a software tool that helps investors make those types of decisions. So for instance, you know, if you’re looking to achieve, you know, your income exceeding your expenses and have that financial independence number, let’s say in 10 Okay, what’s the quickest way to get there? And then if I reallocate my portfolio from say an equities position to moving into maybe a combination of single family rentals and some syndications, how can I get there quicker? If I can reduce my taxes maybe by 10% by doing something particular, I can get there. But when you get that objectivity… you know, in the software and the calculator, and you can kind of see that, you know, then all of this stuff really starts to kind of materialize. So can you share with us, you know, some of your initial thoughts, especially, you know, as a prior financial planner and working through something like this to look at, you know, not only equities holdings, but other, you know, asset classes in your portfolio.
Jason Nees:
Yeah, great question. And I think it’s a very, very powerful tool that we created. It’s one of the first times I’ve ever come across a tool that says you can actually manage a whole number of investments, but put it into a holistic picture and get an idea of where you are today and make a plan for where you want to go. Again, being from the financial advisory side, you know, on that side of the business, you only get one half of the equation, and that’s stocks and bonds and maybe some mutual funds or ETFs, and that’s it. But if you wanted your financial advisor to evaluate your business or your rental properties, they don’t generally, those are line items on a financial plan. And it’s not even considered as far as does the value go up or rents going up? What is your passive income look like? It’s kind of left out of the equation. It’s just a frozen asset in time. where the wealth strategy dashboard provides a lot of value is that we realized that this is the real world where these valuations change. The passive income may increase from one month to the next higher than your projections. Your multiple on exits may move higher than what you were anticipating. So it’s a real world tool that allows you to see the adjustments but apply rational logic to how am I moving from here and how do I actually get here? If my goal is to 10x my wealth, I need a plan to start moving accordingly, but I need to see where I am in a full picture first. So I think that’s the power of the dashboard. And I think I know that it’s been useful. I’ve used it with a number of our clients already and have already started developing plans to kind of 10x their wealth and move them down that path. But it’s a concrete tool that allows you to visibly see it, but also track the performance as we go through.
Dave Wolcott:
Yeah. And I think so key in that too, is just really understanding people’s goals, right? Because you’ve got different goals. Everyone has different goals, right? But how can you track towards that and make incremental progress? Because if you want to get to some real exponential growth and you have really big goals, you know, it’s not going to happen overnight, right? When we want to really put a system in place and kind of have a methodology. to how you’re investing. And in fact, that’s why the majority of people lose money over time, right? Because of the emotion in it, and they’re changing course, midstream because of something’s happening in the market or in their life, versus if you have this strategy that’s outlined for the next 10, 20 years, you just keep building on that, right?
Jason Nees:
Absolutely. Yeah. Investing is a lot like a marathon. You don’t just run a couple 10Ks and expect to run a marathon. You’ve got to do that repetition and put in the work. And that wealth strategy dashboard is the one thing that can help kind of keep you disciplined and moving forward, but also celebrating your successes and being able to adapt and adjust to the market.
Dave Wolcott:
Yeah, 100%. So Jason, on a personal development perspective, what would you say has been the one practice that you’ve done that’s actually yielded the biggest results for you?
Jason Nees:
You know, this is probably not a popular answer, but I would say treating due diligence like a religion it’s the one thing that’s helped me to Avoid pitfalls for things that I was personally attached to that I really wanted to make something work and I didn’t really do it the times when I’ve done that in my life is usually when I’ve lost the first money. I was emotionally attached to something so I would say due diligence is one but also kind of having a fast filter to be able to know that these are my experiences and this is what I do understand, but I can look at something and make a snap judgment and probably have a higher than average probability of being successful. But again, it’s only by doing it over time. So those are probably my two big ones.
Dave Wolcott:
Yeah, great. And tell us, we have so many parents in the audience, right? And, you know, our children are our pride and joy. And, you know, you get out of them what you put into them, right? And, you know, family is really everything. And I know I had challenges, right? Having triplets, as everyone knows. But but I mean, tell the audience, you know, having a child with autism, you know, much must create some extraordinary challenges for you and your wife and the family and how you guys operate. So how have you been able to manage through that? And do you have any kind of strategies that you can help other listeners with?
Jason Nees:
Yeah, I mean, from a strategy standpoints for any parent with a child with special needs, planning is utmost importance. There are special rules for social security and how you navigate that for somebody with a disability. Financial planning, everything needs to be in trust. You need a team of special needs advisors to kind of help with that. And I think, I would say that very early on, it was probably something poor that I used to say. But one of the things I used to say to my wife is, you know, Some days when it’s really tough, I’m kind of thankful that I don’t have a choice in the matter because it forces you to kind of work through it and go through it rather than to, you know, maybe run off and hide. But it’s been interesting. I’ve learned far more from him than he’s probably learned from me. Patience, I’ve learned. So a lot of things.
Dave Wolcott:
Yeah, that’s, that’s awesome. Well, kudos to you, man. It takes a really courageous person to be able to do that. And you know, your wife must be a saint as well. And, you know, keep the family strong. That’s, that’s really awesome. So, so appreciate that. And then I guess, you know, final question for the audience is, if you could share just one piece of it light advice, you know, to listeners about how they could accelerate their own wealth journeys, what would it be?
Jason Nees:
action, take action, move forward every day and be better than you were the day before.
Dave Wolcott:
Yeah, awesome. Fourth phase, right in the holistic wealth strategy. Take take massive action, right to get there.
Jason Nees:
Absolutely.
Dave Wolcott:
Yeah. Awesome. Well, Jason, really appreciate you coming on the show today having the opportunity, you know, for listeners to get to know you and everything. And if people, you know, want to inquire more, kind of connect with you, what’s the best place they can reach out to you?
Jason Nees:
Yeah, so you can send me an email, go to PanteonInvest.com and you can find me there. You can reach me by email at jason at PanteonInvest.com. That would be the easiest way or just pick up the phone. My number is 913-961-4361.
Dave Wolcott:
Awesome. All right, guys. Thanks again for tuning in today. Really appreciate you spending your time with us. Please do us a favor if you’re getting value out of the show. Please go in give us a rating review. It really helps us amp up the level of guests. And we’ve got an awesome lineup for the rest of the year. But we continue to expand on that. So really appreciate your support there. And again, we’re always here. If you want to work through some well strategy on your own to take your game to the next level. Until next time, thanks again.
Hey guys, welcome to another episode of Well Strategy Secrets. Today we’re joined by Adam Carroll. Adam is a renowned financial literacy expert, celebrated author, and captivating speaker who has delivered over a thousand speaking engagements worldwide. With his thought-provoking TED Talks, which have amassed over six million views on YouTube, Adam has become a prominent figure in the field of finance. His groundbreaking documentary, Broke, Busted, and Disgusted, aired on CNBC and continues to be screened in numerous high schools and colleges nationwide, inspiring young minds to take control of their financial futures. Adam’s expertise extends beyond the stage as he is the visionary behind the Shred Method, a fintech company that empowers individuals and families to achieve remarkable debt freedom in their lives at exceptional speed. Adam, welcome to the show.
Adam Carroll:
Dave, thank you for having me. I’m super pumped to be here. And let me just first say thank you for your service to our country.
Dave Wolcott:
You bet. Uh, super appreciate that. Uh, really grateful for that, Adam, for sure. Um, I, you know, I think the folks are in for a treat, uh, today and, you know, a lot of what we talk about in terms of, you know, wealth strategy secrets and, and building wealth and preserving wealth. Um, a lot of this is around financial engineering, you know, if you kind of think about it, right. And, you know, I kind of come from the consulting background, so I always think about, you know, How do we solve problems, right? What are the problems? How can we look at different ways to do that? And in the world of finance, right, there’s all these different tactics and strategies that you can do that sometimes aren’t all necessary commonplace, right? People might not have necessarily heard about them. Their financial advisors aren’t really talking about them. So
Adam Carroll:
Yep.
Dave Wolcott:
really excited today to unpack the Shred method, understand that and other, pearls of wisdom that you can share with the audience. But before we jump into that, tell folks who aren’t familiar with you, tell us about your background, your story, and how did it start for you, Adam?
Adam Carroll:
Yeah, I love telling this story because I really tried to make my mess my message. And I was a debt statistic when I graduated from college. Having grown up in a household that it was sort of like the mindset and methodology was, well, we’ll figure it out. So we would go buy things and then little did I know my parents were putting that all on a credit card. And at the end of the year, there’d be this big ballooning credit card bill that would have to be paid off. And so when I graduated from college, I had $30,000,000 in student loans and eight grand in credit card debt. I was upside down on my car and I realized that was not where I wanted to be. Um, I happened to meet a woman my senior year in college who said, get rid of your debt or I’m going to get rid of you. And, um, we, we together learned all the lessons we needed to learn to blast away that debt in the first couple of years of marriage. And as you know, and can attest and probably teach your clients, it’s amazing what happens when you have a significant amount of discretionary income at the end of every month. And so we strove for that. And then once we got there, I realized, well, this is easier than most people think it is. I should go teach people how to do it. And so that was, oh gosh, in the early 2000s, Dave. And since then, I’ve presented on over a thousand stages. I’ve been a guest lecturer at over 700 colleges and universities. And my passion deep down is just helping people create freedom in their lives because I’ve gotten to experience so much of it in mine.
Dave Wolcott:
Yeah, I really love that. And, you know, that, that word freedom, this is really what it’s all about, right? If you kind of, if you go a little bit deeper on the things around, you know, financial, you know, financial independence, right? Getting to retire, all these things people talk about, right? I mean, isn’t retirement really is just having, you know, enough income coming in that you’ve got the time freedom to do what it is you want to do. You’ve
Adam Carroll:
Yeah.
Dave Wolcott:
got freedom of purpose. to spend the time how you want to. You’ve got freedom of relationship to choose who you want to be with, right? So totally agree with that. And it’s interesting that you had the courage as well at such a young age to go to that next level of teaching other people. Because if you really look at the trajectory, right, of learning a subject, you know, true mastery is actually teaching other people. So you
Adam Carroll:
Absolutely.
Dave Wolcott:
were really at the top of your game at that. And if turned that into a great career, so, you know, kudos to you for that. So it’s really cool. So tell us about, you know, what, what is your business look like today?
Adam Carroll:
Yeah, today I have a fairly even split between speaking and doing some consulting work. Largely, it’s in the line or the industry of financial education of some kind. So, candidly, this last year, 30% of my business has been in the ag industry. Don’t know where exactly that came from other than, you know, once you get into one kind of pool of business, other people hear about it and start. requesting you to come present. So I’m also in the Midwest. So there’s a lot of ag companies around. And this may not come as a surprise to anyone, but families everywhere are challenged by what they don’t know about money. And so we have folks who are striving to get ahead or striving to create wealth, but they may have been raised in a family that never talked about it. And so the core message for me when I get out and I speak is around What’s our psychology of money? How do we grow up? And did we grow up learning that money was abundant? Actually, it’s one of the most abundant things in the world. Because, I mean, candidly, they’re printing more of it every day. So all we have to do is figure out how to dip a teaspoon into the river of the $4 trillion a day that’s flowing through society, and we can become multi-multi-millionaires. Um, but we have to figure out what is that teaspoon for us? How do we find it? So about 50% of my business is speaking and consulting and about 50% of my time is spent building the shred method, which I’m sure we’ll get into. And this is a cashflow technique and technology that we leverage and help people leverage to create freedom, to pay down debt, but ultimately to create massive passive permanent streams of income. that allow them to do what you’re talking about, have money freedom, time freedom, relationship freedom, purpose freedom. So that’s kind of my world in a nutshell. And then we try and sprinkle a month or so of vacation in a year. And I’m a guy who really likes mini-retirements. So if I can get all four weeks in one lump sum, I can work for six months, go take four weeks off, and then come back and go, all right, let’s get after it. Because I’m refreshed and ready and… still purposeful about what I’m doing in my life.
Dave Wolcott:
Yeah, that’s excellent. Being able to reconnect with your vision and your purpose. And I just had the opportunity to take some time off with my family as well. And, um, it’s just so rejuvenating, right? To be able to, uh, unplug and it’s almost like putting on a different pair of glasses, right? When you
Adam Carroll:
Yes.
Dave Wolcott:
come back and now you can kind of see the world a little bit differently. You can reprioritize things. Um, you know, you, you just have this new level of thinking, which I think can be very powerful. especially in today’s world while we’re kind of inundated with, you know, being reactionary, right? There’s just so much information that’s coming at us, you know, but if, if we can actually unplug, we can actually scale and grow and learn, you know, a lot more. So that’s, that’s really cool that you’ve been able to do that. Um, before we jump into, uh, shred stuff, um, you know, what do you think is really the problem, right? At, at, at the root cause of this problem around financial education in this country.
Adam Carroll:
Well, it goes back to what you just said about how many messages are flying at us every day. I mean, I’ve heard that there are as many as five or six thousand marketing messages a day that we’re getting and many of them are subconscious or unconscious, right? It might be the ad we hear in the background on the radio or the series of ads. It could be on TV, it could be the internet, it could be the fact that Instagram is, you know, showing us what we, or what, what they believe we need to see in terms of the algorithm. But we’re getting those, whether we know it or not. And a guy that I used to work for, he would call any kind of digital distraction device, mental chewing gum. So whether it was the radio, the TV, the internet, social media, he’s like, it’s just digital. It’s just mental chewing gum. They’re just giving you something that to chomp on and distract you. And a friend of mine was a Silicon Valley entrepreneur and he sort of affirmed this idea and said, when we build an app, if you are distracted, we win. That’s what our goal is, is to distract you. And so I think from, to answer your question about what is the problem with financial education is that people are counting on the ads they’re seeing as practical financial advice. And if you trust the ads, the ads are telling you debt is normal, natural, and good. Go into debt, drive as big a vehicle as you can, as much house as you can afford. Uh, keep up with the Joneses, take lavish vacations. Instagram itself celebrates rich lifestyles, but as you and I both know, most of those are probably either borrowed to pay for, or they’re fake. There are people who are renting the jets and the Ferraris and all those things posting. their first class life, when in reality, we’re seeing the highlight reel, not the behind the scenes. And so I think from my perspective, one of the things that’s really set my family and I and our clients apart is we tell them, hey, look critically at the messages that you’re getting from the world. Look critically at what the bank sends you, at your banker’s desire to see you do well, right? Banks, I’m seeing pop up all over my neighborhood. and you can’t drive a two mile radius around my house without hitting a $10 million bank building. And they’re building them constantly all around me. And so I kept questioning that, like if the banks are able to afford brand new $10 million buildings and it takes them years to be profitable, what is, who is paying for it? And the answer is us. And what did they know that we don’t? And if we start digging into that, Maybe we can flip the script and start acting like a bank, like our own bank, and creating the kind of wealth that most banks enjoy. So deep down, a simple answer to your question is the messages that we’re getting are not intended for us to be wealthy. They’re intended to keep us deeply mired in debt.
Dave Wolcott:
Yeah. Now, I really love the whole psychology of money. I think a lot of people just don’t really spend enough time kind of thinking about it. And then like you say, we get pulled in different directions, right? It becomes aspirational that we’ve got to go get that new car or whatever it is, that thing
Adam Carroll:
Yep.
Dave Wolcott:
that you’re looking for. So as part of our wealth strategy and part of our framework in the book, you know, we always talk about creating your vision first. You know, what does
Adam Carroll:
Yes.
Dave Wolcott:
that vision look like? for you, right? Because it could be, you know, having more time to spend with your loved ones, right? It might
Adam Carroll:
Right.
Dave Wolcott:
literally be that simple. And it doesn’t even
Adam Carroll:
Yeah.
Dave Wolcott:
really take much money to actually get there. But what
Adam Carroll:
Totally.
Dave Wolcott:
steps are you taking today, you know, to be able to put that into place. So I think that the
Adam Carroll:
Yeah.
Dave Wolcott:
vision and understanding your target is a really key place to start. And then there’s also this other aspect that I found that I kind of encapsulate in the book as well around that is You know, there’s, there’s elements, you know, you pointed out, right? Like limiting beliefs. I mean, I grew up as well where, you know, there’s starving children in Africa. You’re going to eat every scrap of things on your table. Uh,
Adam Carroll:
Yes.
Dave Wolcott:
we were vegetarian because we couldn’t afford to buy meat at the grocery store.
Adam Carroll:
Right?
Dave Wolcott:
Right. You know, all of these different things. Um, that just kind of get drilled into your head, right? So,
Adam Carroll:
Yep.
Dave Wolcott:
so it’s, you know, you’re now in this scarcity mindset, you know, versus an abundance mindset. And
Adam Carroll:
Yep.
Dave Wolcott:
it takes some time to be able to, to really kind of, you know, assimilate that and then figure out how can I, you know, how can I bridge right to the other side
Adam Carroll:
No doubt.
Dave Wolcott:
and, and see the right examples. And the other thing I’ll say as well, Adam, that’s just so important with all of this. It’s mindset. Right. I mean, what is the difference between certain people like, you know, Elon Musk, Steve jobs, I mean, you know, these, these big prolific entrepreneurs, right. Who are taking on the world and the people, let’s say you went to high school with who are in the same town, same circle of friends, same
Adam Carroll:
Yeah.
Dave Wolcott:
job for the past
Adam Carroll:
Yep.
Dave Wolcott:
20, 30 years, what is the difference?
Adam Carroll:
Right.
Dave Wolcott:
Right. I think it’s mindset.
Adam Carroll:
Absolutely. To that end, Dave, I want to add that a story that supports what you’re saying is that a friend of mine grew up in a household where the logic and the narrative was, well, we’ll never have a lot of money, so we might as well spend it now because we’re never going to have a lot of money, so we might as well spend it now. If you grew up hearing that, or in your case, if it was, we are vegetarians by need, not by desire. What happens is people will fill in whatever lack they’re experiencing, whether it’s, you know, there’s insecurity around housing, there could be insecurity around food, there could be insecurity around education. And so what they’ll do is they’ll fill that in first. And it’s an interesting kind of psychological experience or observation. When you see someone who is who is in poverty or trying to get out of poverty. But as soon as they have a little bit of money, they fill their pantry or they prepay their car payment for X number of months. And I always know what it is. It’s like, well, this was an insecurity you had at some point that you’re just filling in. The idea that mindset of what it is you’re after is an interesting one. And the vision, your comment about vision is 100% spot on. I believe that people underestimate, I’m sorry, they overestimate what can be done in one year. but they underestimate what could be done in three years because most of us could achieve some level of financial freedom or security within three years if we truly set our mind to it. And when you see other people do it, you go, oh, that’s possible. But when you’re surrounding yourself with people who are saying, well, we’ll never have a lot of money, might as well spend it now, it’s hard to fathom that kind of thing is even possible. And it’s, I mean, in all honesty, it’s why I love shows like yours. because it exposes people who are willing to listen to these stories. It exposes them to the fact that it is possible to change your state financially in short order, but you got to change your mindset first.
Dave Wolcott:
Yeah, 100%. So let’s jump into the shred method. Tell us what it is, how did you develop this, and let’s peel back the onion on this one.
Adam Carroll:
Yeah, this is one of the favorite, one of my favorite things to talk about because of the difference that it made in my life. And then as I started sharing the method with other people, just how many success stories we found. It goes back Dave a little bit to in 2009, it was one of the coldest winters on record in Iowa. And we just had snowfall after snowfall after snowfall. My wife and I were living in a home that was about 16 or 1700 square feet, but about 800 square feet of that was unusable because it was so frigid. It was a split foyer. So you’d go half upstairs, half downstairs. And the part downstairs was so cold. Literally, I’d have to have space heaters on in an office down there all day long to work. And it just wasn’t usable space. While we had three kids, we were just bursting at the seams. And I said to my wife, we have to find someplace else to live. And so I drove around through a neighborhood that I thought I’d never be able to afford, found a house that we loved and we made an offer. It was accepted and they allowed us to rent back because our home sold relatively quickly. So we moved into this house, had not closed on the mortgage yet and we’re settling in feeling very grateful that we’re in this house, plenty of room for the kids to play and spread out. And I was in a business where the income wasn’t I mean, I had a very creative tax person at the time, let’s put it that way. And so I was making money, but it didn’t look like all my taxes that I made that much. And the underwriters were having an issue with me getting approved on this loan. And my wife one night was crying in bed and she’s like, they’re going to make us move out Adam. They’re going to make us move out. And the next day I swallowed my pride, called my father-in-law and said, would you be willing to co-sign on a loan with us? And graciously, he did. Uh, we closed on the loan, but it was in his name and my wife’s name. I wasn’t even on it. And I vowed to myself in that moment, I would never be in this situation again. That number one, we would figure out how to verify income so we could get, uh, I could get qualified. And secondly, I never wanted to be in the situation where I was asking someone to either vouch for me or ask for money. And it was about six months later, I was introduced to the Shred Method, Dave. And essentially the model, the method itself is widely known. There are a lot of different versions of this, if you will, out in the public. What we’ve done is we have taken the software that powers the algorithm and made it very, very user friendly for people to just follow the prompts, do what the system tells you to do, and you’ll be out of debt. in serious equity and then leveraging that into other investments in no time. And so fast forward, nine months, I got qualified. My name was on the loan, my wife and I’s name on it. And that was in around late 2010. By 2012, September of 2012, on my birthday, I made the final payment on the mortgage of $260,000. So we had blasted away 260 grand in debt, saving about, I don’t know, it was close to $180,000 to $200,000 in interest over those years, right? Extrapolated over 30 years’ time. But that’s money that we weren’t sending to the bank. It was money that started accumulating in our accounts. And we were realizing the power of having an extra $2,000 a month, not making that mortgage payment and started figuring out what do we do with this now? How do we start creating? just massive passive permanent streams of income. So that’s a little bit about the origin. And since then we’ve shared it with thousands of people. We have hundreds of shredders using the system and we’ve probably had close to, well, dozens at this point, close to a hundred people that have either paid off their home or nearly paid off their home since they’ve started working with us.
Dave Wolcott:
That’s awesome. Can you give us an example of how that works?
Adam Carroll:
Yeah. So the best example is almost a metaphor. Um, so I asked this question of a lot of people, Dave, when we first started working with them. So play along with me, if you would, if, if you got up on a Saturday morning in Sarasota and you drove to the grocery store and you knew that you’re going to go home, take the groceries in, but you had to go back to the post office. It was probably going to be three, four or five hours before you went. Would you leave your car idling in your driveway during those four or five hours? You wouldn’t. Why would you not?
Dave Wolcott:
uh, to save on the environment, to save on energy. And then that probably goes back to, yeah, the way I was raised, you know, everything was about efficiency. Um, so.
Adam Carroll:
Exactly. So efficiency, we have care for the environment. It’s crazy to leave a car idling that long. Someone might steal it. In Iowa, someone would take it and get it washed and then bring it back and park it in your driveway. That’s how that works here. But what most people do with their paycheck, Dave, is the money gets deposited in checking and it sits there for days or weeks and sometimes months on end. Little by little, it’s drawn down with debit card transactions and ACH transactions. But nine times out of 10, when I talk to individuals, particularly high income individuals, and I say, do you have a significant amount of money just sitting idle in an account? And they’ll say, well, yeah, it’s my emergency fund or it’s this fund or that fund, sinking funds, vacation funds, whatever it may be. And I say, do you have amortized debt hanging out there? Well, yeah, of course I do. I’ll always have a mortgage or I’ll always have a car loan or whatever. And I’ll say, what if there were a way that you could create a maximum amount of efficiency where you could get rid of all those debts, not change your spending one IOTA, but leverage the system like a bank would to save yourself tens and most cases, hundreds of thousands of dollars in interest. And they go no brainer. It’s an absolute no brainer. The difference is. that we’re not taught to do this by the bank because number one, the bank wants us in debt. They want car loans,
Dave Wolcott:
Yeah,
Adam Carroll:
they
Dave Wolcott:
for
Adam Carroll:
want
Dave Wolcott:
sure.
Adam Carroll:
mortgages. We are their compound interest vehicle. Secondly, it is an asset for them to have that loan on the books and it’s a liability to have money in a checking account or a savings account for the lender. But know this, that the money that we put in checking savings money markets, That is what affords the bank the ability to go out and lend the way they do. So when you see a bank say, Hey, we’re increasing our CD rates or we’re increasing our money market rates. What they’re doing is saying we need more liquidity so that we can turn around and lend it out because we have a lot of loans coming in and we go, Ooh, yay. I’m making 4% on my money market account. And they’re saying, this is awesome. This person just put 50 grand in a money market account. and we’re going to turn around and loan out $500,000 on that 50 grand. It’s called fractional reserve banking. And so when you understand that, you realize that having money just sitting idle in an account is incredibly inefficient. And what we actually want is available or accessible money, but it doesn’t need to be money sitting there insured by NCUA or FDIC, right? That’s their benefit. That’s not necessarily to our benefit. And so we teach people how to alter their cash flow where the income comes in. It goes into a simple line of credit. The software calculates how much is coming in, how much is going out. And then it says, based on these interest rates, send a lump sum of, I’ll create a number, $7,258.36 to your mortgage on this month. And when you do this month after month after month, you’re actually accelerating the amortization table of your mortgage by years, decades. And so the average American today could be out of their mortgage within three to seven years depending on the level of their debt and the level of their discretionary income.
Dave Wolcott:
Hmm. But so let’s say you’ve got this predetermined amount that you’re going to pay towards the mortgage, a car loan or whatever it is. But
Adam Carroll:
Mm-hmm.
Dave Wolcott:
let’s say if it was sitting in your checking account, it might have been allocated for something. You know, you knew you had, let’s say a vacation or medical expenses
Adam Carroll:
Yes.
Dave Wolcott:
coming up within the next 90 days. Let’s call it a quarterly basis. And so you’re kind of trying to manage cash flow. So is that reducing? you know, your flexibility to have that liquidity for cash flow or how does that work?
Adam Carroll:
Yeah, great question. And what I heard in your question is what if you are earmarking funds for future travel or car repairs or what have you, right? The reality in our world from our perspective with Shred is that line of credit that you’re taking out in our case, we tend to direct people, excuse me, to a HELOC, a home equity line of credit, it’s usually the easiest to get. But it could be a personal line of credit, a PLOC, could be a BLOC, a business line of credit. or it could be a cash value line of credit that is taken against whatever the cash value and a life insurance policy is. And so we’re deciding what that might be based on the lowest interest rate available. And in many cases, it’s going to be a HELOC or a CVLOC, a cash value line of credit. The way we look at the line of credit, Dave, is it is a liquidity pool. So it would be no different than $5,000 sitting in a… money market account waiting to be spent on a Hawaiian vacation and $5,000 that’s put against your mortgage but available in that line of credit when you need it. And candidly, the five grand sitting in a money market account might make you, I mean, call it three and a half or 4% on the high end, right, on an annual basis. But if you dropped five grand on your $400,000 mortgage, what it’s going to do is it’s going to shave five or six months of payments. off of your mortgage and five or six months of payments might equate to thousands or tens of thousands of dollars in interest that you would have otherwise paid against your mortgage.
Dave Wolcott:
Yep.
Adam Carroll:
So we tend to say, this is another metaphor analogy question we’ll ask. If you wanted to borrow a hundred dollars from me and it would cost you five dollars, but you knew it would save you $2,000 on the backend, would you do that? Would you pay five dollars in simple interest to borrow a hundred? If you knew it, it’d save you 2000. And most people would say all day, every day.
Dave Wolcott:
Yeah, so here’s another question for you. Right. So our audience is very sophisticated, right? A high net worth, ultra high net worth investors. We understand that debt, I mean, debt can be a double edged sword, right? It
Adam Carroll:
Yep.
Dave Wolcott:
can actually accelerate failure, right? And, and real estate or certain things that people get over leverage. And
Adam Carroll:
Indeed.
Dave Wolcott:
then, you know, to your point, right, you know, it can kind of reduce. your liabilities, right? And you can shorten those times, freeing up cash flow and such. But
Adam Carroll:
correct.
Dave Wolcott:
let’s compare that to an investment, right? So let’s say you can make 15 to 20% on a particular investment. And my deployment cost is whatever the rates are, 6, 7%. You know, so
Adam Carroll:
Yep.
Dave Wolcott:
does it completely make sense to allocate towards, you know, reducing that mortgage when
Adam Carroll:
Right.
Dave Wolcott:
on the other side, right, I might be able to make 20% on
Adam Carroll:
Yes.
Dave Wolcott:
that money.
Adam Carroll:
It is not an either or in my opinion. It’s a both and situation
Dave Wolcott:
Okay.
Adam Carroll:
And and the reason for that dave is I don’t disagree at all that some people who say Yeah, but I could make more if I deployed that money elsewhere And I and I would say wholeheartedly. I agree with that However, there is some amount of discretionary income that’s still flowing through your household
Dave Wolcott:
Mm-hmm.
Adam Carroll:
that for most people particularly the affluent right that are or a high income earning family. If you’re a six figure or high six figure earner, it’s not like you’re living right up to the line. Hopefully you’re not living right up to the line every month.
Dave Wolcott:
Right.
Adam Carroll:
There’s some amount of money that’s going somewhere and it’s probably just being like, there’s always 10 or 20 or 30 grand sitting in an account somewhere.
Dave Wolcott:
Yeah.
Adam Carroll:
That is the money that if I said, well, let’s flip a switch on efficiency and just begin shredding some of these loans that you have.
Dave Wolcott:
Yeah.
Adam Carroll:
What we’ll do is in this moment right now where we’re at in 2023, we’ll take a six or six and a half percent interest rate mortgage down to about a point and a half as the effective APR. And when people tell me, you know, even a three percent mortgage rate, when they go, this is the cheapest money I’ll ever have, why would I ever pay this off? What I often will tell them is because the effective APR that we can give you in a matter of 24 months in most cases is like 0.6. on 3% because of how fast we’re paying
Dave Wolcott:
Yeah.
Adam Carroll:
it down or off. And then this is a secret and this is one of the, I hesitate to even share it because it’s one of our secret sauce in our system. But we give people a strategy of, okay, so you’ve bought a, and let’s take an extreme example, you’ve bought a million dollar home. You’ve got a mortgage payment on that million dollar home that Maybe at this point in time, it’s $8,000 a month or 8,500 a month, nine grand, whatever it may be. Let’s say it’s 8,000. And not that it’s a stretch necessarily, but it’s a burden. I mean, eight grand a month, eight grand a month, right? And over the course of a year, out of that 8,000, 6,000 of it a month’s going to interest. So that’s $72,000 a year that you’re sending to your banker, not keeping for yourself or building equity with. So there’s a little bit of a misnomer when we go, oh, well, the interest rate’s 3%. That’s super cheap money. Well, it is, but on a million dollars, it’s not like that’s $30,000. It’s all of that upfront amortized on the front end of that mortgage. You know this
Dave Wolcott:
Yeah.
Adam Carroll:
as a finance guy, when you look at a 30-year fixed mortgage, the first 10 years are like the red light in a traffic stoplight. And the next 10 years are yellow, and the third 10 are green. And that reflects how much principal you’re paying down. So if in 18 to 24 months, we could go from red to green on your mortgage. And you went from a million to let’s say 600,000 or 500,000. And at that point you recast the mortgage, not refinanced, but recast it. In which case you would say, Hey, I owed a million over 30 years. Now I only owe 500,000 on 28 years. What would my payment be? And the lender will say, oh, based on that, your payment’s going to be $3,685. And you go, oh, well, that’s way easier than eight grand a month. And now I can afford to go buy a rental property or my second home or whatever. So, and you’ve got the equity in that property that you can leverage however you see fit with that line of credit. So if you want to borrow it six or 7% and deploy it at 15 or 20, by all means, do that.
Dave Wolcott:
Yeah.
Adam Carroll:
because the majority of your payments going to principal anyway on your primary mortgage. Does
Dave Wolcott:
Yeah, love it.
Adam Carroll:
that make sense?
Dave Wolcott:
So yeah, totally. So we’re basically what you’re talking about. It’s, it’s really efficiency and velocity, right?
Adam Carroll:
Yes.
Dave Wolcott:
With your existing capital. And, um, I mean, I think this is such an important, uh, point for people, not only in your personal economy, uh, but also in businesses, right? As, uh, as a business owner, right? You’re always keeping cash on hand for operational expenses, certain things that you have. Um, but you know, there’s a lot of lazy cash, right? That’s sitting
Adam Carroll:
Yes.
Dave Wolcott:
in there. You’re
Adam Carroll:
Totally.
Dave Wolcott:
paying for that liquidity. So if you could, I’m assuming you can do this in the same example of the business. Let’s say you have, you’ve purchased equipment or you purchased vehicles, right?
Adam Carroll:
Yeah.
Dave Wolcott:
But
Adam Carroll:
Right. Okay.
Dave Wolcott:
you’re keeping 90 days on hand for capital
Adam Carroll:
So, we’re
Dave Wolcott:
and
Adam Carroll:
going
Dave Wolcott:
maybe
Adam Carroll:
to
Dave Wolcott:
you only need 30 to 45.
Adam Carroll:
go ahead and
Dave Wolcott:
You
Adam Carroll:
start
Dave Wolcott:
could
Adam Carroll:
the next one.
Dave Wolcott:
much more efficiently manage that. Is that fair?
Adam Carroll:
You are absolutely correct in that. And we work with business owners all the time where we are trying to help them manage and strategize their equity and their debt, because many of them will be sitting on, you know, again, three months, six months, whatever the proclivity of the owner is all the while they are at the early stages of amortized debt or paying off
Dave Wolcott:
Right.
Adam Carroll:
equipment or whatever it might be. And we can show them. you know, in a matter of months, you could knock that down and not really have any threat of liquidity in the grand scheme of things. So there is a question we often ask, which is, you know, let’s look at your accounts receivable. What’s the aging report look like? Are your clients paying on time? Then do you really need X amount when you’ve got six months in accounts receivable coming in six months worth of expenses? You’ve got three to six months in the bank. And then you’ve got all this debt that you’re trying to pay down. What if we just re-engineered that a little bit and you chomp through the debt in no time, how much extra cashflow could you create? And, um, most business owners are shocked by the numbers they see.
Dave Wolcott:
Yeah, I’m sure. You know, it’s interesting. I mean, having run four different businesses now over the past 15 plus years, you know, I’ve always struggled with, you know, how do you manage cashflow, right? And then that
Adam Carroll:
Yep.
Dave Wolcott:
ties into your personal economy as well. And it does come into efficiency, and that’s what always drives me crazy. Now, You know, we’ve been a big proponent. We have a lot of investors using the infinite banking, cash
Adam Carroll:
Yes.
Dave Wolcott:
value, whole life insurance, which is a great way to get a multiplier on your capital. So you can,
Adam Carroll:
Confirm.
Dave Wolcott:
you can get some of that efficiency going. You still have the liquidity.
Adam Carroll:
Indeed.
Dave Wolcott:
It’s compounding tax free and everything. Um,
Adam Carroll:
Yep.
Dave Wolcott:
but it looks, if I’m understanding what you’re saying is that You know, this can be a complete amplifier. So you could use your cash value life insurance policy as the store of capital,
Adam Carroll:
Yep.
Dave Wolcott:
but then you just start making allocation decisions towards some of your debt payments, you know, based upon some of the algorithms, um, to really reduce that debt quickly and free up cash flow.
Adam Carroll:
You nailed it. You nailed it. And furthermore, for most people that are being pitched, and I say pitched loosely, being presented an insurance product, there are a lot of agencies out there that will say, well, it’s only $3,000 or $5,000 a month to put into this premium, or they’ll do a quarterly premium or semi-year premium. I prefer, and we tend to coach our clients on, it’s a once a year premium. 25, 50 grand, 100 grand at a time, because it’s coming out of your HELOC anyway, or your line of credit. And because of the cashflow tool that we’re creating, your income cycling through that line of credit. So though we ramp up the balance right away, over time, it’s just trending down. So the interest expense on it is negligible. It doesn’t feel like a big burden. And automatically in your policy, you’re creating a compound interest effect quickly,
Dave Wolcott:
Yeah.
Adam Carroll:
because the key, as you know, um, in infinite banking is we want to get to compound interest velocity as quickly as humanly possible. And so that means if you’re making four and a half, five and a half percent on a hundred grand, 200 grand, 500 grand, a million, the faster we can do that, the better. And with shred, what happens is folks who normally would say, well, 50 grand is kind of a stretch. They use shred for six months, 12 months, 18 months. They go, this is a no brainer. I would put 50 grand in here. every six months if I could.
Dave Wolcott:
Yeah.
Adam Carroll:
And then you realize really the power of that, and I’m sure you share this with your clients, but when you begin to realize you have buckets of money that are available to you to put into investments that can make way higher than the S&P 500 index averages, we’re talking 12, 15, 20, some cases 30% returns, and you have no payment on the money you’re putting in there. because you’re borrowing against a policy that doesn’t require a payment. To your point, we’re just stacking
Dave Wolcott:
Yeah.
Adam Carroll:
efficiency and productivity
Dave Wolcott:
It’s
Adam Carroll:
and
Dave Wolcott:
a
Adam Carroll:
it’s
Dave Wolcott:
complete
Adam Carroll:
like
Dave Wolcott:
snowball
Adam Carroll:
putting nitrous
Dave Wolcott:
effect,
Adam Carroll:
oxide in your
Dave Wolcott:
Adam. Yeah, absolutely.
Adam Carroll:
gas tank. Yeah,
Dave Wolcott:
And
Adam Carroll:
you just
Dave Wolcott:
we,
Adam Carroll:
put nitrous oxide in your gas tank.
Dave Wolcott:
yeah, we, we’ve helped clients. We, we built some calculators out and we’ve actually, we’re developing a software product right now, uh, which is a wealth strategy dashboard. But when you start to look at it as like a CFO would, and you’re looking at your financial view, and then you start looking at these things, you know, over time, over a 20 year period. And as you like to buy, I love that multiple permanent streams of income,
Adam Carroll:
Yeah.
Dave Wolcott:
while you’re reducing, you know, your debt, right, that you burden that you have, that yeah, the snowball effect is absolutely exponential. And I think I heard you on another show give out a quote around Warren Buffett, which was, which was really fascinating. I hadn’t heard that before. The, his 5 billion. Can
Adam Carroll:
Yeah.
Dave Wolcott:
you remember that?
Adam Carroll:
He at 65 Warren Buffett was worth $5 billion. And at 85, he’s worth something like 85 or $100 billion. So the majority of his wealth, 12 times what he was at 65, he’s now at 85. And the idea and this I think this is a Warren Buffettism, but the idea is to get to compound interest velocity as fast as possible.
Dave Wolcott:
Yeah.
Adam Carroll:
And and what that means for Again, this goes back to mindset a little bit, Dave, is that if our goal in making money and being mass affluent is like, I want all the stuff, you’re missing the point. The idea is have the stuff, but have plenty of money left over to begin to get to this point where the money makes far more than you do. I used to going back in time, I read a book, I’m sure you’ve read it or have it on your bookshelf, The Four Hour Workweek by Tim
Dave Wolcott:
sure.
Adam Carroll:
Ferriss. When I read that book, The question that I kept asking myself was, how do I make as much money in an hour as most people make in a month or a year? The answer that kept coming back was public speaking because if I can go present and make 2,500, five grand, 10 grand, 15, 20 grand in an hour, I’m going to do that. Over time, things have continually tracked higher and higher in terms of income on that front. I still have to travel. I still have to be away from my family and go do that. So what would it take to make that kind of money without any work at all? What would it require? How much either would I need to invest? What kind of deals am I finding to get there? And I encourage your listeners to think through that. Not, oh, how much less could I work to make this? But what would it take for you to not work at all and still be able to live at a lifestyle that you want to live at? Is it 10 grand a month, 20 grand a month? And now you just have to put the machine in place, if you will,
Dave Wolcott:
to get
Adam Carroll:
to
Dave Wolcott:
there.
Adam Carroll:
churn that money
Dave Wolcott:
Yeah.
Adam Carroll:
out. And we, you know, going back to the vacation conversation earlier, we spent two weeks in Italy and a couple of weeks in Hawaii recently. And as I was there, I’m listening to podcasts and reading books and just, again, disconnecting, but thinking at a high level of what I want. And I saw this video and someone said, pretty comfortably anywhere in the world on 10 grand a month. And 10 grand a month, wherever you’re coming from at this angle, it’s not that difficult to create $10,000 in recurring passive income. There are methods and ways of doing that. And if that’s what you’re focused on, you could have it in no time.
Dave Wolcott:
Yeah.
Adam Carroll:
So this is where our mindset is today and where we’re trying to. kind of bring people to is, you know, what’s the vision, how much does it cost? Let’s get to creating it and get you to that lifestyle as fast as possible.
Dave Wolcott:
Yeah, totally agree, Adam. And one thing that I really love about this, and I think all the listeners can really take advantage of this is this is low hanging fruit, right? Even if you’re not an accredited investor, wherever you are, you know, our kids in our twenties, wherever you are on your trajectory, this is completely
Adam Carroll:
Yeah.
Dave Wolcott:
low hanging fruit that you can take advantage of and reposition. right, to drive
Adam Carroll:
Yes.
Dave Wolcott:
greater efficiency, right, to really kind of accelerate your wealth. So I think that’s awesome. And, you know, my mind is really lighting up with use cases here. Like there’s so many good use cases for our audience. So one, folks out there who’ve got short term rentals, Airbnb, single family rentals, right, you could apply this to them, right? So you’re
Adam Carroll:
All the way.
Dave Wolcott:
reducing, you know, the… to debt on those. You can do it with obviously your own home, as we talked about, the mortgage or any of those kinds of liabilities,
Adam Carroll:
Yeah.
Dave Wolcott:
potential college payments, any of those kinds of things that you can do. And
Adam Carroll:
End
Dave Wolcott:
then
Adam Carroll:
of the.
Dave Wolcott:
in your business, like we talked about, having more efficiency and managing that liquidity. And then also just this way to really magnify the results of your cash value life insurance policy and kind of put it on steroids, I would think,
Adam Carroll:
Yeah.
Dave Wolcott:
by doing this. So really, really fantastic ideas here.
Adam Carroll:
I want to touch on one of those you said, and that’s the short term rental and somebody who has some properties. What we find when we work with real estate investors is they’ll say, well, I’m just stockpiling cash waiting for the next opportunity. And if you think about this, what they’re doing in stockpiling cash is they’re creating this liquid but non-efficient pool of money. And you would still have access to the funds if you’re paying down that debt over time using shred as you wait for the next deal. But then you’d have access to the capital, the equity that you’re creating in that property by having a line of credit on it. So to your point, this is low hanging fruit, no matter what you’re doing, even doing it for three to six months, 12 months, you are going to be years ahead of where you would be otherwise. And so when folks start to see the And they go, Oh, I don’t have to lock into this for seven years. I need to do it for a period of time to achieve the goal I’m after. Um, though I will tell you that for my wife and I, this is a lifestyle. We will never not use a shred method technique where money’s going into a line of credit because there is always money being deployed about every two to three months, there’ll be tens of thousands of dollars that goes out somewhere. because some is always coming back in. And I know you know this, you teach your clients this, but if you’re in a syndication and it’s a three or four year syndication, that money’s coming back in. It needs to have somewhere to go
Dave Wolcott:
Yeah,
Adam Carroll:
when it comes back in.
Dave Wolcott:
yeah, exactly.
Adam Carroll:
And with Shred, you start to do that. This flywheel is just like always, always moving. And I don’t mean to make this seem simpler than it is. but it becomes like a video game that you can’t lose.
Dave Wolcott:
Right.
Adam Carroll:
You remember playing Nintendo and
Dave Wolcott:
Yeah.
Adam Carroll:
the cheat codes on Nintendo?
Dave Wolcott:
No,
Adam Carroll:
This
Dave Wolcott:
it’s
Adam Carroll:
is the
Dave Wolcott:
a
Adam Carroll:
cheat
Dave Wolcott:
rinse
Adam Carroll:
code.
Dave Wolcott:
and repeat strategy for sure. Right. I mean, once you get your head around some of these things, it’s, it’s not really that complex. You just need to take action, right. And actually get involved. You start to see the results for yourself. It’s the same with, you know, investing in alternatives and real estate, right. You start to see the
Adam Carroll:
Right.
Dave Wolcott:
results and then you say, wow, you know, let me now extrapolate this. And I think we could do a lot better than. than we were doing.
Adam Carroll:
Indeed.
Dave Wolcott:
Yeah. Awesome stuff, Adam. If you could give listeners just one piece of advice about how they could accelerate their wealth trajectory, what would that be?
Adam Carroll:
I’m going to go ahead and turn it off. If I were to give one piece of advice about how to accelerate your wealth trajectory, it would be, and this is, this is proven true in my life. It is the very first thing you invest in is yourself. So take the courses, uh, buy the class, go to, you know, go grab the book and study it intently. Um, and I say that with a bit of an example, I, I was a huge fan. I’m still, I am a fan. of Phil Town who wrote rule one investing and payback time. And I opted to go to Phil Town’s program and watched him sort of dissect what he was doing in the market. And obviously he’s an equities guy. So there’s a portion of our wealth building plan that is in equities, but in watching him do what he did, he was dissecting Chipotle Mexican Grill at the time. And he said, this is a six or $700 a share company. And it was about $300 a share at the time. And I’m sitting here going, this is a burrito company, dude. How is this six or $700 a share? And he said, all of the metrics, you know, meet this out that this should be a six or $700. His whole mentality is that if you can buy a dollar for 50 cents, you’ll never ever lose money. And so he’s looking for those deals. How do you buy a dollar for 50 cents? And today, if you look at CMG, Chipotle Mexican Grill, it’s at 13 or $1,400 a share. And that day, he bought 10,000 shares of Chipotle Mexican Grill at $300 a share. And we are all watching him do it, kind of like, this is a huge bet. And it clearly paid off. Now this is a guy I followed and studied. And I think that is the piece of advice simply stated, is find the experts. that you want to either live by or live like, or that you appreciate their model and their methodology, track them, follow them, do what they do, because the people who have gotten to that level, they know of which they speak. I mean, success leaves clues. So invest in yourself by following the people that you wanna live like.
Dave Wolcott:
Awesome. Appreciate that Adam. Um, and really appreciate your time today and coming on the show, really sharing your wisdom and your sage advice with the audience. I think that’s definitely something worth, uh, you know, investigating further. If people want to learn more about you, the shred method, uh, what is the best place that they can reach out?
Adam Carroll:
Yeah, thank you for asking the shred method comm is our website our domain and on that domain We have a master class that you can watch that will teach you everything you need to know about it We have the ability to schedule a 20-minute call with folks who are interested in just having their numbers run, seeing what kind of savings they could experience or what’s a potential opportunity for them. So theshredmethod.com is the place to go for that. If you want to know more about me, Google my name. I’m everywhere on the internet. And what you’ll probably find right up front is a TED talk that I delivered at the London Business School that went viral. And I would encourage people to watch that as sort of a primer into who I am. It’s all about a game of Monopoly. I played with my kids with real cash. So we had a $10,000 game of Monopoly and the lessons learned were very profound.
Dave Wolcott:
Very cool. Love it. All right, guys. Thanks so much for listening today. Hope you enjoyed the show. Do us a favor if you’re really getting value from the show, please give us a rating and review really helps us out. Bring in stellar guests like Adam bringing on. So would be grateful for your participation there. Thanks again and we’ll talk to you next week.
Hey everyone, welcome to today’s show on wealth strategy secrets. Today we have a very special guest for you, Michael Sonnenfeld. Michael is the founder and chairman of the ultra wealthy investment club, Tiger 21, with over 140 billion in assets under management. Michael is the author of think bigger and 39 other winning strategies from successful entrepreneurs. He is an American entrepreneur, philanthropist and political activist. Currently he is the president and founder of Tiger 21. the premier peer membership organization for high net worth creators and preservers. He is also a board member of earth justice and is the president of the Goldman Sonnenfeld foundation and on the boards of several other philanthropic and political organizations. Michael, welcome to the show.
Michael Sonnenfeldt:
Thanks so much. Thanks for having me.
Dave Wolcott:
Yeah, you bet. I’m really grateful to have you on the show, Michael. I think this is going to be super valuable to the audience, especially in the time period that we’re in, right? There’s so much going on in the world, geopolitically, politically, right? The investment climate seems like we’re really just, there’s so much uncertainty out there right now. So, you know, and you’ve had an amazing journey and background as an entrepreneur, as an investor. And so really looking forward to, you know, unpacking some of the wisdom and insights, you know, from your journey. So why don’t, why don’t we start there, Michael, if you can share with the audience who isn’t familiar with you, a bit about your background, a bit about your story and how you kind of got into eventually getting into Tiger one. starting right back from your real estate days and MIT and such.
Michael Sonnenfeldt:
Sure. So I’m what would be called a classic serial entrepreneur. I’ve had four or five or six different business lives, some overlapping, some sequential, and maybe a little more unique as I’ve split my time between business and my philanthropic activities. They’re all related right now as an example. For the last 15 years, climate has primary concern and I mix it both politically, philanthropically and in terms of the investments I make. But my career really, the thing that made my career was that when I was 17, I was working in a warehouse that was on the waterfront of New Jersey directly across from the World Trade Center in lower Manhattan. And I was a meditator at the time. And I used to go out to the end of the pier, which was a warehouse then. And it was a thousand feet out in the water. Imagine the Empire State Building laying on its side. That’s how far out in the water the pier went. And when I looked to lower Manhattan, it was, it felt like it was actually closer than the land behind me. And behind me was a warehouse that had been the largest warehouse in the world, largest building in the world when it was built in 1929. But the times had changed and I had a vision for that to become a mixed use office, condominium, hotel, retail center and what was then the Harborside terminal. Seven years later, I acquired with a partner and began the redevelopment, which became the largest redevelopment in the country at the time and converted into the Harborside Financial Center, which was a great first project. It was fun that my first real estate project was the largest commercial renovation in the world. And it’s kind of good to make a career when you have a success that way. And I sold it just after I was 30 and went into the real estate business, excuse me, went into trying to figure out what to do next and went into the real estate information business, which was really technology. That didn’t work out so well, but a few years later, I went back into real estate and created a billion dollar merchant bank for real estate called MS, E-M-M-E-S. It means truth in Hebrew, and my initials are MS. And then when I sold that in when I was 43, I had my second successful exit. And I started Tiger 21, which was about 23 years ago. grown into the premier network of high net worth investors around the globe with, as you mentioned, just about 1,300 members who manage their own money. We’re not a money manager, but the collective personal wealth of our members is now about $150 billion.
Dave Wolcott:
Yeah, that’s really amazing. I actually had the opportunity to live in Harborside right when I transitioned out of the Marine Corps and it was my first job working for an international supply chain company.
Michael Sonnenfeldt:
Wow.
Dave Wolcott:
So very familiar with Harborside and all of the freight and all of the activities. And just as you say, and I was there, I guess, early 90s, but still, you know, there was still a lot of development. to happen and you look at it today and it’s just, it’s an unbelievable piece of land and what it has grown into. But tell us some of the decisions that went into that. I mean, at your age, at your experience level, all of us as entrepreneurs, we wanna make big moves on the chessboard, but you had to have made some very big thoughts and kind of manage your risk to you know, to get into this. Can you tell us a little bit more about the transaction?
Michael Sonnenfeldt:
Sure. As I mentioned, I had this sort of vision, for lack of a better term, just call it an idea, when I was 17. But the building had been owned by my wife’s family, which is a large real estate business. But they ran it as a industrial warehouse. And it wasn’t very successful as an industrial warehouse. But. When I graduated college, I went off with an MBA from MIT. I went off to Goldman Sachs for a year and then went to work for my father-in-law for three years. And one of the things I was running was that building as a warehouse. And I had this real burning passion. So I developed some plans about what it would look like and how you would go about it. And I found some mentors, very important. was an architect who had unusual financial skills named Rick Baer. And he taught me how to think about world-class development or redevelopment. But one day, a man walked into my office named David Fromer, who was twice my age. And I showed him all the plans that I had been working on. And he said, oh, let’s do it. I had been introduced to him by a common acquaintance. but this was the first time somebody saw the plans and really bought into them. And so it took about a year and a half for David and I to find the right formula that would allow us to acquire the building. In those days, you could have purchased money mortgages and we were able to get financing, David was able to get financing the… The deal that we had between us is because it was my idea and I had the plans That’s what I brought to the table and he had to bring the financing to the table And so we became 50 partners uh where the project was completely leveraged we acquired a building for 25 million dollars with literally two hundred thousand dollars down and the rest multiple layers of debt and the sellers were happy to take back the debt because they were getting a much higher price. So one lesson is that sometimes a win-win is when one person gets what they need and the other person gets what they need. In our case, we needed financing and in the seller’s case, they wanted a high price and we were willing to pay a higher price with the advantageous financing. So we closed in 1982, August of 1982, and in one of the great strokes of luck, and maybe this is the second thing, luck tends to favor those who are ready, willing, and prepared to take the risk. So we closed in August of 82 on an industrial building that was losing money with a vision that it could be converted into modern computer centers. And six months to the day later. in one of the great gifts of life, Bankers Trust, which was then the eighth largest bank in the world, leased a section of the building to put half of their worldwide data center. The minute they did that, the rest of the building became unfinished office space rather than industrial space. As they say, the rest is history.
Dave Wolcott:
Wow, that’s really definitely an amazing story. In terms of, from a wealth perspective, Michael, I mean, even before you got into, you know, really setting up Tiger 21 and creating that community, we know that as an entrepreneur, right, it’s a different skillset to build capital than being an investor, right, and preserving and growing your wealth. Have you created a particular wealth strategy for yourself or some type of, you know, guiding thoughts or parameters that you have as you’ve been building your wealth over the years?
Michael Sonnenfeldt:
You know, what comes to mind is in order to do what you’ve just asked, you need knowledge and perspective and discipline because 90% or more of entrepreneurs who are successful entrepreneurs but then have a liquidity event and all of a sudden they no longer are running a business. but now they have a pool of capital, they go from being managers and entrepreneurs to wealth preservers or investors. And for people who don’t have capital or haven’t built businesses, maybe being a wealth creator and a wealth preserver seem like the same thing, but they’re radically different. All of the things that allow some of the most successful entrepreneurs to be successful. predispose them to be mediocre investors. An example, most entrepreneurs are very emotional about the one thing that they’re working on that they’re so excited on. And so to those entrepreneurs, being an investor is kind of watching the paint dry because investing is much more dispassionate. As an entrepreneur, you focus on one opportunity. As an investor, you have to prudently diversify. And I’m saying all of these things because today the single most important issue for somebody with a wealth strategy is one asset allocation and what it What it suggests about your view of the world how you There’s lots of studies to prove that if you can pick reasonably successful investments in each asset allocation the asset allocation is more important than the investments themselves. In other words, if you have a certain percentage in stocks and a certain percentage in private equity and a certain percentage in real estate, getting the allocation of those big buckets correct over the long term is more important than the individual investments. Of course, as long as the individual investments are at least in the median of each of those areas. And in my case now, The strategy that I find most compelling is to think of my assets in three buckets. One is cash, and the cash is for both a rainy day, meaning if the market’s downturn, can I survive on the cash I have without having to liquidate investments at exactly the wrong time? In the case of Tiger 21’s members, that number is about 12%. Tiger members as a whole have about 12%, 11 or 12 in cash. And if you spend 2% a year of your wealth, if you have sufficient wealth, that’s the number. That’s about five years of reserves that you wouldn’t have to liquidate other investments in a major downturn. The second thing is what I would call my passive investments. Those might be index funds, stocks, investment in private equity funds, real estate. We’re not operating it. We’re just investing. And then the third part, and this is the biggest choice that an investor has to make, is active businesses. Do you have enough of an edge to own or participate directly in businesses that will provide superior returns, but also provide significant risk if you don’t know what you’re many people don’t have that option because they don’t have either that skill or that interest. And so then they have to say, what’s realistic if I have stocks and bonds and cash or some variation of that? But the point that I’m making is that unless you have some demonstrable, outperform the markets. And historically, that would be sort of an 8% to 10% return in the stock markets, which will be reduced by whatever cash you have. I’ll just end by saying, there’s a study that shows the stock market since 1910, I believe, has had an average of a 9.6% compounded return. But individuals have only earned in the 4% to 6% range because individuals who aren’t disciplined sell at the wrong time. They tend to sell at the low and they buy at the wrong time. They tend to buy at the high. And that’s why long-term ownership of index funds provides benefits that stock picking and even many managers can’t match.
Dave Wolcott:
Yeah, that was a really great summary. And then from your perspective, you know, why is it that you think, um, you know, certain asset classes, like let’s talk about real estate and private equity specifically. Um, you know, most people don’t really have that in their portfolio, even entrepreneurs who’ve been successful and then they’ve had their exit and then they get exposed to those S asset classes, which, you know, as you start to understand them and analyze them a little bit more, provide multiple benefits at the same time, especially if you’ve had an exit, right? You’re able to offset with taxes, getting into real estate, investing in energy, some of these other asset classes that can have multiple benefits at the same time. But most people are still looking at things from the viewpoint of, hey, I can only invest into the stock market and a mixed type of portfolio.
Michael Sonnenfeldt:
Sure, so I’d say that’s the largest distinction between both tiger members, but family offices and some of the wealthier families that if all your available investment is in the stock market, the bond market as an example, it turns out you can actually do quite well if you’re smart about it, meaning, if you had invested just in index funds that mirrored the performance of the stock market, you’d be one of the great investors. As I mentioned, you could be earning in the sort of 10-ish, 9% to 10% compounded range for a long period of time. who inherit money or they come into money for one reason or another have the hardest time understanding is how hard it is to outperform that simple index fund that is earning over a long time, nine to 10%. But if you have access to and the knowledge about and are willing to take the risks of… the two categories you’ve talked about, real estate and private equity. If you can perform in the top half and maybe the top quartile of investments, that will bring up your yield, but it’s not without significant risk. There was a very famous investor named Swenson, who was the head of the Yale endowment that really revolutionized endowment investing. And he came up with what was called the endowment model. And it turned the world upside down. It used to be 70% equity and 30% debt. And he started diversifying Yale’s investments into natural resources, forests and minerals and other forms of natural resources and private equity and real estate. And We could go into any level of detail, but the bottom line is that he pretty regularly generated in the mid-teen kind of returns as opposed to the high single digits. And the cumulative impact of that is to make, you know, five and ten times as much money over a period of time because of the power of compound.
Dave Wolcott:
Yeah. And what do you think in terms of a percentage that you see with your members in Tiger from a, you know, let’s say more of a defensive, if you have those three different buckets, right? You know, how much are they putting allocating towards, you know, defensive type plays versus looking at equity appreciation?
Michael Sonnenfeldt:
So the current asset allocation for Tiger members is about 25%, 24, 25 in real estate, about 31% in private equity. Those two add up obviously to 54, 55%. And public equities are only 22%. Well, when you add those up, that’s 76%. And the rest is largely defensive, it’s cash. at 11 or 12% and fixed income in the 7% range, some currencies, commodities, Bitcoin might be in there, and hedge funds. But the overwhelming point is that Tiger members are relatively unique in the very high allocation to private equity and real estate. if you can find the best opportunities, whether it’s through funds or directly, you can pretty regularly achieve returns that are higher than the stock market or at the very least diversified from the stock market. But I think one way to think about it is it’s a bit of a barbell, very long invested in long-term assets between the what we call the three equity buckets, private equity, public equity, real estate can be seen as equity. And then a lot of safety with 12% cash and another 6% or 7% in fixed income. And the cash really is there for the rainy day and the three equities are there to build value over time.
Dave Wolcott:
And would that strategy hold up during different economic periods, right? Especially where we are today, would that hold up for you as where we’re going to be in the next five years, say?
Michael Sonnenfeldt:
Well, what I would say is, first of all, nobody knows where we’re going to be. That’s for sure. And, you know, the most difficult form of investment trading is macroeconomic, trying to take the biggest macroeconomic trends and translate them into specific investments. You know, if you want to… read from the Dean of Macroeconomics, Ray Dalio is the man, and he’s just come out with a book in the last year on the great powers and the changing world order. And if you read that, you’ll see how China is accelerating and the United States is growing less strong, so China is catching up faster and in certain areas actually beating us on the statistics. And the point about that is interest rates kind of have a mind of their own, but over the last 20 years, interest rates came down and over the last year or two, they’ve been going up. So if you were a betting person, you wouldn’t want to bet that interest rates are coming down or you wouldn’t want to bet your entire portfolio that interest rates are coming down. And if you think they’re more likely to go up because of the inflation story, you’d have less fixed debt and you’d look in your equity areas for things that are inflation proof. So a simple example is if you’re in a real estate business, if you want inflation protection, many retail real estate leases have a pass through of sales to the landlord. tenant, whatever they’re selling raises their prices because of inflation, you get more and more rent as the landlord. Well, that’s as opposed to many other types of leases that just have a fixed rate and don’t have that pass through. So if you were concerned about inflation protection, you would lean a little more towards having that kind of pass through rent where you participate in the growth of your tenants’ receipts. But it’s not always available. And on the private equity side, within private equity, we don’t track it. Although anecdotally, we think why private equity has grown so much over the last 15 years is because of the venture capital component. And when a company starts out, it normally doesn’t have debt. You can only qualify for bank debt when the company is up and running and may be successful and has a track record, and that sometimes takes a couple years. Well, what that means is when the company is in its early stages or its venture capital period, debt is not that important because you don’t use debt to grow little baby companies, you use debt to grow much larger companies. So if interest rates are rising, you’re gonna be less exposed to that as a venture capitalist than as a leverage buyout guy. Leveraged buyout guy uses debt for everything. So in each of the categories there are areas that are More dependent on debt and less dependent on debt and obviously in a rising interest rate market Uh, if you could fix Interest rates at a low rate. You’ll get a benefit for many years But if your interest rate is floating Then you’re going to be exposed to the rising interest rates if that’s your concern
Dave Wolcott:
Makes sense. Any other guidance you can give on the current economic outlook from a strategic perspective?
Michael Sonnenfeldt:
You know, these are the strangest times. There are many metrics that are as good as they’ve gotten. Under the current administration, inflation has come down dramatically. Employment has continued to surge. The stock market is strong. And yet, we have this sense of unease. And it’s a very, very difficult time. It probably has to do at the very least with three or more factors, each of which is a study in itself. I think the competition that we’re now facing with China has truly profound ramifications because just look in the chip area for advanced chips. advanced chips that go into all sorts of machinery and so forth. But China has an advantage in the rare earths that are the minerals that go into making chips. So they can squeeze our ability to manufacture and we can squeeze their ability to use these advanced chips. So in many different, as an example, most of us think of Tesla, probably when we talk about electric vehicles and Tesla is accelerating at a mind boggling rate, doing amazingly well, beating all the records. But most Americans have never heard of BYD, which is a bigger electric vehicle company than Tesla. And the growth in electric vehicles will be at the smaller end through Southeast Asia, and there BYD has a huge advantage. So just generally China, America. The dynamic is changing. China has caught up in many respects and is catching up faster. You then have the polarization in America, politically, which really can take a toll on how people’s well-being feels. We’re polarized more than we’ve ever been in recent, certainly recent history. And climate change, all of a sudden, we’re starting to see. the devastating effects of climate change. And many people really haven’t thought through. This isn’t the new normal. This is just on the way to things getting a lot worse. And that’s going to have a huge economic impact. So there are a lot of different factors that go into thinking about these issues. But obviously, interest rates is the one that many of these gets translated to. And I think one of the things that we really want to do is not be prognosticators, but meaning don’t bet the portfolio because you think you know whether the stock market is going up or down. Create an all-weather portfolio that can survive in the downturn and maybe even prosper and better prosper as the world gets better.
Dave Wolcott:
Yeah, really sage advice, Michael, and would wholeheartedly concur with that. Because I think once you have a strategy and you’re following these parameters, right, of those buckets as you outline that you’re investing in, you have the ability to manage different economic conditions and things that frankly no one can predict, whatever it is that’s kind of coming across the bow for us. Also, I think it’s fascinating as well that meditation is really important for you. Um, as it has been for me, I mean, I would define it as actually one of the top three skillsets, uh, to have in life and started out trying to teach our kids even, you know, that, you know, how important that was. And you find that with, uh, you know, very successful, you know, business leaders, entrepreneurs, investors. People who have really evolved have only gotten better at skills such as meditation, regardless of the different techniques and everything, but it’s really mastering your mind, being thoughtful, being intentional about making decisions. And really when you tie that to investing as well, and Ray Dalio does like to talk about that a lot, is that we lose a lot based on the emotions. We’re making decisions based on our emotions and that’s when we’re losing and investing. Can you share with us your thoughts on meditation and how that’s helped you as an entrepreneur, as an investor to be more intentional, maybe make better investment decisions?
Michael Sonnenfeldt:
You know, there’s lots of ways to both tame, and I don’t know if I would use the word master your mind, but at least kind of wrap your head around it for lack of a better way of saying it. And one of it is through analysis. Some people think of psychoanalysis as a negative, if… Psychoanalysis is a way to open up into your unconscious and reveal issues that are on your mind. And meditation is another way. How many times have you heard people say, I was in the shower and I had an idea come into my head, or I woke up in the middle of the night with an idea and I wrote it down? It was so important. These are all variations on a theme. meditation of course being one of the most important of them and You know for me I don’t I do get some mastery as you mentioned from meditation But the more profound impact For me is that The more you can clear your mind the more things can surface that are being held below the surface. Think of it as a meditation is kind of removing a blanket from something and revealing things. I very often, when I’m meditating, something will come into my head that I have absolutely no idea where it came from. But I remember I forgot to respond to an email, or I’ve been working on a problem that I can’t quite figure out the right solution to and the solution pops into my head. Really what it means is that our brains are really working on multiple levels and we’re not in touch consciously with all of the levels that our brains are working and our brains are working on some problems that we’re not even aware of and sometimes you can’t put all the pieces together but both meditation and being in the shower and For some people, it’s hiking and so forth. Finding ways to calm and clear the mind allows some of those problem solving to come to the fore with extraordinary solutions. And sometimes I find I’ve been working on something for weeks or months, and I just, I can’t get there. But with a meditation, literally a solution pops into my head. and it feels like it’s the right solution. So there’s lots of reasons to do meditating. There’s lots of health reasons. And I guess the other one is that when you’re an entrepreneur, your ideas are important, but your execution is more important. And execution almost always involves working with other people. And one of the things about meditation is to have what’s called an observing mind. Most people are in the moment. So if they get upset, they’re experiencing the upset. Or if they get angry or they’re obnoxious or they’re arrogant. But with meditation, you start to learn how to observe what’s going on. So you’re both in the moment and you’re observing the moment. And in every personal interaction that an entrepreneur has with an employer, an employee or a customer, the more they can be aware of how they’re acting and how they’re being perceived, the more they can adjust to a more productive mode. And I think meditation is one way to build this observing mind. So you’re not just in the moment, but your mind is observing you being in the moment. And we’re all human. If I come into a room and I’m feeling insecure, because as an example, everybody is more successful than me, if I can be aware that I’m feeling insecure, it will moderate my behavior in a way that I don’t behave in a counterproductive way. Whereas without that monitoring, I might not behave as well as I’d like.
Dave Wolcott:
Yeah, yeah, no, totally agree with that. It’s such a powerful technique. And as you say, I mean, it can really benefit so many areas of your life, you know, in business, with your relationships, with your health, and with investing as well. So appreciate that. Michael, why don’t you tell us a little bit about Tiger21? I think some folks might not necessarily be aware. We have several of our partners, folks in our community and friends of our community, our members. But for folks who aren’t familiar, tell us, you know, how it started for you. What is the make-up
Michael Sonnenfeldt:
Sure.
Dave Wolcott:
today?
Michael Sonnenfeldt:
So I mentioned that I had built and then sold this very large project when I was a little past 30, I may have been 31. And I was successful beyond anything I would have ever imagined. But when I sold the project and now I had the millions of dollars that I made. I had no real thoughts about preserving the capital. In fact, I thought that if I had been so successful the first time, the second time would be just as easy. And so I didn’t have well thought out strategy about protecting capital. And I started some new businesses and I just wasn’t thinking straight in hindsight. I overestimated my success, which is very typical when people who win the lottery think they’re geniuses and forget that they won the lottery. On the other hand, they took the risk and bought the ticket, so they deserve some credit, but it’s not the whole story. And so I had some setbacks in the next round of investments and realized I needed to be smarter about it. So I went back to the real estate business where I knew something and built a billion dollar… Merchant bank called MS and company EMM ES my initials are MS and it means truth in Hebrew and And then I sold that business when I was 43 So I’d had two really terrific successes and I realized the second time I sold the business I didn’t want to ever have to go back to start a third business Because I had made stupid mistakes and I wanted to avoid the mistakes that rookies make And I wanted to learn from other people who had been very successful and then learned how to preserve the capital and maybe even enhance it without unnecessarily risking it. So I wanted to create an organization around six other people who were in similar situation to me. We were all in a Vistage group that’s an organization like YPO, two great organizations, that their members are mostly CEOs of businesses. And their peer-to-peer learning is about being great CEOs. But once you sell, kind of it’s like the Harvard and Stanford undergraduate or the Oxford and Cambridge, and then Tiger 21 today is the graduate school after you sell a peer-to-peer learning model. So I started Tiger really wanting to learn from other people how they were preserving wealth and thinking about legacy and. estate planning and most importantly children after they had been incredibly successful as entrepreneurs. And that was an idea 23 years ago and today that’s grown into the premier network of high net worth entrepreneurs around the globe. We operate in a half a dozen countries growing a few more out. When you join Tiger, you join a group. So we have over a hundred groups around the globe. 95 of those groups or more are geographically located. So you might be in New York one or London three or Tel Aviv one or, you know, Vancouver two because in many cities we have two, three, four, five groups. But now we also have global groups where you could live anywhere in the world and join a group and then you meet by Zoom every month. 11 months a year except three of those meetings you actually meet in person depending on where most of the members in the global group is You might meet in new york and then london But uh, it’s a it’s a global group, but regardless Each of these groups have about 12 to 15 members. That’s the size and the reason is that When you meet months once a month One person each month does something called a portfolio defense Where they’ve worked? very often for weeks, if not months, with their accountants and advisors to put together a way to explain their portfolio decisions to get the input of 12 peers that they just can’t get from anywhere else. It’s sort of the defining experience. It’s all subject to confidentiality. And so today at the core is a little over 100 groups, about 1300 members managing. about $150 billion. We’re not money manager, we just the organization that puts all these people together in these groups. We curate the activities and then they meet and it’s a full day meeting focusing on, as I mentioned, the portfolio. We obviously have speakers, but it’s sort of like a personal board of directors. You get 12 people who you meet with. every month for years. I was in a group yesterday that I’ve been meeting with for 20 years. It’s just an extraordinary way to get information about how other really smart people are investing, how they’re thinking about their legacy, how they’re thinking about tax planning, how they’re thinking about their children. But you’re learning from peers. That’s the model. It’s not a consultation. The groups are run by chairs, those are our facilitators, but their job is to make the magic happen between extraordinary members. And our members are uniquely successful, on average about one in 10,000 by success. What that means is if you have 1,300 members worth close to 150 billion, our members have net worth between 20 million and a billion. and on average in the middle there at about 110 million. And that makes them about one in 10,000. And the best way to understand that is if you’re in the major league, football, baseball, or basketball, you’re about one in 17,000 by accomplishment. And if you take the All-Stars out of any one of those leagues, so you have the majors minus the All-Stars. Think of the All-Stars as the billionaires. And what’s left is an extraordinary group of people. That’s about one in 10,000.
Dave Wolcott:
Yeah, excellent. And what do you think in terms of members from a, um, you know, a team perspective, right? One of the things that, you know, we see in family offices, right? That everyone is basically creating a team of superstars and expertise around you, right? To build your wealth plan. So, um, our members are typically doing their own, making their own investment decisions, you know, with members such as a CPA and everything or you know to what extent are they outsourcing to you know traditional wealth advisors?
Michael Sonnenfeldt:
So this is a core question because some wealth advisors were nervous about Tiger 21 for fear that somehow it would harm their business. Tiger 21 is a confidential community where people can share best practices. And what that means is that when one person has a wealth advisor or a broker or… somebody who’s helping them make money in a productive way. They share that information with other members. And so for the best providers of services, whether it’s legal services, wealth, investment, et cetera, for the best providers, Tiger is a way to crowdsource business because one member introduces another and another and another and another. But obviously, Part of our discussion is for two people to say, hey, my advisor is giving me this advice and producing these results and charging me these fees. How are you doing? And none of these things are black and white because you might’ve earned less but taken less risk, in which case that’s a good thing. But in the discussion, 12 really smart people can pretty much identify who the better performers are and who the worst performers are. And it’s not a surprise that the worst performers get less and less business and the best performers get more and more business, although performance is very hard to quantify. And one of the greatest benefits you have is when you sit and talk to another member and say, how are you thinking about this issue or that issue, you start getting into the nuance that either excitingly or unfortunately is at the essence of investing.
Dave Wolcott:
Yeah. Michael, if you could give just one piece of advice to listeners about how they could accelerate their own wealth trajectory, what would it be?
Michael Sonnenfeldt:
I don’t think there’s any one piece, but there’s three quick ones if I could share them with you. The first is that in the book I wrote, I mentioned that if you line 100 people up in any industry, not just finance, and line them up from least successful to most successful using any reasonable metrics, so it doesn’t just have to be. profits or returns. It could be academic papers. It could be there’s lots of different ways, but use any reasonable basis. And the half that are the most successful will overwhelmingly have had mentors in their life and the half that are least successful will overwhelmingly have excuses for why they couldn’t have mentors in their life. And peer-to-peer learning is a variation of that because If you’ve just sold your business and you go into a group with a couple people who had sold their business three or four or five or ten years ago, you’re going to learn things you couldn’t learn anywhere else. But mentors in particular was the big learning for me. I’ve been as lucky as can be to have had about a half a dozen mentors across my 50-year arc from when I was a teenager. helped me along the way. So I would say mentors is almost certainly the number one. The second is many of your members may be aware of something called the marshmallow test. It was a test with young kids, two and three year old, I think three year olds, where they put kids around the table and one marshmallow in front of each of them and said, I’m going to be back in a little while if the marshmallow is still there. I’m going to give you a second marshmallow and you can have two. And it wouldn’t be a surprise that if you had 10 kids, not all of them can wait. Most of them might want to eat the marshmallow first because they’re not sure when you’re coming back and how long they’re going to wait and they’re not even sure if they believe you. And there’s always a few kids who are disciplined enough or smart enough or wise enough to wait and then they get the two marshmallows. And it turns out as silly as this little experiment. seems they track these kids for the next 30 and 40 years. This has been going on for decades. And it turns out that the few kids who could wait for that second marshmallow learned about delayed gratification. And in almost every important endeavor, delaying gratification, making the investment upfront, but not reaping the reward for some time. those who know how to delay gratification through discipline or personality are predisposed to be far more successful because people who want to take the rewards out of an early career don’t have the resources to reinvest them and use the power of compounding to build great success. I think I’ll stop at those two.
Dave Wolcott:
Yeah, really, really fantastic. So many things kind of come to mind personally off the top of my head from that. So really appreciate you sharing those with the audience, Michael. Really appreciate you coming on the show today, giving so much value to the audience. If people would like to learn more about what you’re up to at Tiger, some of your other companies, some of your philanthropies. or would like to get involved, what’s really the best place to reach out?
Michael Sonnenfeldt:
Through the tiger website www.tiger21.com that seems to be sort of the best portal to Just get a snapshot and dig in and I’m available on LinkedIn as well
Dave Wolcott:
Super. And then how about one more last question, Michael, a trivia question. How did you came up with the name Tiger 21?
Michael Sonnenfeldt:
It stands for the investment group for enhanced results in the 21st century. And, you know, there’s a for people in finance, they’ll know that there was an amazing investor named Julian Robertson, who was the founder of the Tiger Group of Companies, Tiger Management, and so forth. He went out of business in 1998 as one of the greatest legendary investors just when we were starting. So I wasn’t taking my name from him because he had basically said he was through and he didn’t understand the way the markets were working. But he’s been the greatest father of what are called tiger cubs. There’s literally dozens of his proteges who have gone on to build multi-billion dollar funds, some of them the most successful. But we had to accommodate one another. And so we can’t sell securities the way Tiger can, and they can’t run high net worth learning groups. We have what’s called a mutual recognition agreement that has worked fine for the last 10 years, and I expect it’ll continue to work fine.
Dave Wolcott:
Wow, that’s great. Michael, thanks again for coming on the show. It’s really been an honor to learn from you and the community that you’ve created. Super impressive what you’ve done, how you’ve been able to give back is really impressive as well and an inspiration to others. So I encourage listeners to definitely reach out, follow what Michael’s doing, what Tiger 21 is doing. definitely the elite group in the space and very well aligned with our thinking here as well. So thanks again and talk to you next show.
Michael Sonnenfeldt:
Thanks so much.
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another awesome show for you guys today focused on taxes. Today we’re joined by Mitch Day. Mitch is a specialty tax manager with Provision PLC out of Tempe, Arizona, with over 20 years of taxation experience. He has worked in a variety of roles in both public accounting and in industry with an emphasis on tax planning in the real estate construction, banking and multi-state sectors. Prior to his career in accounting, Mitch was an investment advisor in Canada. In addition to being a CPA, Mitch is also a certified management accountant, a certified financial manager, and a chartered financial analyst. Which, Rich, Mitch, welcome to the show, good to see you.
Mitchell Day:
But to see a day, pleasure, great for having me on to this morning.
Dave Wolcott:
I’m gonna do that over really quickly. This is the beauty of editing. I don’t know why
Mitchell Day:
Yeah.
Dave Wolcott:
I had that screwed up. Mitch, welcome to the show.
Mitchell Day:
Thanks, Dave. Thanks for having me on. Great to be here.
Dave Wolcott:
Yeah, awesome to have you on the show and have been really looking forward to this one. I know our investors are always looking for tax strategies, tax tactics, getting smarter on taxes as I have over the years. And I’ve found it to be such a fascinating journey. It was always frustrating for me for many years. And I know I’ve told the story to many in my book. that I’ve actually fired five different CPA firms. You know, I progressed up the ladder in terms of, you know, working with more prestigious agencies and, you know, paying more and more and fees, but never really getting that, you know, strategic advice, right, from a tax provider and saying, you know, where are you today? Where are you heading? You know, let’s move pieces around on the chessboard that are most… going to align with your tax strategy. And it was such a key insight for me. And now I’ve had the opportunity for, gosh, almost a decade now to be working with folks such as yourself, to really get those insights and then kind of incorporate that into our overall wealth strategy. And I’ll give the other caveat to that as well is that, I’ve definitely identified that you know, taxes are the number one tax destroyer bar none, right? It’s the biggest expense on your income statement, whether you’re a business owner, whether you’re W2 or anything. Uh, and I love how Tom Wheelwright talks about it, you know, that, that really hits home, which is to say, you know, you could, you know, you may be working five, six months out of the year just to pay your taxes. So that’s, that’s pretty sobering. So. So Mitch, tell us a little bit more about your background and also, you’ve got such a unique background into how you got into really taxes, accounting, financial planning, and kind of just give us a perspective of your view of the world.
Mitchell Day:
Okay, well I came about, it’s kind of the securitist route I took. So I was born and raised up in Northern Ontario, a town called Sudbury, Ontario. My dad was a chartered accountant, so basically he was a CPA up there, he had his own firm. So I grew up understanding the business. And I learned from him where he was a very, where he focused more on advisory, where it’s like, and obviously in Canada where basically California looks like a tax shelter, it is tax planning is very important up there. So a lot, so he always took the perspective that it was a large part of that. And as I went through university, I wanted to take a different route. And originally I did my undergrad in statistics and chemistry, and then I did a second degree in accounting and I wanted to go into finance, basically investment management, because I loved understanding balance sheets, understanding how to create wealth and that. And I did that. Basically when I came out of college, I worked for a firm that ultimately merged in with Merrill Lynch Canada, then I worked with RBC, and I basically got my chops there, basically being a deep value type and management investments out. That was my style on it where I was trained, where I learned grand, dot, classic margin of safety, income, and growth that way. And then after the dot com bubble, basically… the entire industry changed and it basically, it was this mass carnage. And with me being basically, everybody was being like, oh, it’s like, well, I’m out of a career. It’s like no one’s hiring in the investment side. And because of my accounting background, I was able to immigrate to the US and I started working for a CPA firm in the Detroit area. And I was fortunate enough to work with, I basically got in there with my college roommate. And I started learning with him and a couple of managers, it’s like, look, tax returns isn’t just a form and it’s, it is basically a way for you to arrange your affairs so that you’re paying the bare minimum on there. And you have to look at it in terms of when you look at a tax return, a lot of people just look at it, does everything tick and tie? Is everything fill out? And that’s really a failure of our schools, of the way education is, with how colleges prep people, is that they show them how to do it correctly, but they don’t show them how to think beyond that. And I was lucky enough to have mentors, and also growing up in a family where it’s like, no, you gotta look at it different, where you look at a tax return, and you can kind of see, here’s money left on the table. Hey, if I did this, I could’ve lowered this number. Hey, if I did this, this number could have been done. So I was fortunate enough to get into a set of circumstances where I got to look at things that way, where because I had a period of time where I was away from it, I was basically starting over from scratch doing this. So I got to learn from a new perspective. And then after being in public for a couple of years, it’s like I had an opportunity to go work for Bank of America and their corporate tax department. And then I learned how large like basically the largest taxpayer in the US how they do it and their perspective is The tax department is a lot of people think of it as a cost center But you can also look at it as a revenue center Where if you organize your affairs within the structure and how you deal with counterparties? You can save You you can create significant tax savings on it. So after seeing how the big boys do it and the way they look at it, the way large corporations look at it is, CFO goes to the chief accounting officer and goes, what’s the lowest effective tax rate we can get at? And gives them basically a mandate to here’s your target effective tax rate, what can we do inside here with the tax attributes we have here to lower our effective tax rate, what are things we’re doing here or if we’re below it. Are there ways to harvest gains, take advantage of it because we’ve had an off year or we have some advantages to take advantage of things to keep within our target tax rate. And that really opened my eyes because what we’re doing, we’re no different than a business. It’s like we have a P&L which is our personal and in all our businesses and how they all flow up. But the idea is we have a P&L and probably our largest line item on there, as you’ve said before, is taxes. And so we should be thinking about it no different than a business. This is an expense that needs to be managed. The problem is we’ve been conditioned from since our first paycheck as a teenager working that it’s taken off the top. There’s nothing you can do about it. And no one tells you otherwise until you have that epiphany where it’s like, hey, wait a sec, there are ways to do it. So we try to take that approach where it’s like, OK, Here’s our expense. First, we have to learn how to measure it. How do all these pieces flow up into our return? How does it create the expense? You have to be able to measure it accurately, because if you can’t measure it, you can’t manage it. So once we measure it, it’s like, okay, here’s the elements involved with it. Then how do we manage this going forward throughout the year where we set a target effective tax rate, how do we achieve it? Now every person is different because they have different ways of making money, spending money, investing money. They also have different goals with regards to effective tax rates. And then ultimately you only have, and especially when you’re deploying capital to create cash flow and tax efficiency, we don’t have printing presses in our basement. So we’re also constrained by that. And the question is, is for everybody’s unique situation, how do we put all these traits together and within our circumstances on a year in year out basis and optimize that based on what our goals are, what our risk tolerances are, and all those other types of non-financial constraints and how do we implement the year in year out so that we are always have our finger on a pulse of what our tax bill is. And if we do it right, the tax return is the end of the process where it’s like we already know what we did during the year. All it is truing up the numbers, and we have the return, we have our projections. There shouldn’t be much variance, there’s no surprises on it, and then it’s basically repeat every year.
Dave Wolcott:
Yeah, that’s such a great summary. So why don’t we just back up a little bit, right? And I think some of the, a lot of the misunderstanding comes for folks where, you know, everyone out there probably has a CPA, right?
Mitchell Day:
Mm.
Dave Wolcott:
And they’re getting their taxes filed and they’re doing different things and they feel like maybe they’re doing, you know, making some deductions and things like that. And they’re calling that really a tax strategy, which isn’t in fact a strategy. But what… Tell us why is the industry so bifurcated really, right? Because what you’re talking about is a very strategic advice versus a lot of, I would say the majority of planners are just looking in the rear view mirror.
Mitchell Day:
Well, I think there’s a couple of reasons. As I said earlier, I have to put a lot of criticism to the university system is that when you take a tax course, it’s like, here’s the code, here’s what the numbers are, here’s how you prepare a return. And they don’t teach people to think out of there. Now, let me qualify that. I went to school in Canada. And that was the same here. And what I’ve seen from people here, it’s the same here. I don’t know about a master’s level, but what I’ve noticed is there’s not an emphasis on changing the mindset of people where it’s just, it’s very much an assembly line where it’s like, here’s the form, here’s how you do it. And the problem is that a lot of firms look at the tax return as basically a widget. It’s basically their entire business model is, Input process output input shoebox of receipts process put it into the software output. Here’s a return Pay me my fee pay the irs. See you next year because it’s just It’s a it’s just a simple model because a lot of people don’t necessarily want to do it and the other thing is that a lot of people don’t want to pay for it as One of my clients once said a lot of people Are will balk at well that’s going to cost me money but but the problem is they’re basically stepping over dollars to pick up nickels. And we as an industry don’t do a good job of explaining how we add value. And one of the things I tell people is like, look, yes, you’re paying these fees for planning and strategy, but the idea is that with us sitting together, figuring out a strategy, figuring out what your needs are and your preferences are. We can create a return on investment on those fees by tax savings. Well in excess of what you’re doing. That’s always the goal and people have to change that. They just look at, oh you’re charging me this much for a return and they go no, no. But the way I explain it is, well I’ve been doing this for 20 years. I know how to save you money if you’re willing to invest the time, which is time is money based on just the way CPAs charge. we can create a delta there for you. We can create savings well in excess of what you’re paying. And that’s the other problem, it’s just changing that mindset on people because a lot of people, when it comes to professional relationships, and you’ve seen this on your field too, where some people will spend more time in doing research for buying a TV or a cell phone than they will looking for a professional advisor. and trying to educate people on that where it’s like, no, this is how we add value. Yes, there’s a cost to it. This is the value. This is how we’re gonna create return for you.
Dave Wolcott:
Yeah, it makes sense. So, and to give you a specific example, right? You know, we just finished this tax season. We have an oil and gas fund, and a lot of our investors had submitted that to their CPAs, and a lot of the CPAs came back and said, wait, you know, you can’t offset active income, right? And they didn’t totally understand, you know, how it works. And then, you know, they were up against the deadline. You know, what would you say in terms of, you know, CPAs out there that feel like something might be risky, let’s call it a home office deduction or something
Mitchell Day:
Mm-hmm.
Dave Wolcott:
where they feel like something in a gray area, or, you know, you’re trying to, you know, take this active income and offset it based on this type of investment and they just don’t really understand it or they think it’s risky.
Mitchell Day:
Yeah, well, it boils down to what is risk. And it’s like, I’ve heard that throughout my entire career. Oh, home office will get you audited. I’ve never, 20 plus years, I’ve never seen anyone get audited on a home office. And it’s understanding, and the other part is about tax risk is like, look, if you can document it and you’ve got a fact pattern and you can substantiate it, and it’s in the code saying, hey, this is what the rules are, you take it. Because the key thing is, it’s just, you have to support it, you have to understand the code. And the problem is a lot of these guys, they don’t have exposure, like let’s just use your oil and gas one. They don’t understand working interests because they don’t see it very often. They don’t understand that the 469 rules have a specific carve out for oil and gas interest whereby if your money is at risk and your general partner, This is considered ordinary. The code did that to encourage exploration. And it’s the same with home office. It’s like, no, it’s fine. It’s just documents substantiated. It’s the same with the Augusta, well, I shouldn’t rent my house to myself. It’s like, look, as long as you have a proper rental agreement, you have a valid business purpose, you basically document what you’ve used your house for, and you have comps where you can show, hey, look, I pulled up all the comps. This is what… what the market is for my house, you’re fine. It’s just some CPAs, and I don’t wanna say this to be disparaging, some aren’t as intellectually curious to go look it up and find out what it is, spend a few minutes on Google, reading up what working interests are, and they just wanna stick in their silo, which is give me your W-2, give me your 1098s, and leave me alone. Because they don’t
Dave Wolcott:
Yeah.
Mitchell Day:
wanna spend the time, they don’t wanna spend the time, or they don’t wanna charge for the time.
Dave Wolcott:
Yeah, no, it makes sense. And I think that’s a perfect backdrop for folks. And then also just to kind of add to that, I think, you know, in creating some context around taxes and, and my journey as well was, you know, just really making that paradigm shift to understand that the tax code is actually a roadmap of incentives for business owners and investors. And when you can think of it that way. You just need to understand the code a little bit more and do what the government is looking for you to do, which is, you know, investing in energy, investing in real estate and doing these different things, because you’re creating jobs, uh, you know, you’re supporting the economy and all of these types of things. And I think once you make that paradigm shift, you know, then you can actually start looking for, you know, where are the opportunities, whether it’s in investing or in your business and try to be, you know, a proactive partner with your CPA in the journey.
Mitchell Day:
Oh, you nailed it right there. The Internal Revenue Code is basically a guidebook on how not to pay taxes. If you, ultimately, the other way it says, well, it tells me what to pay. The other way is, hey, if I do it this way, it’s giving me a roadmap on how not to pay taxes. And you gotta look at it that way. You’re right, it’s a whole paradigm shift. And once you understand that, you understand how do I manage my affairs? to do that because now it becomes also part with understanding to go, how does this impact my investment decisions? How does it impact how I work? Do I work as a W-2? Do I have an option to be 1099 and set up my own business? How to do those things? Like once you start thinking it that way, even if it’s like, hey, there might be another way. And that’s where we come in where it’s like. Ask the question. There’s no dumb questions here where it’s like, hey, can I do this? If I change my affairs this way, will this work? And often the answer is yes with an if, if we can do the X, Y, and Z, absolutely. Now let’s figure out how to implement it and let’s show what the impact is on your return.
Dave Wolcott:
Yeah, absolutely. So what have been the changes that we should be aware of in 2023 or going forward into next year in terms of our.
Mitchell Day:
there’s a couple of bigger things coming on. Because the biggest one that you’re starting to see is, and this all comes back to the Tax Cuts and Jobs Act when it came out in 2018, was that the problem was in order for them to pass it, it went through reconciliation so that the Senate couldn’t filibuster it. And because of the reconciliation rules is that it’s like it couldn’t increase the deficit by so much over 10 years. So in order for it to meet those rules and get past, basically a lot of the elements within their phase out over the next couple of years. And the classic example that everybody knows about is bonus depreciation. So when they change it, they’re like, hey, 100% expense. And this is huge for people who invested in real estate. The problem is now it’s starting to phase out. So it was 100% through 2022. Now it’s 80. It’s going to drop to 60. It’s going to drop to 40. And then it’s going to be gone. So that’s gonna change a lot of ways, because now it’s like every dollar invested in real estate, for example, or in depreciable equipment, it’s not gonna get you the same tax impact on there. So there’s that. And then it’s also gonna impact where if I have all these investments in let’s say real estate syndications at 100% bonus, and they sell, and I’m gonna have this huge recapture bill, when you reinvest, now it’s like, because it’s a lower bonus, I’m not gonna get the same offset on there. I gotta figure out other ways to mitigate that. So that’s gonna be a big one. Another big one is a qualified small business deduction, that 20% deduction you get for pass-through income. That’s gonna start phasing out in a couple of years. So now we gotta start thinking, it’s like, okay, as this goes through, how’s this gonna impact my business? How do I need to structure my affairs? Where… I can keep my effective tax rate down. And then a third one, which is not income tax related, but the estate tax exemption, it went up to $10 million per person. It dropped back to 5 million in a couple of years. So now if you’re a high net worth person, you’ve got, it’s like you’ve got $5 million as an exemption where to use it or lose it. So now you also gotta start thinking, do I wanna start get… moving assets to my heirs or into a trust now while I still have a couple of years. So there’s a lot of things going on. And the other problem that you have is what’s the tax code going to be starting in 2025? Is the composition of the house and the presidency, is that going to change things? What are the things with the finances? There’s a lot of moving pieces to it, but we do know that a lot of these things are starting to phase out and we got to start planning accordingly.
Dave Wolcott:
Yeah, really good insights. So what do you think, I mean, you know, just given what you know today, what are some, you know, good strategies? And I’d like to break this down into two parts for the listener. So the first one being, you know, why don’t we cover business owners first, and then let’s cover W-2. Secondly, those high income earners out there. for business owners, are there any top strategies, investments, things like that, that business owners should be looking at?
Mitchell Day:
Well, one of the things that I look at for businesses, obviously one of the bigger things I take a look, what I look at is, okay, let me see what your operations are. Let me see the variability of your revenues and your income. And I have some clients where they’re consistent, they have a consistent floor, a significant floor, and it’s basically stable revenues and income every year now. And we start looking at things based on the nature of their business and it’s like, okay, do we wanna look at benefit plans? Do we wanna max that out if you and your spouse are the only employees? That’s a big one there, we’re maximizing those. Other clients I take a look at is, I really like captive insurance companies. That is a great way to create deductions on your return and basically keep all that capital via captive insurance now. That’s a little bit of a longer story, but it’s a way to basically create deductions and manage your claim liabilities depending on what type of insurance it is. Well, a longer story on it, but that’s another very valuable tool on creating tax savings on there. The other thing is taking a look, reviewing your fixed asset purchases, understanding that is if you’re limited, do we need to set up a separate leasing company and lease your equipment back to yourself? Do we need to look at having a separate C Corp and running some of the operations through there where we can take advantage of the delta between personal and corporate rates on there. These are all things that we need to discuss and basically you have to make, you got to make a business case for it first because one of the key things I always tell people, don’t do something just solely for tax purposes. You have, if the cash flow doesn’t make sense, the tax benefits almost all. almost all the time will not more than justify that. So we have to make a business case on it that this makes things more efficient. And then basically the tax benefits is basically is gonna goose your return a little bit. So those are the things that I kind of look on there it’s like reviewing the operations. Are there ways to create expenses? Are there ways to create additional deductions? Is there anything within the structure that we need to look at? because some people might have it as a partnership where there’s self-employment tax, do we need to do an S-Corp? Do we need to even consider doing a C-Corporation because sometimes it’s counterintuitive, but sometimes it makes sense to do it that way. It’s having a discussion of what’s going on in the business, what do you need from the income from here, what are your cash needs and tailoring it so that we can kind of optimize it based on your tax, business and risk needs.
Dave Wolcott:
Yeah, it’s such a good point you make. And admittedly, I’m guilty of this one too, is having the tax tail wag the dog, right?
Mitchell Day:
Mm-hmm.
Dave Wolcott:
Sometimes we’re in such pursuit of some kind of tax efficiency, that we underestimate, right? The overall impact, right? Upstream, downstream, does it make business sense? Like you say, whether that’s in your business or for an investment and everything. So, you know, this is why we always advocate really creating a comprehensive wealth strategy that’s looking at everything end to end and also,
Mitchell Day:
Mm-hmm.
Dave Wolcott:
you know, downstream. You know, we’re planning for 10 and 25 years into the future. So you’re making the right decisions now, not just for this quarter or this year.
Mitchell Day:
Well, exactly. And as you
Dave Wolcott:
Is there…
Mitchell Day:
know, it’s like one of the things you say with your clients is like, what is our investment criteria? What’s the minimum return? What’s our minimum return on our investment that we’re looking for? And you got to have that discipline on there because it’s back to what my whole thing was when I was investment advisor, I’m a value investor. Here’s my criteria. I stick to it. Because when you when you drift away from it, bad things often happen because you gotta stick with what you know and you gotta stick with that criteria. And it’s like, hey, if this doesn’t meet your investment criteria before taxes, why are you touching it?
Dave Wolcott:
Yeah.
Mitchell Day:
That’s the key takeaway.
Dave Wolcott:
So, so here’s a question for you, Mitch, right? You know, how can investors really, you know, more quantifiably, you know, measure tax impact right into the future as part of their overall wealth plan? So, you know, let’s say today, like if you were, you know, going with your example, and, you know, as the CFO of your own personal economy, you said, look, you know, I want to hit a marginal effective rate of 20% this year, right? That’s,
Mitchell Day:
Mm-hmm.
Dave Wolcott:
that’s my target. You know, what are we going to do to, to try to get there? But then let’s say, you know, you make some decisions, you know, you’re investing in some real estate things, you get the bonus depreciation, but you do have that recapture coming in, say three to five to six years, you know, and how can you actually plan for those types of things in the future? Or another use case for this is, we have many entrepreneurs here who are selling their businesses, having really big liquidity events. So they’re having kind of a massive liquidity event with tax implications, right? So how can you kind of proactively plan for some of these things in your strategy?
Mitchell Day:
Well, what we normally try to do is like the first thing is we have to assume that, okay, here’s the knowns because there’s no knowns, there’s known unknowns, and there’s unknown unknowns, as Donald Rumsfeld once said. So we do know the facts that it’s like here’s the code where it is, here’s what tax rates are going forward, here’s how the rules are going to change. And you can model things out like three, four, five years out saying, okay. I’ll use the example of your liquidity event. So it’s like, okay, we’ve done the sale. Here’s what we’re gonna do to basically offset the initial impact of the gain. And then ultimately part of it is going to be, because it’s like, because I’ll use the example of real estate. So let’s say we sold the company and you basically invest in real estate, use bonus to offset it. And it’s like, okay, we know down the road you have all these assets creating cashflow. And depending on what you’re in, you also have to define what your hold period is. Because it’s often, depending on how you invested, some people are like, nope, this is buy and hold, which means, okay, that’s fine. We already know what this is. Some of them are value add three years in sell. So knowing I’m gonna have another liquidity event coming in a couple of years, this is going to impact in two to three years. How do I reinvest? Do I reinvest it? Do I take the tax hit? Take a look at things that way. We have to have that discussion now where it’s like, okay, if we know in three years, we’re gonna have this. The first question is, we have to understand, okay, how are we gonna reinvest it if we have investments that meet our investment criteria? How much of this can we, if we will defer or push down the road further? Or the other answer might be how much, or if it’s like, if we don’t have it, what’s… What’s our tax expense if we can’t find anything on there? So at the very least, we got a deferral where time value of money is. And hopefully due to where the liquidity event and where everything’s in the top bracket, where if we do have a hit, it’s at a lower bracket. So it’s really trying to figure out what the time horizon is, how willing are we gonna do that? What’s our outlook on the markets? What’s our investment outlook for the next couple of years? because that’s something else we’ve got to take a look at because as an aside, it’s like one of the big things that I talk to people with in real estate is… Real estate is basically an offshoot of the long-term bond market and is basically just a derivative of interest rates So the question is where interest rates gonna be three four or five years from now Are we in a rising rate environment or dropping rate environment? That’s gonna drive a lot of your decision Because if you’re buying now and rates are here and they’re gonna be a lot higher you’re gonna do a lot higher cap rate lower valuation different cash flow you have to plan accordingly and That’s where a lot of the back and forth is trying to figure out. What is your outlook? What are we gonna do in this case? And then try to model it out because one of the big things that we want to do is just Put it on our tax projection software try to model it out under different scenarios show what the impact is So at least we can kind of make start tapping the basis of informed decisions going forward and try to have a map Where it’s like if you will a decision tree saying well if this happens, we’re gonna do this if this happens We’re gonna do that So at least we’ve had the outline of the things that we’re going to do going forward, and we know what the financial impact of them, general idea of the financial impact going forward is, so we’re not caught off guard.
Dave Wolcott:
Yeah,
Mitchell Day:
Yeah,
Dave Wolcott:
no, that makes
Mitchell Day:
that
Dave Wolcott:
sense.
Mitchell Day:
makes sense.
Dave Wolcott:
Yeah, you’re really looking at everything comprehensively and end to end. Um, any, just off the top of your head, any, you know, top three strategies, if you are exiting a business and, you know, and you have a lot to, you know, a lot of income to try and offset.
Mitchell Day:
Well, the first question is, what are you doing after you sell the business? Because the first question is, because if it’s like, hey, I’m done working and I have free time, the biggest one right there is real estate professional. And I’ve seen a lot of people do that, where it’s like, they’ll structure their sales so it’s in January. So they’ll have the money in January. They have a whole year to be a real, to… basically put their hours in as a real estate professional, meet all the criteria, find properties, deploy capital, get the cost segregation to get that done. So that’s a big one right there. So because time is another constraint. Well, if you’re in a situation where it’s like, okay, I’m still working, I can’t qualify as a real estate professional, then what do I do? And some of the things we’ll throw on is Do we want to look at short-term rentals? Because you don’t have to, there’s different rules to deduct real estate losses on short-term rentals than long-term. Do we want to take a look at that? Is there a business, first, is there a business case to make sense on that? And if so, well, here’s a way we can create deductions. Obviously, what you’ve talked about with some of the oil and gas working interests, that’s another way to do it. Another way to do it is when you’re negotiating a deal, break it into installments. consider doing an assault where it’s like, if you’re doing late in the year, half now, half in January, break it over two periods if it makes sense in order to mitigate the bracket impacts and also that gives you a little bit more time to basically mix and match your assets for risk purposes as well as tax. So that gives you some more time as well. You can look at qualified opportunity funds. because that takes time to find. It’s hard to find ones that have a good business case that also provide the tax deferral. So the more time we have to structure that, the more time we have to look for investments that meet your return criteria that have those tax benefits.
Dave Wolcott:
Yeah, such a great point really. You do not wanna be doing this while you’re in the middle of a transaction because having gone through, you know, selling a business before in the past myself, I mean, it’s just, it’s really demanding. It’s so many different levels. You know, you’re trying to run the business, you’re trying to do so many different things. And then tax planning starts to become a little bit of an afterthought. And the last thing that you want, is to be forced into some kind of position, right? Where you have to deploy capital or you’re kind of making that decision, like you say, that doesn’t align with your investment criteria just because of the timing of it, right? You’re just trying
Mitchell Day:
Mm-hmm.
Dave Wolcott:
to do it from a tax perspective.
Mitchell Day:
Well, yeah.
Dave Wolcott:
So, that’s a valuable lesson there.
Mitchell Day:
It’s
Dave Wolcott:
Mitch,
Mitchell Day:
like
Dave Wolcott:
can
Mitchell Day:
the
Dave Wolcott:
you
Mitchell Day:
first
Dave Wolcott:
also…
Mitchell Day:
thing is as soon as you get the
Dave Wolcott:
Yeah.
Mitchell Day:
LOI we need to talk because you got to look
Dave Wolcott:
Yeah.
Mitchell Day:
at the timing and you got to look at the term because You can structure the sale so it’s much more contagious tax wise. It’s just it’s part of the negotiation Because
Dave Wolcott:
Yeah,
Mitchell Day:
there’s
Dave Wolcott:
100%.
Mitchell Day:
always
Dave Wolcott:
And
Mitchell Day:
a difference
Dave Wolcott:
I would say, I would say you should be having the conversation, you know, number one, you should have someone on your team, like, like Mitch, right?
Mitchell Day:
Mm.
Dave Wolcott:
So you you’re, you’re proactively creating a group of, you know, subject matter experts in this space that can help advise you when you get to this point that you are exiting your business. So you’re thinking about it, you know, way in advance.
Mitchell Day:
Well, yeah, because I’ll give you an example for a lot of our dentistry clients. Like one of the things that I always throw is like, get a price on your practice. There’s a lot of PEO, there’s a lot of DEOs that are looking to acquire more practices. It doesn’t mean you have to buy, you have to sell it, but at least talk to these people who are in this sphere and say, how much is this worth? Because that’s the first question is, because the first question is you don’t know what the value of your business is. So you need to have a value. And it’s like, and then you understand where it’s like, okay, this is kind of like the figures we’re looking at, and at least you can start having discussion. Well, if I sold for this, what would it look like? So at least going forward, you already know where somebody comes up to you with an offer unsolicited, and it meets your criteria. You already kind of know. here’s what I gotta do for taxes on a high level, and then it’s just part of the negotiation to get the details done.
Dave Wolcott:
Yeah, a hundred percent. And then the second thing I was going to say, you know, from a learning experience as well, was that when you have that relationship in advance and you can start that conversation, when you go to the table with that LOI, you,
Mitchell Day:
Mm-hmm.
Dave Wolcott:
like you said, you can start negotiating and you have someone on your team. Cause what I found is, you know, when you start talking taxes and everything at this level. boy, you’ve got corporate, their corporate attorney, their M&A person, they’re all corporate, right? So they wanna do everything that’s like, the way 95% of them really do it. They’re not looking
Mitchell Day:
All good.
Dave Wolcott:
for things outside of the box. So it’s up to you
Mitchell Day:
And it’s a
Dave Wolcott:
to
Mitchell Day:
negotiation
Dave Wolcott:
do
Mitchell Day:
in
Dave Wolcott:
it.
Mitchell Day:
there because if
Dave Wolcott:
Yeah.
Mitchell Day:
I’m a business owner, more often than not, I want to just sell the stock because then it’s just straight capital gain. I’m selling it at E. If I’m a buyer, I’m like, no, I want an asset sale because I want to push as much of the purchase price into depreciable assets where I basically can get depreciated and kind of get an offset on there. Now obviously as a seller, I don’t necessarily want that because I might have recapture, I could have all this, I have different tax rates. And then it starts coming into part of the negotiation because you adjust the price accordingly. Well, if I’m going to take this tax hit, well, you’ve got to give me something. And then that’s part, it’s like understanding that, that this is all part of the bargain process.
Dave Wolcott:
Yeah. Mitch, can you explain your concept of a passive income generator? How that
Mitchell Day:
Okay,
Dave Wolcott:
works?
Mitchell Day:
all right, so a lot of us here, and I’m just gonna use real estate syndication. So a lot of people invest in real estate syndication, saying they’re passive, they’re a limited partner, they’re not real estate professionals. So they get their K-1 from year one, they have this huge loss, it’s suspended because it’s passive. You can only use passive losses against passive income. Now the problem that a lot of people get into is they start getting really heavy into real estate syndications and things like that, ATM funds, stuff like that. And they have all these lot passive losses. Like I’ve seen people with hundreds of thousands of dollars of passive losses that are suspended, they’re doing nothing and they’re going to sit there and do nothing until either the property, until the property sells or to expedite things, you start deploying capital into investments that generate passive income. That’s don’t have the benefits of bonus depreciation. So the idea is I have this taxor attribute. I have all these suspended losses. If I can invest in something that just generates passive income, doesn’t have losses, doesn’t have depreciation or whatnot, just has income, I can invest in this. I’m getting this cash flow, and I’m using the losses to basically shelter it from tax. So it’s a way to complement. your passive income portfolio. You have a, you know, basically you’re getting the diversification where you’re in different sectors and all that, you’re not stuck in one sector and all that. And you’re generating this cash flow where you’re using these losses to offset it so you’re getting the time value of the money and the tax savings on it. That’s the idea of a passive income generator is we call them PIGs. So the idea is that if you have a whole bunch of losses, And it’s also part of a larger portfolio strategy of diversification, getting into different sectors, different return profiles, economic functions. It also has the benefit where that income is going to be sheltered because you got all these losses. You put them to work.
Dave Wolcott:
Yeah, no, that’s a great explanation. And that was exactly our strategy on creating the credit fund that we have, right? A great diversification play. You’ve got great cashflow and, you know, from the tax standpoint, you just offset right there. So appreciate that clarification. Why don’t we jump into, I don’t want to leave out W2 or active income earners. They’re always looking to offset. They have sometimes a little bit less flexibility
Mitchell Day:
Thank
Dave Wolcott:
than business
Mitchell Day:
you.
Dave Wolcott:
owners do. But could you tell us a couple of your key strategies of how you’re helping W2 earners?
Mitchell Day:
Okay, well the most common one is, I’ll use the classic example, high W2 earner, physician, executive, whatever, spouse becomes a real estate professional, okay? And I always couch it where it’s like, here’s what you need to do first is, okay, so you wanna do that, but we have to put a dollar cost on your time. So… The idea is that if you want to do this, well, first of all, we’re assuming you want to do it. So I always put a dollar value on people’s time because this is the most valuable resource that we have because time can be converted into money. It can be converted into memories and you have to put a value on it to basically warrant whether something is worthwhile or not. And then because it’s like, I don’t want you to do something that you’re miserable doing because you’re not going to do it or it’s just going to. The whole reason of doing this stuff is so you. we can create happiness, give you the resources for happiness. So the idea is that, okay, I’m high W2, okay, spouse is going to be a real estate professional, I have this much capital to deploy, I can create this much in deductions. Well, if I can create this much in deductions, this is my tax reduction. I say, okay, well, let’s say I’m creating this, I’m creating $10,000 in tax savings. Well, divide it by 750 hours. You’re getting paid this much an hour. Your spouse is getting paid this much an hour. Tax savings divided by 750 to do it. And the question is, what’s that hourly rate? You’re basically paying them to do a job. Would I do it for $20 an hour? Probably not. Would I do it for $200 an hour? Oh, yes I would. So that’s the first, you gotta ask that question. You gotta put a value on that time because it’s like I said, tax. the tax tail chasing everything. It’s like, I don’t want you guys to be miserable doing this just for saving a little bit of money. It’s gotta be worth your while. You gotta wanna do it. Because it’s just, it’s a pain in the butt. You’re tracking your time. You’re looking for investments. You’re figuring out, does this meet my return requirements? What, how is this gonna impact for funding? How much leverage I’m gonna use? How am I gonna deal with tenants? What am I going to invest it in? because it’s like those are all things you got to look at where I’m going to deploy my capital and I’m going to create these savings. It’s a very effective. I’ve seen some dramatic drops in tax liability as a result of it. That’s the big one, but that’s a discussion as a family you need to have first and foremost and figure out do I want to do this? If it’s not, or it’s like I don’t want to do it on that scale, short-term rentals, different things. But You have to understand the business case. You’re not getting consistent income. It’s not like a long-term tenant where you’re getting a rent check every month. It’s volatile. It’s basically, it’s seasonal depending on where you are. It’s dependent on consumer discretionary income. So if the economy’s good, you’re probably doing better. If the economy’s bad, you’re not gonna do as much. You have to plan for your cashflow on that. And the question is, after you look through all that, Does it make sense for me to get this tax benefit? That’s another question. The oil and gas funds, that’s another way. Here’s what the deductions are. What’s my view on oil? What’s my view on the people who are running this? What’s their track record? What’s the risk return? Because it’s obviously working interests. There’s risks involved. Do I understand this? Does this make sense as part of my overall portfolio wealth strategy? Because the idea is that we want it to… We don’t want to put all our chips in one part unless you’re such an expert on it, where it’s like, you know what you’re doing. But if you don’t, you got to diversify and you have to understand all these different tools and how they work.
Dave Wolcott:
Yeah, it’s really such great wisdom, Mitch, that you’re providing. I really appreciate you sharing this with the audience, right? Because you’re having people do some deep thinking about this and really looking at it with a lens that’s 360 degrees, right?
Mitchell Day:
Yeah.
Dave Wolcott:
Because to your point, it might be really advantageous to set up your spouse as a real estate professional. But if all of a sudden it becomes you helping her, you know, say manage that, you know, the property in your spare time that you have, or, you know, you become hating it, or you have to travel somewhere to
Mitchell Day:
Yeah.
Dave Wolcott:
properties that, you know, you don’t want to see, or you don’t understand the market or something, um, you know, then it doesn’t make sense, right? But, but,
Mitchell Day:
Oh yeah.
Dave Wolcott:
you know, you really have to kind of think about it end to end.
Mitchell Day:
Yeah, it’s a non-cash cost because remember, the whole reason you’re doing what you’re doing and we’re trying to help people is that we have goals. Money is just a tool for us to achieve those goals. And it’s like what I put it, it’s like we’re trying to create wealth so we have time to do things. Like the way I look at it, it’s like… One of my big things would be, it’s like, I wanna create wealth where I can spend time with my family. I don’t wanna be working. I wanna have memories with my children while they’re still younger. I don’t wanna see them off to college and say, where have you been all these years? That’s something you gotta ask yourself. Or if it’s like, I wanna spend time with my wife, we wanna go travel, we wanna do this. Well, you can’t do that if you’re working two days a week doing real estate professional. You gotta ask yourself, is this worth? There’s a trade-off, so this is why I always tell people, put a dollar cost on your time. It’s so important because there’s so many non-financial things you have to look at, and you gotta ask yourself before you go down to these, because sometimes it might be, and this is an honest answer, is that, I wouldn’t do this because you’re gonna be miserable and you’re gonna lose all this. Yes, you’re gonna pay some more money in taxes, but. You’re going to be miserable. That’s not the point for living. That’s not the point of our existence is to be miserable. We want to create happiness and memories and it’s like you got to throw that in there.
Dave Wolcott:
Yeah, 100%. It’s all about creating that freedom in your life is what we’re
Mitchell Day:
Amen.
Dave Wolcott:
really after, right? Freedom of money, freedom of time, freedom of purpose, freedom of relationship, all those
Mitchell Day:
Mm-hmm.
Dave Wolcott:
things. And then if you jeopardize achieving those, just to make a tactical move on the tax side, you’re really shooting yourself in the foot. And again, it kind of points back to our overall thesis around just having this strategy that’s taking all these different dimensions. of your life into perspective, you know, so that you can, you know, you can be a better investor. And you can also realize that vision, right? Because that’s what it’s all about at the end of the day, you know, living life, you know, the way the way you want to what to meet your vision.
Mitchell Day:
And that’s why our onboarding process, it’s kind of like the first questions are, and there’s two ways to think about it is one of the sarcastic ways, what do you want to do when you grow up? Or the other one is the more, as I put it as an Aristotelian question, what defines the good life for you? You have to define that first and foremost, because then everything comes off of there. for the roadmap. Like the roadmap you create for financial wealth, you have to understand what’s the good life for them. And for me, for taxes, and to compliment what you’re doing as well, it’s like I need to know that because I don’t wanna be recommending tax strategies that don’t meet your investment criteria, don’t meet your risk criteria, don’t meet your time criteria, because then that’s, I’m not adding value there. I have to understand who you are, what makes you tick, how things work. in order to get to that goal, like not only financial, but the more holistic point.
Dave Wolcott:
Yeah, absolutely. Mitch, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?
Mitchell Day:
The biggest one, and I’m gonna context this just from my own markets experience and just from also from my other career and just seeing things from like 20, 30 years of just being, seeing markets and all that. The biggest thing I try to understand is like understand risk. Have a larger perspective on it. Because one of the… This like I said, this is my personal opinion. It’s like understanding where you are in the interest rate cycle understanding leverage how it works Leverage is a double-edged sword. You can make money on the upside or it can wipe you out twice as fast So one of the big things I have is once you understand where you are in the market cycle Where you are in the business cycle where you are whether it’s positive or negative you have those facts and you can deploy capital appropriately where you’re not over leveraging yourself or over allocating things on there. Cause that’s the first thing, it’s all business case. You’ve got to look at risks on the business case. And then once you understand that, then we can start layering in, how do we put this in on a tax basis? But the first thing I always say is just, understand your business, understand risk, understand where you are in the economic cycle, three, you know, two, three, five years on a longer horizon. Understand that. Because remember past results are not indicative of future returns and we’re now in a new cycle where we’ve gone from 40 years of dropping interest rates. And now it looks like we’re starting a cycle of rising rates. These cycles are often 10, 20, 40 years long. Understanding where you are on that will drive a lot of your investment decisions and allow you to succeed. Because if you go under the old paradigm, you could get white.
Dave Wolcott:
Yeah. Awesome. I really appreciate the time today, Mitch, coming in and providing so much value for the folks. I know I’ll be listening to this again. I never thought tax would be so exciting, quite honestly,
Mitchell Day:
Okay.
Dave Wolcott:
but it’s really kind of, you know, it’s this like complex web, right, of all these different incentives, like you say, and different strategies, and then how you can incorporate that into your life. You know, I think I’ll share with the folks as well. You know, one of my learnings and something that, you know, everyone can do out there as well, is not only create someone on your team that truly understands having a proactive tax strategy like Mitch does, right? But it’s also being educated, you know, yourself,
Mitchell Day:
Thank you. Yeah.
Dave Wolcott:
right? And understanding all of the different options that you can do. Because what that does is, You know, every day, every week, when you make decisions, whether you buy something, whether you travel somewhere, whether
Mitchell Day:
Mm-hmm.
Dave Wolcott:
you’re making an investment, you’re always thinking about tax implication. So, you know, this really changes the way you do things and that way you can be an active partner with your CPA
Mitchell Day:
Mm-hmm.
Dave Wolcott:
and changing your entire picture. So I’ve found that to be very valuable versus just the flip side would be waiting till the end of the year and saying, hey, here are all my statements. Just do the preparation.
Mitchell Day:
Well, yeah, think about it this way. It’s kind of like, do you ever think that understanding philosophy would be the basis for everything going out of here? It’s like, I would have taken more philosophy courses back in school. But the idea is they’re concentric circles. The first thing is knowing yourself, knowing what your goals are. Then it’s like, the next circle is understanding the finances, how do I create the financials on this? Then the next circle out of the, how do taxes implicate this? And then it’s like the other circle. What are other non-financial things that I have to look at? It all waterfalls from that. So once you understand that process, you’ve come to that next level of realization. It’s like Maslow’s Hierarchies of Needs. It’s self-actualization. So you start understanding where it’s like, it all fits in and how it all interrelates. It’s… It’s really good because then it’s like now you’ve now you’ve reached that higher level of consciousness when it comes to wealth in your own personal goals And then you know what you don’t know and it’s like, okay. I know there’s a tax impact. I know there’s a financial I know what question I might not know all the questions to ask But I know that I got to start asking questions and it’ll lead me down the path to the solution
Dave Wolcott:
Yeah, love it Mitch. So if people wanna reach out to you and connect with you or learn more about your firm, what you guys are doing at Provision, what’s the best place?
Mitchell Day:
Okay, well the easiest way is our website is www.provisionwealth.com. That’s our website. You can take a look at it there. If you want to talk to me, I’m happy to have a half hour call with you, talk about your situation, figure out how we can help you, whether we’re a good fit. Give us a call, 480-467-4400. Happy to have a talk with you, talk about your situation and kind of go from there and figure out what you can do. What’s next step on our journey is.
Dave Wolcott:
Yeah, that’s awesome. I’d also like to share with folks that Provision is actually one of the faculty members in our mastermind and virtual family office. So if you’d really like to take your wealth to the next level, right? And get this type of, you know, advice and strategy in your overall wealth planning situation, check out our mastermind group as well. Mitch, thanks again for coming on the show today. Really appreciate it.
Mitchell Day:
Thanks a lot, Dave, this was a blast.
Dave Wolcott:
awesome.
Hey everyone, welcome to today’s show on wealth strategy secrets. Today we’re joined by Joel Friedland. Joel is an accomplished real estate professional who provides clients with comprehensive solutions for acquiring, selling, leasing, and investment. Joel manages a portfolio of properties on behalf of investors, which include individual investors, trusts, and families. Joel obtained his extensive experience as co-founder of Epic Savage Realty Partners. and completed hundreds of transactions while being responsible for leadership development at the firm for over 20 years. After Joel and his 10 partners sold Epic Savage to an international real estate firm, he founded Brit Properties and Brit Asset Management where he oversees leasing, sales and asset management for numerous property investments. Joel has been a member of the Society of Industrial Realtors since 1990 and the Association of Industrial Real Estate. Having served on the board of directors and moderating panel discussions of industrial real estate topics, Joel attended San Diego State University where he was a member of the ATO fraternity and is a graduate of the University of Michigan in Ann Arbor. Joel, welcome to the show.
joel:
Thanks Dave, it’s great to see you.
Dave Wolcott:
Yeah, no, great to connect as well. Um, you know, quite, quite a background you’ve had, and I know you’ve, uh, been in the market for many, many different years and, and have been through many different cycles, which, you know, should be an interesting topic, you know, that we can kind of get in today. Um, but as we get started, you know, maybe to help the listeners learn a little bit more about you, you know, why don’t you tell us a little bit more about your background and how you got into the space?
joel:
Sure. First of all, I’m glad we’re doing this because we’ve been watching each other on podcasts. We’re finally meeting in person. This is great. So yeah, my background started in real estate when I was 22. I went to work right out of the University of Michigan for a family, not my family, but a family. Their name was Podolsky. And they were one of the bigger. owners of industrial real estate in the Chicago market. They owned 84 industrial buildings and I was looking for a job in real estate. And I cold called Mr. Podolsky. And I said, I’m looking for a job in real estate. And he said, come in today for an interview. So I went there that day and he said, my 84 building portfolio is 6 million square feet. I’ve been very successful for a lot of years, but in 1981. which was my first year, interest rates were 17%. Companies were scared to death that they were gonna go out of business. And the last thing they wanted to do was move from an industrial building that they were into a different industrial building because the moving costs and the disruption could put them out of business at a difficult time in the economy. So Milt said in the interview, he asked me, what would you do to fill up my 10 vacant buildings? And I said, I would… cold call in the industrial parks. I’d go door to door in person. It was summer, so the weather in Chicago is better in the summer, obviously. And I said, I’m just gonna go out to the industrial parks and I’ll find tenants in other buildings and I’ll convince them to look at your vacancies and I’ll try to put deals together. And he asked, what qualifies you to do that and how do you know that that’s a good idea? I said, well, when I was 14, I went door to door in my neighborhood in Highland Park, where I lived, and I convinced 70 people to let me landscape their properties for the summer. I said, I’m a really good cold caller. I said, my hit ratio when I’d go door to door, I’d meet with a husband and wife and sit with them for 20 minutes. And my hit ratio was every bit of 70%, yes, probably because I was doing it for such a low cost. I was 14, so I wasn’t charging enough. So they said, oh, let’s give this kid an opportunity. So it was similar because going and getting a new tenant at a tough time, the way to do it is to say, I’ll give you a better rent. I’ll reduce your rent because times are tough. And I filled up that first year, all but one of the 10 buildings. There was still one left. Um, but I really went crazy. I cold called thousands of companies all over the Chicago. And I worked for the family. My mentor was Milt’s son and another guy named Richard who took me under their wing. That to me, that’s the secret of all success. Having a great, great mentor or having multiple great mentors. And I had that and I was so lucky to have these incredibly brilliant, experienced people who were major players in our market.
Dave Wolcott:
Yeah, that’s really awesome. I think a lot of people just, you know, don’t really think about that in terms of mentors. And it seems to be more prevalent in certain industries versus others. You know, so I think there’s a lot of folks in real estate and you know, as my kids are, you know, starting their careers and everything, I’ve been advocating that for them as well to really just kind of latch on, right? Because it’s creating those, you know, relationships that can really, you know, up-level your game and getting the hands-on experience that you’re just not gonna get from any type of schooling, which is interesting. So Joel, tell me a little bit about, I mean, obviously, you know, you got into the real estate space at a very early age. It can be a very lucrative industry for those who excel in their specific spaces. So did you start to create a, you know, particular wealth strategy for yourself? You know, once you start to create, you know, your vision and realize, wow, you know, I can really scale this. And what did that really look like?
joel:
Well, let me give you this summary. First of all, yes. When I was working for Milt Podosky, I looked at him and I said, one day, I said, Milt, I’d like to learn to do what you do, which is being a syndicator. At the time, I was an industrial real estate broker. So I was an agent for Milt and for other people to do leasing and sales of industrial properties, which are manufacturing buildings and distribution buildings. We can talk about industrial. It’s a very different niche than most people know about. But I learned it over this period of time that I worked for the Podolsky’s as my mentors. And I said to Mill, I don’t think you made all your money being an agent. He said, he laughed and he said, I did not. I said, well, I’d like to be like you, whatever you did is what I want to do. So he said, I’d be happy to help you learn how to build a portfolio. Uh, like mine, starting with the first property, I’ll be your first investor if you put together a syndication. So I said, that’s a great offer. So I went and found a property and I said, this will be my first of many. And I put together a group. It was a $560,000 deal in a place called Gurney, Illinois. We did a 14,000 square foot industrial building. two loading docks, 18 foot clear ceilings, a little office in the front, a drive-in door so they could drive vans inside. And we bought it and we leased it and we had a tenant and I brought in a bunch of investors for $20,000 each. And they said to me, how much are you putting in? Because we’re not going in unless you do. So I put 20,000 in as well and it worked. And I went and did more and Milton invested it again in his son, Stephen, my, my mentor to this day, who’s still my partner and my close friend, went into the deal with us. And I kept expanding the network of investors through people that I knew by being an agent. I dealt with a lot of companies and owners of companies have money. So I convinced many of them to invest with me. And over the years, we bought about 100 properties up until today. Um, all really similar, uh, industrial buildings, single tenant, primarily net least and my 200 investors. I know every single one of them. And when I do a new deal, when we buy a property, I go to the same group and. Not everybody invests in every deal. So it’s good to have a good, a big group because maybe 30 or 40 will be in a position or. be interested in investing in one of our new deals. But I built up a portfolio and we self-manage. We do a lot of the leasing with a brokerage company that we’re close with. And it’s been great, but I had a disaster in 2008. Everything was going great. I thought I was like the biggest hotshot. That’s like, I was a, uh, I was a country club guy. I had a fancy car. I had a big house and I thought this is going to go on forever. And then we got slammed, uh, with the great recession. I had seven banks. I had borrowed money from. people promissory notes, I had 63 people I’d borrowed from, I owed $70 million. That’s
Dave Wolcott:
Wow,
joel:
a
Dave Wolcott:
it’s
joel:
lot
Dave Wolcott:
a big
joel:
of,
Dave Wolcott:
number. Yeah.
joel:
it’s a big number. And boy, if, if 1981 was tough, Milt had 10 vacancies. 2008 was 10 times worse. If you ask anybody out there, because the banks weren’t lending, you couldn’t refinance. Tenants were going out of business. Tenants were coming back and asking for reduced rents. So I don’t know if you’ve heard of a forbearance agreement, but I had seven banks and I had forbearance agreements at most of them, which is that means let’s let these people try to pay off the loan over a longer period of time with lower payments so that we don’t have to foreclose. It was really miserable. And I always… point to my couch in the back. That’s the couch I was lying on when I was depressed and thought I had lost 200 people’s money. My investors, I thought were gonna just be disappointed and I was just ashamed of myself. What had I done? How could I be in a position when I was doing so well that all of a sudden, bam, it stops and it looks like I’m gonna lose everything? So I literally couldn’t get off the couch. I have to tell you that I did think about taking my life and being done. I was so ashamed and embarrassed. It was hell. And with a lot of help from family and friends and some therapists and a little medication, I got off the couch and I went to work and I saved the portfolio. Not everything worked. There were still some deals that never came back, but a bunch of the deals came back. And I started rebuilding. My net worth went from millions of dollars to negative millions of dollars. And I had to work just to get back to zero. I had to borrow, this is one of your things. I had to borrow from my Northwestern Mutual Life Insurance whole life policy. I was lucky I had $200,000 at that point of cash value and I borrowed it all. And we lived on that until we came back from the depths of despair. And after that, I changed the way I do things. And some people think that it’s crazy that I buy properties now, all cash, no mortgage. I know you like leverage. I know a lot of real estate people like leverage, but for me and for my mental health, I can’t tolerate losses and I can’t tolerate the feeling of shame and embarrassment. And I’m vulnerable enough to admit that I know who I am. So now when I put deals together, we buy them all cash, no mortgage, with no intention to ever put a mortgage on. And the wealthiest people I know like it. Who knew? I had no idea that it would work. About five years ago, maybe, I went to my accountant and I said, I want to do deals all cash. And he said, you’ll never get investors. I said, well, then I’ll never get investors. And interestingly, there’s a group of people who are extremely wealthy who wanna preserve their wealth as opposed to trying to make a big return on money because they need to do it to build up wealth. They’ve already got it and they wanna make sure they don’t lose it.
Dave Wolcott:
Well, such a powerful story, Joel. Uh, I can’t imagine what was going on in your mind. And it’s so interesting how people, it really at the top of their game, you know, whether that’s, you know, sports or entertainment, you know, or business, right, have some type of, you know, massive event like that, you know, that really changes the trajectory of, you know, how you think. how you go forward and you know, thankfully, you know, you had enough support and were able to kind of get through that and Move on to the next level But what would you say in terms of you know? What do you think was the most important learning lesson kind of coming from that experience?
joel:
Well, I think it’s that mental health is everything and how we make decisions is more important than anything. And I believe that most people, if they’re honest, make a lot of their decisions based on hunches and on their mood. And that’s not good. You need to make it on due diligence and math. And so I had three partners when I built up this very large portfolio of dozens of buildings. And I trusted them and they trusted me. And some of the buildings that were bought were buildings I never even saw. And I just trusted that my partners knew what they were doing. They might’ve, but maybe they didn’t. Maybe they needed some more experience and maybe they needed to be more conservative. So I now get involved in just even the most minute details of every deal because if you let mood drive your decision to buy a property, it’s a terrible strategy. It has to be the math and it has to be thinking through what you’re looking at down the road 10 years and where you want to be as opposed to. Let’s do the deal real quick and make a lot of money and go to the next thing. So we buy long-term hold properties where it takes an awful lot to find them. I go door to door still, and I have a son in the business and a partner in the business. We still cold call to find deals. If we find a great deal, why would we wanna sell it in three years? You know, all these people who put together these offerings and… They say it’s a three-year hold. They must not be very happy with the properties of its three years, because why would you sell a great property in three years if you could hold it for a long time and make great cash flow and it appreciates? Where are you going to get something better than the thing you worked so hard to get? And so that’s my philosophy is buy for the long term, have great staying power, pay attention to the details. And in terms of mental health, don’t ever make a decision. when you’re elevated and you’re in a good mood and don’t ever make a decision when you’re struggling and in a tough place because there’s nothing better than knowing that you’ve thought something through and gotten great advice. So I have a group of advisors, I have eight investors that I run everything by before we buy a property. I never did that before 2008. I went to my three partners and said, hey, this looks great. Let’s buy this one. Sometimes we got lucky. I mean, there are deals where we made a lot. And then because of 2008, we saw where the holes were. So I think that’s the answer really, really pay attention. And it’s our micro focus. Also, we only own properties, industrial properties in the Chicago area. We don’t want to go to some other town where someone’s going to eat our lunch because they know the market and we don’t. So that’s a big part of it too, is just really being focused on one thing and doing it well. If I can’t do something really well after 43 years of doing it hundreds and hundreds of times, there’s a problem. And now it just comes down to how do we make the best decisions to protect our investors and ourselves?
Dave Wolcott:
Yeah, really sage advice, Joel. We were just talking about that in our mastermind group the other day. And it’s really, it’s that emotional factor that really gets the majority of investors, regardless of the asset class. Right. And, you know, you could be on a high, like you said, and be, you know, bullish about a particular opportunity, but you haven’t, you know, done enough due diligence, had, don’t really understand it enough and kind of be caught, you know, there. or on the low side, right? I mean, right now, fear sells, and people are trying to put you into certain assets based upon fear, right? Based upon kind of what’s going on. And this is kind of why we like to advocate creating a proactive strategy around your wealth so that if you know clearly where you’re going in the future in 10 years and 25 years, you can align to that. You know, we’ve definitely seen more success like that. And you’ve seen obviously key investors like Buffett, right? Who have just very, you know, key strategies lined up. So such an important part of, you know, being a professional investor is right. You know, having a strong strategy in place. So let’s unpack the, you know, industrial space a bit more, right? We’ve had a lot of guests on the show that we’ve talked about. multi-family opportunities, self-storage, land, I mean, all these different types. But I think a lot of people might be new to the industrial space. So if you can kind of unpack that and just kind of start as if we were at a 101 and just talk about some of the main elements of industrial.
joel:
Sure. So industrial is property that’s generally right on the highway or right on the tollway, or it’s hidden away behind other things. It’s hidden behind multifamily. It’s hidden behind retail because industrial is manufacturing and distribution. And these are buildings that the consumers don’t need to show up at because they sell through business to business as opposed to business to consumer except for e-commerce, which is a huge part of industrial. So if you drive down the highway and you see a giant Amazon building and it’s got a bunch of truck docks and a big area where trucks are parked and it’s got big high ceilings and there are these huge buildings, that’s industrial. And we call that A industrial. These are large modern buildings with high ceilings. very sophisticated, deluge sprinkler systems in case there’s a fire. They’re actually very attractive. They’re usually made out of tilt-up or out of what’s called precast concrete. And that’s a industrial. We own some of that, but that’s mostly owned by institutional owners like pension funds and insurance companies. And Blackstone and Blackrock and so forth. They’re huge, they’re expensive. A level below that is what’s called B and C industrial. And those are older buildings, smaller buildings, lower ceilings. And those are properties that don’t cost as much and are not favorites of institutions. They’re favorites of ours. So in the Chicago area, there’s 1.3 billion square feet. of industrial and most of it’s B and C. And what I love about industrial is every building has a different kind of tenant that’s in a different business. They’re all fascinating. In our case, we have a tenant that was on Shark Tank in year one who makes protein bars. He makes $18 million a year of protein bars. So the building that he’s in, he’s got 50,000 square feet, he’s got 80 employees, he built it up from nothing. When he was on Shark Tank in season one, he was doing $50,000 in volume, and he was doing it out of this little bakery. So now he’s got this big business, and you walk in there, it’s so impressive. Everybody’s wearing their white suits and their little hair nets so that the hair doesn’t fall into the protein bars. And there are machines and there’s rooms. And this is a typical tenant of ours. And he pays net rent. His net rent is $8 per square foot. So that’s $400,000 a year. Now, for us, we buy buildings all cash, no debt, and our investors insist on an 8% return. So in a building like that where the rent is $400,000, that means that… we can afford to be in for five million, that would be the value of the building because 400,000 is 8% of the five million. And then every year the rent goes up a little bit, we call those annual escalations. So our investors invest with us for cashflow and appreciation, but they’re these smaller buildings and many of them are made out of brick, some of them are metal. We’ve got so many fascinating tenants. One makes exhibits for children’s museums. We have distributors. You’ve eaten yogurt out of the yogurt cup, the little white cups that they come in.
Dave Wolcott:
Yep.
joel:
Those are made somewhere. That’s one of our tenants. So we got a guy who makes safety products for the welding industry. You know, if you’re a welder and you’re wearing the protection and you’re wearing
Dave Wolcott:
Shield,
joel:
something so
Dave Wolcott:
sure.
joel:
sparkly, they’ll get you. He makes the suits so the sparks don’t catch you on fire. And he makes the screens because if you look at the flame, when someone’s welding, it hurts the retina in your eye. So he makes these screens so that when people walk by, you can see through the screen, they’re different colors, but they’re somewhat clear. So you can see, but it protects your eyes. He makes those screens. I mean, we’ve got these amazing tenants and they pay rent and they’ve got good credit. We rarely have a tenant that we have to kick out of a building because usually they’re their divisions of much larger companies or their family-owned businesses that have been around for decades and They’re sticky our tenants are sticky manufacturers don’t like to move Because they can’t afford to lose their employees. They can’t afford to move their machines. They can’t afford the downtime so I’d say the average tenant stays in our buildings for 15 years and longer. And every year the rent goes up. Except in 2008. Again,
Dave Wolcott:
Yeah.
joel:
that was hell. Rents did not go up. So you can’t count on rents to always go up, but those are our kind of buildings. And, um, it’s, it’s so interesting because it’s the people more than it’s the companies, almost every one of these companies is owned by a family. or it’s owned by a person who’s got partners, but the family’s still involved because it’s all part of their estate. So I get to know the individual tenants and I get to know people who are in their family or who are their partners. And those are interestingly the people who become my investors. The Shark Tank guy is an investor with a million dollars in another deal. We just made a lease with somebody, they got to know us, they trust us. and the CEO of the company just invested in one of our deals. So we’re creating this synergy between our tenants and our investors. A lot of the same people are both. And I just love the business. Every day is a new adventure and learning something.
Dave Wolcott:
Yeah, really interesting. Tell me about tax advantages. Are you doing cost segregation studies and what does the depreciation typically look like?
joel:
Yeah, in a cost segregation study, there’s virtually no tax on your income for the first two years. So the 8% is tax free. Now in the third year, you don’t have that, the jump. It starts coming down to a normal level. But yeah, we do take advantage of every tax law we can on behalf of our investors. The normal building without a… tech without a segregation study. About half of the cash flow is sheltered. So there are losses. Milt Podolsky told me when I asked him to help me invest, the first time I asked him to do that, he said, yeah, I’m making about $4 million a year on my cash flow, and I pay zero in taxes. And I said, how do you do that? He said,
Dave Wolcott:
Exactly.
joel:
you’ll learn. You’ll learn.
Dave Wolcott:
Yeah,
joel:
So I’ve learned.
Dave Wolcott:
that’s part of the wealth strategy for sure. What about risks, Joel? Especially 2023, we’re in right now, lots of different things. Obviously you don’t have any interest rate risk, but tell us about what are some of the key risks in this industry?
joel:
So there are two kinds of industrial properties. The ABC, those are the property types, but there’s two kinds of properties. One is multi-tenant, which is more similar to multi-family, and one is single-tenant. A multi-tenant building, usually in our business, has three units, five units, and it’s not like where there’s 100 tenants in a building, that’s not really industrial. And then there’s single-tenant. A lot of companies want their own building. They don’t want to share a common wall with anybody. They make noise. They make some kind of smell. They just don’t want to share. So these freestanding buildings that we own, the risk is vacancy. Because if it goes vacant, it’s 100% vacant. And even if there’s not a mortgage, there’s still taxes, insurance, maintenance, and utilities. So when it’s vacant, we have to pay those. And when it’s vacant, there’s no money coming in. So I say there’s really three risks in industrial. Vacancy, vacancy, vacancy. And it happens. There are times when we have vacant buildings and we have to get through a period while we’re marketing them to find a new tenant.
Dave Wolcott:
You guys are vertically integrated though, so assuming you’re doing, you know, all the leasing and everything is run internally then.
joel:
Well, we do the property management, which by the way, is a loser. Property management generally is a loser business. Uh, the cost of managing is very high because if you do it right, it takes, it’s, it’s a daily thing. It’s a lot of accounting, but it’s also a lot of problems with a roof, problems with the HVAC problems with the parking lot and the management. Um, so run our management company. Each individual manager makes close to $100,000. And to get a good one, that’s what you have to pay. We’ve had sub-par people, but then our properties don’t get managed well. And we have all the other overhead. When you add up how much we pay people to manage properties, because they have to be sophisticated as property managers of industrial, they have to understand all the physical systems. And it’s very expensive. I would say the funniest thing is when an investor said to me, you charge 4% management, you’re making a fortune. I said, you take the management company, you manage it, and you cover the loss. He said, no, you do it. So yes, we do self-manage, and
Dave Wolcott:
Yeah.
joel:
it’s a lot of work. It’s my least favorite part of the business. My son came into the business about a year and a half ago, and I put him in management. After a week, he said, I can’t do this. This sucks. He went into brokerage or into finding deals and putting deals
Dave Wolcott:
Yeah.
joel:
together.
Dave Wolcott:
So,
joel:
But we
Dave Wolcott:
and
joel:
don’t.
Dave Wolcott:
where do
joel:
Yeah,
Dave Wolcott:
you
joel:
good.
Dave Wolcott:
think? Sorry, I was just going to go on. What do you think about where we are in the cycle for industrial specifically right now?
joel:
The market is as good as it’s ever been. Values are higher than they’ve ever been. We have a building that we paid $6 million for about 15 years ago, and today it’s worth triple. Depends on where the buildings are. We do infill, which is near the city and near the airport, and that’s where they go up in value the most when there’s an increase in asset values. I think it’s gonna… blow up. I think it’s going to be a disaster, which means I think there will be vacant buildings. It’s all about supply and demand, and they’re building too many new buildings, and I don’t think there’s enough tenants in the market to fill them all up. So I’m expecting a downturn, which is one of the reasons I’m so comfortable with no debt, because if there’s a downturn, we don’t lose our equity, we just have to get through it.
Dave Wolcott:
You’ve got that flexibility, which a lot of people are going to get caught out if they financed three years ago and weren’t anticipating this.
joel:
Yeah, it’s the opposite of what’s happening with office buildings. As office buildings are being given back to lenders and refinancing becomes a problem for the owners. I feel like they’re going through right now what I went through in 2008. It’s just a terrible time for them. And it’s
Dave Wolcott:
Yeah.
joel:
a terrible time for a lot of the malls too. But industrial is picking up a lot when retail goes bad, industrial goes well. Because Target Online and Amazon and Wayfair and everybody else who’s got products in a warehouse, online sales are booming and that means they need warehouse space. And because there’s a huge problem politically with China, a lot of companies that used to make their products in China are bringing them back. It’s called reshoring or on-shoring. So manufacturers are coming back. and that’s filling up industrial. So industrial has been booming and there’s been no let up. It has not gone down at all. But I think the interest rates are starting to affect it.
Dave Wolcott:
Yeah. Interesting. Joel, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectories, what would it be?
joel:
Find a person who is the avatar for what you want to be and where you want to see yourself, let’s say in five years, and convince them to teach you what they know, like Milpadovsky taught me. If you work with somebody who has all the knowledge and all the judgment that made them as wealthy as they are today, and you can convince them that you’re worth their time to train so that you can help them do what they’re doing, but they can help you become successful like they are now. To me, that’s the answer. Everyone I know that has literally millions and millions of dollars started that way. People didn’t start fiddle farting around trying to figure it out on their own. Those people just, I call that wide but not deep. And they struggle.
Dave Wolcott:
Yeah, excellent. No, I think that’s such a great piece of advice and also, um, you know, in all aspects of your life, right? What you’re trying to get better in. You can have a mentor in, you know, whether it’s, you know, whether it’s your health or, uh, you know, sports or something like that, right? We always want to be, if you’re trying to uplevel your game, right, you have to make an effort to do that and you need some type of mentor to get there. So it’s not only in business. And that’s why we view this whole thing holistically, because back to your point about mental health earlier, those things are really key. How you think, how you can work through challenges, right? Because we’re always gonna have challenges in life, right? I mean, there’s so many things going on this year, but I mean, think about it. When haven’t there been so many things going on, geopolitically, environmentally, all of these different factors, but what you can control in life is you actually meet those challenges, right? And do you have the leadership and the perseverance to really get through it? So having a mentor is key to be able to grow that.
joel:
Yeah, your holistic approach, I think, is really right on target. And the things you talk about are really important. I think this, this mental health thing is a huge component. And that, that means you have to be physically healthy and that means you have to have good relationships and that means you have to have goals. And so what you talk about and the things that I’ve heard you say and understand that you help people with. I don’t think there’s anything that’s more important than what you’re talking about.
Dave Wolcott:
Yeah, appreciate that Joel. Really, it’s been such a great conversation enlightening us about your journey, I think has just been super insightful Joel, and I appreciate the transparency, you sharing that with the audience. There’s so much to learn in those lessons that you’ve shared, and as well as all your expertise around the industrial space, I think it’s a super interesting asset class. and one definitely worthy of looking at. If people would like to connect with you, learn more about you, what’s the best place they can reach out?
joel:
Sure. Our website is BritProperties.com. On our website it talks about our risk-averse philosophy and how people can invest starting with $25,000. Most people don’t, but some do. We have a few case studies in there. We have one very interesting thing. We have an article that’s called Why You Should Not Invest With Us. tells all
Dave Wolcott:
Nice.
joel:
the reasons why people should be careful and what questions they should ask.
Dave Wolcott:
Love it. Joel, thanks again for coming on the show. Really appreciate your time.
joel:
Dave, thank you.
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another awesome show for you guys today. Today we are joined by Tom Burns. Tom is an entrepreneur, retired orthopedic surgeon, and a physician for the U S ski team. He has over 25 years of real estate experience and has acquired or developed over 700 million of real estate locally and internationally. He is the co-founder and principal of Persario ventures. a private real estate company focused on apartment development and private equity in Texas and the Sunbelt. And Dr. Burns is the author of Why Doctors Don’t Get Rich, a bestselling personal finance book for those who want to live life to the fullest. He’s a sought after speaker and mentor and has been financially independent for over a decade. He’s the founder of the Rich Life Mastermind created to help people create financial independence so they can control their future and travel to exotic places with him. Tom, my friend, welcome to the show.
Tom:
Dave, great to be here, man. Appreciate the invitation.
Dave:
You bet, Tom, this is long overdue to have you on the show and have a conversation. And I must share with the audience as well that we really go back pretty far. You and Darren, I’m really grateful for the opportunity to have invested with you guys at such an early on time and really get into real estate and alternative investing. So it’s been a great journey, but I’m grateful for that.
Tom:
And likewise, you know, it’s nice to, you know, as you know people for a long period of time, it’s comfortable, it’s nice to work together and that makes life a lot more fun.
Dave:
Yeah, absolutely. So you have such a diverse background, Tom. We do have a lot of docs and dentists and folks that are entrepreneurs as well. And I think, you know, the common thread, right, I think we’re all looking for that, you know, financial independence or really freedom in our lives, right? Freedom of purpose, freedom of time, freedom of money, to be able to do the things that we want to do. And I find that that’s so unique about how you got into this space as well. So can you share with the audience more about your background? I mean, being the US surgeon for the ski team, how you got into real estate investing and creating this journey for yourself.
Tom:
Yeah, I think it ended up by default. You know, when I was a kid, I was an athlete and had all those dreams, right? And soon found out that nobody was gonna pay me for it. So it’s pretty good in school, so I thought I’ll become an orthopedic surgeon and a sports guy so I can hang out with athletes. That was kind of the decision process. So I went through the, and you know, medicine is a prescribed process. You do your undergraduate work at college, you go to med school for four years, then you do a thing called a residency, is where you get all your training. So I’m flowing through all of that and all I knew was sports and a little bit of medicine. And I got about halfway through my training as an orthopedic surgeon. And, you know, I, I, I tell you, I think it was just blind luck or touched by an angel, but I started watching the doctors that were teaching me and we trained with the apprenticeship model, you know, like blacksmiths and plumbers, you know, you work with somebody that’s done it for years and you learn the trade. So I’m looking at the folks that are supposed to be me 10, 20, and 30 years in the future. I didn’t like what I saw. You know, they were, they had lots of money, but they were unhappy. They were on their second and third marriages. They were complaining about their situation. And, you know, it finally, I saw that enough times. I thought, man, I don’t want their money if I got to have their life. So. I’d always intended on having a good run through life, meaning my wife and I actually sat down and said, we’re gonna have fun no matter what we’re doing. Good times and bad. So I figured I needed something else. I was looking for some sort of income. I figured I need some sort of income that’s not correlated with medicine. This was a long time ago. I’ve got a few birthday candles on my cake now, you know? So I looked at a lot of things. I ended up settling on real estate because You know, I didn’t have the money or time or smarts to trade stocks and start a business and all. Real estate was nice and slow, low barrier to entry. I could do it part-time, full-time. I could use partners, things like that. So at the time, I didn’t have two nickels to rub together, so I did what I could, which was I got as much education as I could. I read about it, learned about it, talked to people, started practice, got a little bit of an income, paid off whatever debts I had. And then at the time, the only thing I knew how to learn how to do something was to do it. So I went and bought something, you know, I just bought something, jumped in and, you know, small, uh, an impressive single property and, uh, you know, things kind of grew since then. So it was really just a, an urge to control, you know, kind of control my own life. And quite honestly, narcissistically, I didn’t want anybody telling me what to do. So I figured if I had income coming in while I was sleeping, it would work out. So. So it grew after that. It grew from that one small property to more than one small property.
Dave:
Yeah, that’s really amazing. I think before we dive deep, there’s just a couple of things that are really exciting about your background I think we should unpack. Tell us what was it like to be the surgeon for the US ski team?
Tom:
Sure, and I’m not the surgeon, I’m just one of the doctors for the
Dave:
One
Tom:
US
Dave:
of the
Tom:
ski
Dave:
docs,
Tom:
team.
Dave:
okay,
Tom:
So
Dave:
yeah.
Tom:
you know, I’m not that cool. So I did my training, after you finish all your doctor training and your orthopedic training, you have a choice to go do what’s called a fellowship, which is what I did, a sports medicine fellowship. And it was in Bale, Colorado with a really famous guy, a famous couple of guys. And the one guy, the knee surgeon, was sort of the father of ski medicine. And so because of him, got to meet a lot of the skiers, got a lot of connections with the team. And so decided that, you know, I really liked taking care of the team. So actually, before I had it, before I ever made a dime moving back to Austin, Texas, I went from Vale to Lake Placid, New York, and I was a doctor for the Olympic Training Center for a few weeks. And so. took care of all the athletes, but one of the groups that was there was the freestyle team. Those are the guys that jump off of ramps and do flips and twists and things like that. They also do moguls. I was young and had been an athlete, so I trained with them, so I jumped with them. Really liked the guys. I actually qualified to compete, but was never
Dave:
Well.
Tom:
dumb enough to do that. So I stuck with them. So I had traveled with them for over 30 years, just, you know, went to Sweden with them this year, you know, just in December. So it’s just been a nice way to give back. It’s a volunteer thing, but it’s a nice way to see the world. So it’s been, it’s, I’ve really been honored to do it. And even though I’m retired, I’m still taking care of the team, at least for a few more years.
Dave:
Wow, that’s really cool. And so that was my next question is, tell us a little bit about your love for traveling international and you’ve done some international investments, you like to travel to exotic places. So tell us a little bit more about that passion.
Tom:
podcast. Yeah, that’s my biggest
Dave:
Ha ha.
Tom:
hot button, Dave. I mean, it really is. So part of that fun thing for me is traveling because, you know, I grew up pretty simple. We went to Disneyland once and went camping in Colorado another time. So that’s the vacations I remember as a kid. You know, my dad traveled internationally because he was a Secret Service agent. So once I got the means, we went to all the places we’d never been and we intend to go back. So, you know, if I had my way, I’d put a pin in every country in the world. I don’t know if that’s ever going to happen, but I like to travel. I think it opens you up. It gives you a lot of perspective. It lets you realize, you know, when you’re complaining about your cable bill or not being able to stream something and you realize that, you know, there’s a lot of people that are trying to find their next meal, that sort of thing. So a lot of great perspective. a lot of, again, perspective on how other people live. You know, we assume that our bubble is the way life is and it is for us, but people live a lot differently around the world and I’m just fascinated by how they do it, fascinated by history. This past weekend I was in Panama, but a couple months before that went to India. So I would travel anywhere just to learn what the people are like. So I intend to keep doing that. I’ve been on top of mountains Nobody will be on top of for any sane reason, but I don’t know why you’d be on top of a mountain in Tajikistan if you didn’t have a specific reason to be there, but it was pretty cool.
Dave:
Wow, that’s awesome. And do you have like, you know, do you have a certain list of, you know, experiences or destinations that you’re going after right now?
Tom:
I kind of, it’s kind of like my financial world. I kind of have this vague thing where I kind of want to do it all. But, uh, you know, I haven’t, uh, so next is either Middle East or Southeast Asia. Haven’t done Cambodia, Vietnam, Cairo, that sort of
Dave:
Hmm.
Tom:
stuff. So that part of the world, I haven’t been to, I’ve been to Japan and missed my trips to China. Supposed to go to the ski team during COVID, but they kept canceling it. So
Dave:
Yeah.
Tom:
I think we’re going to head that way next time and see what that part of the world looks, uh, live like, see how they live.
Dave:
Yeah. Well, I
Tom:
Alright. Ahem.
Dave:
definitely share your passion with travel, Tom. I’ve been to six continents over 40 countries and it’s just been such a phenomenal way to learn the world. And like you say, like it gives you a different lens on things, you know, when you, you know, when you view everything from the economy, the culture, you know, the way people are living. And so it really has made an indelible mark on me. I love to travel as well. I know a lot of the listeners know my story and how we were able to actually incorporate that into our wealth plan, which is we bought 10 years ago, we bought real estate in Italy. We’ve had the wonderful opportunity to bring our kids for the past 10 years to Italy, to our rental property. We’ve got income. We’ve got depreciation. and then get to go, you know, a place that we really love. And then every time we go there, we go visit somewhere else. We can go to France, we can go to Switzerland, you know, we can travel all over. We have some amazing friendships there. We’ve been learning the language, but I think that’s also really helped our kids, you know, learn these same, you know, valuable lessons and really not enough people in the U.S. I think really travel abroad.
Tom:
Well, and we’re blessed to have the means to do that. Everybody has that. But I tell you, you mentioned the kids. For my kids, it really opened things up for them. When you do a report on London or the Eiffel Tower or whatever, when they’ve actually been there, it just makes a difference. And helps them a bit in school, but also broadens their horizons. When they see how people are living in very, I spent a lot of time in Africa and had the kids with me, and that was very helpful for my kids to maybe complain a little less about certain things.
Dave:
Yeah, for sure. So what type of international investing have you done?
Tom:
So I’ve got, you know, the biggest one was I owned a ranch in Africa. That was in South Africa. So we had a lot of acreage and we bought it kind of raw and some of it was very wild and some had been inhabited. And so we removed all the internal fencing, any buildings that were falling down and fenced the whole thing and stocked it with animals because, you know, in South Africa, if it’s not behind a fence, it’s going to get poached and eaten. because people are having some food insecurity there, a lot of food insecurity. So we were able to bring back a lot of species. So we fenced off 6,000 acres. We had a river that went out to the ocean. We had beautiful cliffs. And so we stocked rhinos and giraffe and zebra and waterbuck and bushbuck and kudu. And it was just beautiful. I’d run around there on a motorcycle and eat meat pies and drink South African beer. It was a great trip. We had that for probably 10 or 12 years.
Dave:
Well.
Tom:
Then a little bit of stuff in Panama and that’s really it internationally. Most of it’s been domestic.
Dave:
Okay. Yeah, that’s amazing. So do you have a particular wealth strategy or a framework that you’ve been following to build your wealth?
Tom:
Yeah, and it’s never been really complicated. Again, going back to the sort of initial touch by the angel, I just wanted some income coming in that I didn’t necessarily have to provide my time for. I was a doctor, so I either had to do surgery or see a patient or do something. So I wanted something coming in extra, and eventually what I wanted was that to cover certain expenses, then I wanted it to cover all expenses, and then I wanted it to cover my lifestyle, which is actually a different number than expenses. So that’s been pretty much the philosophy was to always make sure that the passive cash flow eclipses the expenses and costs of having a life traveling around the world. I continue to do that. You know, there have been some… some gaps where I’ve had several years where I didn’t add to that passive income, but I keep trying to do that. Never looked at net worth. Granted, I had to all the time because we get underwritten a billion times a year for projects, and so I’d see the number, but that was not important to me. It was more the cash flow. How can I pay my bills? So… That’s still the primary focus. There’s a little bit of a securing state. I secured most of my stuff with real estate. I’m securing it with a few other things, a little bit of precious metals, things like that. It took me a long time to decide to buy precious metals because it didn’t produce cash flow. So you can see where my primary focus was. Always more cash flow.
Dave:
Yeah. Tell us a little bit more about that thought process, right? That you had as a doctor and moving into passive income and really understanding that. Because I think a lot of folks in the audience, whether you’re actually practicing medicine today or you’re in some type of career that it’s highly specialized skills. So essentially getting paid for your time, right? And the time and effort economy. what was it really like to kind of go through that thought process to think about, you know, what’s, what could it be like on the other side? And how do you really frame that up? Cause I think a lot of people probably struggle with that.
Tom:
Sure, and sometimes it’s because people think, oh, if your doctor, lawyer, engineer, ditch digger, whatever, it’s like, wow, you know what it’d be like not to do this. You don’t have to not do your job. You might, well, there’s a lot of people that like their jobs, so. The way I framed it was that I wanted control, right? And, you know, money’s not the most important thing in the world, but like Zig Ziglar says, it’s right up there with oxygen. You know, money buys a lot of stuff. It’s a lot more fun to have it than to not have it. So I knew that if I could get to a point where something else was paying for my bills, I could decide what I wanted to do. And quite honestly, Dave, I practiced medicine for 12 and a half years after my income eclipsed my expenses because it was fun. You know, I eliminated the annoying stuff. So that’s the one thing people think, ah, I’ve got to make this huge amount of cashflow. How am I going to get out? You know, I framed it in that, you know, as every little bit of cashflow came, I did the, you know, I took it small chunks at a time. I always use the example that I had everything on quick and I knew what my utility bill was for the year, pushing a button, I could tell what it was. Well, I one time looked at that number and realized how much passive income I was making. I thought, hey, I’ve covered my utilities. And so the next one might be, yeah, I’ve covered my grocery bill for the year. Small bits like that. Then all of a sudden one day you realize I’ve covered everything that I need to survive and I can do what I want now. I can grow that side hustle or that real estate business. business or whatever it is, I can grow that larger if I want to, or I can enjoy my job or my profession or my passion more, or sit on the couch and binge Game of Thrones if you want to. It’s just you have the choice. I just felt that there was more to life than being tied down to having to produce effort for every bit of money. And no matter how much you get paid, and the title of my book is Why Doctors Don’t Get Rich, it’s basically a metaphor for the fact that no matter how much you get paid per hour or per service, if you get sick or get hit by a bus, the music stops. And so you wanna have security for your family, you wanna have fun in life, you might wanna have fun in life. And so that’s how I looked at it, that’s how I thought about it. Now I wasn’t in any pain and a lot of people in my previous profession are in quite a bit of pain now. They’re a lot more amenable to thinking outside the box because, you know, back then you got paid a lot of money. And the thought process from, you know, I was told once by somebody that’s like, well, you know, I can just do another surgery or I can just take call and get paid for it, which is true. And it’s more immediate and it’s a lot more fun. Investing takes a little deferred gratification, but the question is what do you do next month? You still got to do do that surgery again You got to take that call and the next month and the next you know and so I Think the freedom that the passive income gives you gives you it gives you choice We all want choice in life. We’re humans We want to you know we want to have indoor plumbing and have a roof over our heads You know we like to control our environment, so why not control our financial environment and really get everything we can out of life
Dave:
is such an important distinction, Tom. And I know I’ve had so many conversations with docs as well that, you know, talk about they say, you know, they love, you know, 80% of what they do, but sometimes it’s the 20% that’s just really frustrating. And I know a lot of us can, you know, really relate to that. So even achieving that passive income threshold that covers your expenses, you know, I think a lot of it is around the psychology, like you say, you know, you framed it as choice. right, but yeah, having freedom of choice, right? And, you know, many have said that it’s like, I still wanna practice, but I wanna practice on my own terms, right?
Tom:
Right. Right.
Dave:
And there’s such a difference between doing that and that and not having a control working for somebody else, and like you said, being kind of stuck with, you know, that next surgery or whatever it is that you kind of get in this rat race that you can’t get out of.
Tom:
Yeah, people, you know, the word some use is trapped. You know, you gotta keep working because the income’s gotta come in. And, you know, of course our expenses rise to reach our income, but it is really nice to have some control and medicine can be a lot of fun when you practice it the way you want to, as you just said. That’s all
Dave:
Yeah.
Tom:
I did. I just eliminated the stuff that was annoying. You’re able to tell hospitals or insurance companies, I don’t need you, and spend more time with your patients. Actually makes you a better physician if that’s your profession, because you can spend more time. You’re there for them, you’re not there for the fee or the paycheck. And it changes your mindset and your patients see it. And it’s a really noble way to give back is to be able to heal suffering and not need to be paid for it.
Dave:
Yeah, for sure. So has any of your passive income taken a hit recently with some of the stress in the real estate market? And what are you thinking about the market and your strategy these days?
Tom:
Yeah, we’re, you know, certainly at our firm, we’ve, you know, we’ve, we actually about 15 months ago backed off the pipeline because we didn’t like what, what the horizon looked like. And so that was a good call for us. I thought we’d always made great calls, but we’ve really backed off the pipeline. We’re We’re trying to look at as many stable projects as we can, typically strong partners, great locations, things like that. So the concern, you know, you always want to say you’re conservative. We’ve even really kind of dialed up the conservatism meter, so to speak. Passively, none of my stuff has… Because of market forces, none of my stuff has taken a hit because I favor fixed debt. So I haven’t been… hit too hard by the change in rates. Some of the projects that we do, we do development. So some of those projects were in process. So it didn’t affect my passive income, but it will because a project that takes 14 months to build is now taking 30 months to build because of this COVID and supply chain issue. So as you stretch out timelines, you increase expenses, you start amortizing loans occasionally, and prices go up. So that’s where our focus has been to keep those things going. They’re all doing fine, but those timelines are longer. So I guess by extension, the payback is going to be later. So it was an effect. And then there’s the human element. So occasionally, there’s been some bad actors out there. They’re there. As Buffett says, when the tide goes out, you see who’s swimming naked.
Dave:
Yeah, there is a lot going on for sure.
Tom:
Yep.
Dave:
Just one question on that, are you guys still pursuing HUD type financing? Because I know that was quite a niche for you at some.
Tom:
Yeah, we did a lot of HUD early, a long time ago. In fact, that’s where we cut our teeth. And then in the run up to 2021, speed was much more valuable than HUD. So we ended up, our process that maybe have half of our portfolios, merchant bills where we sell it, three to five years and the others are designed for long-term holds. And so. We actually sold three HUD projects in the last two years that were on 40-year debt just because the numbers were so crazy from buyers. So with that, we are re-engaging with HUD for certain projects because that’s still some of the best debt out there. We haven’t done one yet recently. Still able to use the life codes and some of the banks for our debt. So… We actually have one HUNT project running right now. So, and it’s stabilizing at the present time. But haven’t initiated a new one since COVID.
Dave:
Yeah, no, that’s a nice niche. I don’t
Tom:
Great.
Dave:
think many operators have gone through the undertaking to get into that, so there’s a nice barrier to entry there.
Tom:
Yeah, and that’s why we went with debt that was easier to get. I mean, HUD is wonderful once you have it. It’s a lot of brain damage to get. And it used to be six to nine months. And we’re looking at nine to 12 months now to get HUD projects approved, but they still have money. So if your planning is good, you go through the process. It costs a fair amount. It costs you upwards of a million bucks to get to final approval. But you pretty much know after about 100,000 that you’re probably going to get approved. And so we will go through that process if it makes sense, but none of the current projects are looking at HUD debt. But once it’s there, it’s fixed for 40 years, and it’s wonderful. And in fact, the construction debt is fixed for 20 months, so it’s a great product.
Dave:
Yeah, definitely provide some certainty in this
Tom:
Yeah.
Dave:
uncertain market
Tom:
All
Dave:
on
Tom:
right.
Dave:
the debt side for sure. And are you focused primarily in Texas right now or are you looking at other markets?
Tom:
We pretty much stay home. We used to have some properties in the surrounding states, Oklahoma, New Mexico. We divested those a while back, realized that for our firm, we had plenty of business in Texas. The whole world’s moving to Texas, right? And so bringing jobs, bringing people, and jobs and people equal the need for housing. We’re- We’re pretty selective though. We tend not to work, we don’t work at all in the urban cores. We work in the secondary markets and on the fringes of those urban cores. And we watch the deliveries and the absorption. So in particular around Austin right now, it’s a bit of overbuilding, surprise. But we think that’s gonna get absorbed over the next 18 to 24 months. So we stay in Texas. We do have one portfolio that has properties in Alabama. and that’s an Alabama Texas portfolio. It’s a portfolio of five properties. So that was our most recent foray outside of Texas. We’ve looked at Florida, where you reside, a great state to build things. We almost did something a few years ago. Almost doesn’t count, but we like that state. We just need somebody good on the ground there, and we did have somebody. We just didn’t pull a trigger on that one.
Dave:
Yeah, yeah, it is fascinating. You hear certain things in the news and what the narrative is, but just driving around here in the market, it’s amazing. Multi-family assisted living, build to rent, you name it. There’s just, there’s so many people coming in. I think Florida is now the fourth largest in terms of GDP in the country. So, I really think, Tom, from the macroeconomic standpoint, I mean, I still think there’s a very strong case for multifamily, despite the headwinds we’re seeing in the debt markets. But when you look at the shortfall around housing, and especially when you multiply that by some of these strong markets, it still seems quite compelling.
Tom:
Yeah, as you know, we’re still close to 4 million multifamily units underbuilt between now and 2030. You know, you see numbers anywhere from 6 million to a million housing units short. It just depends on who you listen to. But there is not enough housing. The young folks coming out that would maybe would have liked to have bought a house or have been having great difficulties now, so they’re renters. So the high interest rates are certainly working for apartment developers and acquirers. So it’s in the long term for multifamily still is good. It makes you sound like a homer, but you just look at all the data out there, all the articles, you know, people that have nothing to do with multifamily say, hey, this is probably the asset class to be in. I even saw somebody said it ought to be its own asset class. So. In the short term, as I mentioned, we’re a little overbuilt in Austin, but Austin’s the darling of the country, the darling of the world for some people as far as where people want to live. Not that we haven’t had lots of layoffs and people not using their office space. We had a lot of shadow inventory in Austin, but people are moving and there’s still a large net migration and there’s been a slowdown in development. Rightfully so. I mean, even Hartford writes, we pulled back on our portfolio, but we’re still looking to develop. And, you know, there’s going to be a gap. There’s a 74% decrease in apartment starts in the area in central Texas. give it time and there’s going to be a gap at some point because not enough product was produced. So those that can weather the storm now and get their projects going by the time that gap is there they’re going to have a lot less trouble stabilizing their properties. So I think multifamily has a great future. Ours is as we talk about development but the acquisitions, workforce housing, you can’t make more of it and it’s always going to be needed and so I think it’s going to be a good class and you see a lot of big money going into multifamily, waiting for some opportunities. And there are some out there, you know, just had one the other day that’s, you know, seller in trouble, but I don’t think it’s going to be as many as there were in 2009 and 2010.
Dave:
So tell us a little bit more about
Tom:
Thank you.
Dave:
new development, right? I think most of the audience is very familiar with value add, class B type model, which is typically what’s talked about most on the multifamily
Tom:
Right.
Dave:
side. But can you tell us about some of the differences in doing new projects? And sometimes people see it as a more speculative type option. So how do you really manage the risk on a new development?
Tom:
Yeah, and I think in everything in life, I think you had your risk with your education and experience, right? So yeah, it’s certainly kind of fits the brain better to see something and realize, hey, I can put countertops, cabinet fronts, and new flooring in, this thing’s going to run for more. And that’s a fabulous business plan. And that’s… We’ve done that a time or two, but I think by default we ended up in the development world. It wasn’t planned, it just sort of happened. And neither one’s better or worse than the other. They’re just different. So in a development, there’s a gap. There’s a good two-year gap before everything’s stabilized and the rent’s recovering, debt service and there’s some cash flow. on a value add in a good market that can come in a quarter, two, three quarters. Right now I’ve seen a lot of people waiting at least four quarters before they end up putting out any cash flow because they’re holding it back. Rightfully so. So cash flows may be a little later in development, but on the good side we know it’s behind every wall. You try to do as much inspection as you can on a property that you acquire, but you can always run into surprises. there’s still, no matter what you find, there will still be deferred maintenance on a development property, pretty good for about 10 years with minimal deferred maintenance. But on the risk side, it’s just how, it depends on how many of these things you do. Somebody that’s doing value adds, they know, particularly now, we’re gonna go in at lower leverage, we’re gonna over raise a little bit, make sure we have a little more contingency. We’re gonna plan on… higher interest rates, or we’re gonna buy a rate cap, the things that you would do to hedge your risk in a value add, we do the similar thing in development. We exercise GMAX contracts, which means our contractor will eventually give us a contract, a bonded contractor that says, here’s the price. With the exception of a few small things, if we go over budget, it’s on us, so the cost is run through the contractor. You do the same thing with your assumptions. We try not to assume rapidly rising rents and all that’s the same value add for development. So it’s more in the experience where you found out where you’ve run into trouble in the past and what you maybe should have looked at on that project so you incorporate it into the next one. And so I think you can, it’s not really so speculative because lumber’s lumber. It’s going to have its cost. You’ll know what it is before you pull the trigger. and you know what your number is. It may be high or low, but you know what it is. Same thing when you’re doing a value add. It may cost you more to rehab a unit than you thought. So once you do the numbers, they’re still pretty much the same. And so the numbers kind of tell you what to do. If they’re thin, you often don’t do the project, or you bring in more contingency. And if they’re nice and robust, then off you go.
Dave:
Hmm. How are you able to actually project then like, you know, let’s say you pick one of those sub markets that you were talking about, right? You know, I’m sure you’re doing a lot of data analysis in terms of, you know, the population growth and what’s to expect. But do you have a formula or something that you go through to look at that?
Tom:
Yeah, we have a process. You know, I mean, we’ve
Dave:
Yeah.
Tom:
got a pretty robust subscription to CoStar. So we look at CoStar’s numbers and deliveries and absorption. And we’re still aware, always aware, that CoStar’s still got a lag. It gets its information from the management companies. But we’re still aware there’s a lag. But that gives us a good broad picture. We do the same thing that you do if you’re buying a value add. We still do the boots on the ground and see what people are getting for their properties. We see how leased up they are. But they will do a feasibility study. And that’s basically a third party that uses growth projections. numbers of units in the pipeline, that sort of thing, to see how many are in the pipeline and how many are needed. And, you know, if it says, hey, we need 2,000 units and there’s 1,900 in the pipeline, they back off for a while. If it says there’s 2,000 needed and there’s, you know, 500 being built that we know about, you know, so we’ll, that means that we’re part of that need that’s coming up. So that’s, it’s data. And then we look at, you know, we look at population in migration. We look at the job growth, the population growth. We’ll talk to this Chamber of Commerce, if it’s a small municipality, what’s going on, what kind of projects do you have going on. We try to go outside and see who’s maybe looking to move there. And you know, when you’re in Texas, it’s pretty exciting because some of these small towns are, you know, they’re getting large manufacturing plants or large warehouses, you know, we’ve got Tesla just right next to the airport here. Right. Just got something like 5,000 employees in this mile long building. Well, that’s awesome. That’s a lot of employees, but something like that requires. a lot of support. You know, somebody’s got to do battery support and somebody’s got to help with the bumpers. I mean, I’m making this stuff up, but something like that brings in a lot of people. So, companies are relocating, they’re bringing their people, they’re bringing families. And so, it’s the job growth and the immigration of people and jobs.
Dave:
Yeah. And any particular areas that you’re focused on, right, in this market where you’re seeing opportunities that you’re paying very close attention to right now?
Tom:
Yeah, I mean they’re all expensive, right? They just are. It’s Texas and everybody knows it. So there’s a highway that runs through Texas called Interstate 35. Goes right through the middle of the state, comes from Mexico, goes through the middle of the state. And that encompasses Dallas, Fort Worth, Waco, which is a small place, Austin, and San Antonio. So… Most of our focus right now, we have stuff up as far as Denton, which is in North Texas, on I-35. Most of our stuff, believe it or not, is between Austin and San Antonio. Sort of a golden strip. My joke is that someday from a satellite you’re going to look down and see nothing but a strip of light from Austin to San Antonio. So anything in that area is pretty hot. Lots of people move in there because they can live there and work in San Antonio or they can work in Austin or work in a small town. So that’s one thing. And there’s the Texas Triangle. Dallas-Fort Worth, Houston to the east, Austin, San Antonio in the center. That’s something like… 70 or, you know, I’m going to get these numbers wrong, but roughly 70% of the Texas population. So that’s a big, busy, popular area for companies to relocate, for people to move their families. And so we stay in that area. Kind of, you know, Houston’s a bit of a kind of occasional stepchild for us, so we know the market well. But most of our stuff’s up and down Interstate 35. That’s given us enough business. You know, we’re sitting on a nice 12-acre piece of land. We’re gonna put up a bunch of apartments right in a place where the population grows like 6.9%. So, you know, we like that.
Dave:
Yeah, yeah. Really great insights, Tom. Appreciate that. Just shifting back into your financial independence credo and everything, if you could give the listeners just one piece of advice about how they could really accelerate their wealth journeys, what would it be?
Tom:
You bet. It’s always more than one. I have to do more. But,
Dave:
Ha ha.
Tom:
you know, figure out why you want to do it. I know it sounds goofy. You want more money. But money is just the tool that’s going to get you what you really want. That’s either time with your kids, away from your job, traveling the world like Dave, something like that. That’s what’s going to pull you through the up and down times. You know, we’re not in great times right now, but that’s what’s going to pull you through. And, you know, he who stays in the game long enough wins, right? So, once you know why you’re doing it, Listen to podcasts like this, read some books, listen to other podcasts, get a feel for what you like or what you understand, and then the last one is just hang out with people that are doing what you wanna do or going where you wanna go, or even better, then where you wanna go, because that’s where you’ll get mentorship, experience, motivation, partners, people to invest with, investors, it’s just something to hang around a group of people that. kind of has the same thought process as you, because you’ll find out in the world that not everybody has the same thought process. So right or wrong, it’s nice to have a team to help cheerleading along the way, and that’s what’ll keep you going. And you can do it. Anybody can do this thing. I mean, I bumped into so many blind hallways and dead ends. And… somehow blindly stumbled my way into where, you know, the world was nice enough to give me some passive income and some choice. So if I can do it, I think everybody on this call can do it, bigger, better, and faster.
Dave:
Great insights, Tom. Can’t thank you enough for spending
Tom:
bit.
Dave:
your time with us today and sharing your wisdom. So many real eclectic thoughts there, full 360 degrees. So I look forward to listening to this episode again myself. And again, thanks for your time. If anyone would like to connect with you, learn more about you, what’s the best place?
Tom:
Yeah, you bet. I’m excited I was eclectic. That’s code for strange. No, I’m just
Dave:
Hehehehe
Tom:
kidding. The website is richdoctor.com and if you want to get in touch with me, I do see all the emails. You can send an email to hello at richdoctor.com. And so the website’s got some free resources if people want to use them. It’s kind of the stuff that’s helped me do things over the last 30 years. I always like to talk to new people.
Dave:
Awesome. Thanks again, Tom.
Tom:
Thanks Dave.
Hey, everyone. Welcome to today’s show on wealth strategy secrets. We’ve got another excellent show today. Today we’re joined by Richard Canfield. In 2009, Richard’s life changed completely when he read the book, Becoming Your Own Banker, Unlock the Infinite Banking Concept by R. Nelson Nash. He knew this was what he had been looking for all his life. Nelson Nash became his personal friend and mentor, and Richard and his team now teach his powerful message of financial hope and control to North Americans. As an Amazon bestselling author, podcast host, and authorized infinite banking practitioner, Richard is passionate about putting people in the driver’s seat of their financial life and creating durable, dependable generational wealth. They work with families, business owners, and real estate investors to strategize how they can keep more of the hard earned money that flows through their hands over a lifetime. You may already recognize Richard as a co-host of the Wealth Without Bay Street podcast. and co-author of Canadians Guide to Wealth Building Without Risk, as well as Cash Follows the Leader. Richard, welcome to the show.
Richard Canfield:
Super pumped to be with you, Dave. I’m just so excited to be here and to be able to try to add some value to your amazing listeners, your great community. And, you know, you and I, before hitting the go button, we were talking about a lot of our unique similarities and our overlapping, you know, connections, contacts, and just the way we kind of view and think about the world. So I’m just so pumped and excited to be with you here today and talk about something I’m passionate about, but something you are also uniquely passionate about, so it’s going to be a ton of fun.
Dave:
Yeah, really grateful to have you on the show, Richard. I think listeners are really gonna enjoy this one. And like you said, just sharing these like-minded ideas with people so that they can get insights and make better decisions in their own lives and how that applies, that’s what this is all about. So why don’t we kick things off and for people who aren’t familiar with you, tell us a little bit about your background, your journey and how it all started for you.
Richard Canfield:
Well, you know, I’ll go back actually a long ways back. So when I was when I was a little a little kid, I grew up in a very small farming community outside of Edmonton, Alberta, Canada, home of the Edmonton Oilers, if anyone’s familiar. And you know, so I you know, I grew up building fences, working on the farm, doing all that kind of stuff. I understood like hard work right away. And you know, that was kind of our, our vision. We had, we had a small family based business. Um, I was the heir to the portable toilet kingdom of Camrose, Alberta. So, uh, Prince to the throne, as I like to say. And, uh, so I learned a lot of lessons in that small family owned business, but we were the typical family owned business operators. We were operators tech, you know, technicians, not business owners. We didn’t understand the fundamentals and the learning about business. There wasn’t, we didn’t know about the coaching and Hey, all that stuff existed way back then, but we just didn’t know about it. It wasn’t like, You know, that today in the in the in the ecosphere of the internet and the the interwebs and the tic tacs and the Facebooks, there’s all these opportunities for people to learn those kinds of skill sets. And, you know, of course, with strategic coach, which you and I spoke about, I mean, that’s an amazing opportunity to learn how to think differently in skill sets. And so we didn’t have necessarily the access to those things. So we just kind of put our heads down and work hard, heads down, work hard, heads down, work hard. And that’s kind of all we really knew. And so I learned a lot of lessons in that environment. And when I was quite young, I was actually known as the bank in my house. I always had cash available. I kept it and stored it in my closet. And I would have family members if they needed cash. Even my parents needed cash to go out for the day or whatever, they just didn’t have any available in their wallet. They would come to me and I would make them write an IOU on a piece of paper. What I didn’t understand though, is I didn’t understand interest. There was no learning. There was no teaching about interest or charging interest or… charging fees for late repayment. Like I didn’t understand any of those components, but I understand I needed to track the money. So I learned some things really early on in that environment. And some of that’s because I’m the youngest of multiple kids. And so I got to see the experience of other people ahead of me. And I got like basically some intellectual shortcuts about things I didn’t want my life to be like, things that I maybe didn’t attract, I didn’t wanna go down. And so I recognized that I needed to really kind of hone in on the money. And early on in my life, you know, roughly when I was about 11 years old, my mom told me I had to start buying all my own stuff. We were, I was going to get paid, although it wasn’t like an official wage and it was never consistent. It was basically money that they had available based on how, you know, uh, a seasonal business kind of shifted throughout the year. But I worked like a kind of like a rented mule and, uh, and I would get paid, but I had to go buy my own things, my own clothes. I wanted extra food or snacks or things that, you know, outside of just a house over your roof and food on the table, I had to do a lot of that on my own. It was one of the best things that ever. So I started to realize the value of what a dollar could do for you. I mean, today we talk about the devaluation of dollars, which we probably won’t get into today. But I mean, fundamentally, it was important to understand that the more you manage your money, the more money you’ll have to manage. And that’s something I learned years later. A great quote from a friend of mine who’s a real estate investor. And so I was always watching the dollars in some way. And then I realized later on when I started getting into personal development at a very early age, around age 19, I started doing my first kind of personal development programs and some very high end intense type programs. I’ve done the whole walk on hot coals thing and all that kind of stuff. I started to realize what, what, what do I want to do in the world? How do I want to show up and add value into the world? And it just, what really connected with me is if people had a better understanding of how to manage their money and how to take control over their money, how to be in the driver’s seat of their money, they would have the result of that behavior with it. They would have more money. And if they have more money, well, then. What’s the ripple effect of that? What’s the reduction in stress? How does it improve their relationships with their spouse, with their children, with everything that’s going on? And if we can pull, you know, stress is probably the number one health issue that people have. And if we can reduce that in some way, well, what’s the number one cause of stress in most households? Well, it has to do with money. And so if we can solve some of that problem, even a little incremental bits at a time, because the journey of a thousand miles begins with one step. Well, in your financial life, you got to take steps to improve it. I mean, it’s just no other way around it. And so that whole drive and experience that led me into investment, real estate, it led me to become a bunch of, you know, real estate groups and organizations and continue my personal development journey. And then leading up to 2009, you know, a really good friend of mine and cohost of our podcast, you know, Mike and a coauthor of our, of our books, Jason Lowe, amazing guys, you know, without Jason, I don’t know where I’d be today, but he introduced me to this book, Becoming Your Own Banker. When I got this book in 2009 at the time I was a licensed realtor, uh, in our, in my local environment. And, uh, I, I was only into my second year of doing that, you know, really, actually it was probably 12 months into doing it. And, uh, I read this book and I had this, you ever, you ever had that experience Dave where you’re just like really, really angry and frustrated, but you can’t put your finger on it. You don’t know why you’ve had that experience.
Dave:
Yes, yeah.
Richard Canfield:
Maybe some of your listeners have had that experience. And so I was like that. And I was having a very, I got this book in the summer. It was a very busy real estate season for me. I had a lot going on. And so like a lot of people read this book in like two, three hours, I read it over two weeks because I would, you know, I would start, stop, start, stop, start, stop. And, um, what I realized is after that, I started getting, um, like kind of snippy with people. I had a chatted like a chip on my shoulder. And that’s not really a lot like me, but I couldn’t figure out what was going on. What I realized was happening later on. It came to me later is that I knew fundamentally, I needed to teach people what was in this book. I didn’t know it was in the book. I didn’t know it before I got the book. I didn’t know. What you don’t know is a big problem. And the more that you realize, the more you learn, the more you bring in knowledge into your life, the more you discover that which you didn’t know. It exposes you to so many new things. It’s like a rock and a pond and that ripple effect of expansion of your own knowledge base. And so when I read this book, A whole new doorway got open for me. The thing I had always been looking for. I always knew when I got my very first rental property mortgage at age 18, I was a, you know, technically a landlord at 12, but at age 18, I got my first, you know, mortgage on my own. And I looked at the mortgage document and I looked at the, you know, the I ran an amortization on my own and I went and bought a book. that all it had was numbers where you could flip through it and you could see the interest rate and the amount and you could calculate the payments and you could see the amortization. I went and bought that book for fun. And I, because I was just fascinated like, Hey, I get the real estate. I get that I I I’m winning in this deal, but like, what’s this? These guys, the bank, what’s their deal? What’s up with them? And I realized that’s the passive income I wanted. I want that payment stream. We’re on the wrong side of this deal. How do we get onto that side of the deal? And of course I discovered a few different ways to do that. But then when I got this book, becoming your own banker. Wow, that sounds incredible. Is that possible? Well, the answer is it is possible. And it all begins with how we think. Everything starts there. But when you understand the fundamentals, what you can create in your life is really, really powerful. And so, digging into that, I realized I would be doing a disservice to myself and I would be out of, in my own integrity, my own personal integrity, if I did not tell people about this book. So that led me onto the journey of becoming an authorized practitioner. Eventually meeting Nelson Nash the author getting to know Nelson and just wow what an unbelievable human being I’m sure you’ve got some incredible mentors in your life Dave as I’m as I suspect your listeners do Nelson is one of those people where there he was like an enigma the moment that you got into his his gravity It just sucked you in and you just he just he really managed to convey and download Information in you in a way that was just so simple and so powerful And I really respect learning from individuals who’ve, who’ve experienced life over a long timeframe. Now he passed away four years ago, in March of 2019. And, you know, so very sad day of course, but he was 88. He would say 88 revolutions around the sun. Okay. And he was still phoning people from the hospital. Ben he was about to go into a surgery. He was pretty sure he wasn’t coming out, but he was phoning people from the hospital. He was checking in with them. And he was talking about, you know, it’s all about the message. It’s all about the message. And, And he was, he was just continually giving. He didn’t believe in retirement. He believed in living a life of value and give adding value to others. He believed in mentorship and those kinds of things. So his book and what he taught people is a lot about that. And you know, he was a real estate investor. He had a forestry background. He did a lot of land deals and some of his most profitable deals were land deals and, uh, and development deals. And many of those deals came because he took a policy loan from an insurance contract that he owned. because that’s where he stored his money. You need a warehouse for money. Money’s got to rest somewhere while you’re waiting for it to go do something. You got to go on vacation. You got to buy a new car. You’re going to buy Christmas gifts. You’re going to go and invest in the next real estate deal. You’re going to invest in the next, you know, offering memorandum, the next multifamily unit project. You’re going to invest in Bitcoin, whatever it is you’re going to do. Money’s got to go from the place that you keep it to the thing that you want to do. It’s a transaction. Okay, that’s what banking is. Banking is the movement of money from one place to another in a relatively short period of time. The problem is most people in North America don’t recognize that they actually should be the one controlling the function of that movement and where they store the money. And then when they store the money, they’re storing it in someone else’s bank. You get paid for your work, you get paid for your rents from your real estate, you get paid for your business. All the money goes into someone else’s bank. and it sits there waiting to pay the bills and do the things of life. Someone else’s bank gets all of your money before you do. So if you understand the power of becoming your own banker, you can slowly and incrementally transition that money that’s resting and sitting idle in someone else’s bank into a system that you own and control with a mutually owned insurance company, which is a financial institution that is not a bank. but they have certain fundamental features and benefits when done the right way that allow you to mimic and model similar banking functions that you get to control. So it’s not that the insurance company is doing it, it’s that you’re doing it. So, you can save and borrow money over at a regular traditional brick and mortar bank, or you can save and borrow money over from an insurance company. The difference is who do you own and how much control do you have? That’s what infinite banking is all about.
Dave:
Wow, such a great overview and the epiphany that you had, right, when you picked up the book, you know, quite a story. I love how Peter Diamandis actually calls it your MTP, or your massive transformational purpose, right? You kind of figure out what it is you are to do in life. I actually remember the movie with Steve Martin and the jerk, and he’s like, mom, I found my purpose. You know, but I think it’s just so important, right, for people to kind of figure out that purpose. And I love how, you know, you actually, you know, ground everything with that concept of like, you know, you know, creating, you know, creating financial freedom, you know, creating understanding what this is before, because I really, you know, view this the same way, right? There’s lots of different products that are out there to do different things. But let’s start with your vision and what it is to you. And as Dan Sullivan likes to say, a lot of that is based on these four freedoms of how we’re driven. We’re trying to create freedom of money. We’re trying to create freedom of purpose, relationship and time, to do all these things that we wanna do. And so then you start to look at some of these alternative products or these things like infinite banking. and you talk about control, right? And you talked about reducing stress, and you talked about having your money work for you. So all of these multiple things that actually drive you closer towards those freedoms. So really appreciate that sentiment that you really come at this with.
Richard Canfield:
When you can’t put a price on control and you could try, you could do your best to measure it. Some people might, you know, if they’re like super high fact finders or whatever on their Colby score, but ultimately, you know, just ask yourself that question. What do you value? What value do you place on having control, especially control around your own money, control around your own financial decisions and look at the things that you’re doing today. and write them down. Okay, well, I’m having a 401k or I’m in a IRA or I’m in a candidate RSP. I’m in some kind of a tax qualified register plan. I’m doing this, I’ve got that, I’m in the stock market, I’ve got some rental, I got all these things, these buckets of money and I gotta borrow money, I gotta do all these things. Well, to what degree do you have a measurement of control? Today, at the time of this recording, we’re dealing with some uncertainty in the banking realm. There’s been a few big collapses in the news lately and that sort of thing. Even if you just think about having your money on demand deposit. So, so first off, every time that you put your money into a bank as a deposit, they issue you a slip, basically deposit slip. Well, that’s a receipt that basically says they owe you the money. In other words, you’re a creditor, you’re an unsecured creditor of that bank. So that as soon as you give that money, you’re exchanging the custody of the money to them. It’s now their money. And all you have is a demand slip that says you can get it back as long as they have it. That’s really what you have. And the whole reason that works is because we’ve built a system of quote unquote trust. We have trust in the system. Well, as soon as that trust is broken, now you start to see the issue of bank runs and all kinds of problems that get created. And I don’t want to go down that rabbit hole too far. But when you’re dealing with a properly structured, well-designed insurance company that’s got a long history and you’re doing your business there, you have similar functions and features. It’s not identical, but similar. You still need a convenience of a debit card. But if you’re storing your money there, and that money is now in constant motion. It’s actually yours. You’re the owner. You co-own the company. When you wanna borrow and access capital, you can access whatever’s available to be lent from your pool, but you’re accessing it from the insurance company. So you’re not borrowing your money, you’re borrowing their money. So your money is constantly in motion and it never stops. It’s uninterrupted for the rest of time. The only thing that interrupts it is that somebody dies. Okay, well, that’s pretty easy to solve because you just get insurance policy on everyone you reasonably can. And then you’re diversified. in lives, lives insured. All right, so you can create this multi-generational aspect, but the key thing is you’re in the driver’s seat. You dictate the terms, the terms of the borrowing, when you’re getting it, how you get it, how much you get, when you pay it back, what terms do you want, what timeframe, what interest, all those things you determine, versus jumping through someone else’s hoops to do it. See, we’re always dealing with borrowed money. You’re gonna need the use of money through the rest of your life. I don’t know anybody that gets out of here without of it. All right? One day we’re going to graduate and up until today and that day, we need to use some money. Okay. We can agree on that. Well, we’ve got to store it someplace while we’re waiting for it to do things. Would you rather store it in someone else’s system where they earn all the profits and the revenue or would you rather store in a system where you have ownership and control where you get to share in the profits with a bunch of other people who are just like you and the worst case scenario is that somebody dies. Well, that’s always the worst case scenario. In one situation, your family’s got to deal with the money in the bank. In the other situation, they get a tax-free check. Seems like a bit of a no-brainer.
Dave:
Yeah, good points, Richard. So I’d like to actually back up a step. Okay. And I think there’s so much confusion in the marketplace on, you know, what even is infinite bank is actually called many different things. There’s a lot of confusion in the marketplace. Um, we can have that discussion on another day. Uh, but what I want to do is just make this really practical for the audience. Right. So just give us your, you know, definition of, you know, what is. infinite banking, what even is it, right? Can you explain that? And then let’s jump into some very practical examples of how people could use this in their lives.
Richard Canfield:
Yeah, so you know, I’m going to I’m going to go right to the source, which is Nelson’s book Becoming Your Own Banker right on page three. The whole idea is to recapture the interest that one is paying to banks and finance companies for the major items that you need during a lifetime, such as automobiles, major appliances, education, homes, investment opportunities, business equipment, etc. This book or the infinite banking concept is not about investments of any kind. It is about how one finances the things of life. which can certainly include investments. That’s what infinite banking is. Infinite banking is, in my definition, I would say it is a way of life. It is something that you do. You are always banking. It’s just how much of it do you control? With the infinite banking process and the concept implement in your life, there’s some mechanical tool related aspects there that are required to implement it. But the actual act of doing it is something that you do on an ongoing basis for the rest of your life. And it’s how much of that lifestyle and that mindset that you bring into your life when it comes to all of your financial transactions that will determine how much of that financial value as it’s flowing through your life, the cashflow that’s running through your life, how much of that can you contain so that you can reuse it as many times as possible while you’re alive and then leave as much of it behind tax-free to the people you love and care about when you’re gone. So it’s about harnessing the cash flow that’s running through your life so that it can do more than one job for you as many times as possible.
Dave:
Yeah, that was great. Very succinct. So let’s get into a real specific use case. You know, let’s give us maybe you know, your top two use cases of what how somebody could use this because I know sometimes conceptually, someone might hear this and say like, Okay, okay, I think I get this or I’ve read the book, but they’re still only dipping their toe in, right? They haven’t utilized it. Or we also talked to a lot of folks who say, Oh, I have, I’ve had this policy set up. but they don’t really know how to use it, right? So walk us through an example to make it real.
Richard Canfield:
So I’ll give you the first one that kind of comes to mind. I’ll use a personal example. So, you know, right now in my family system, I have 12 policies or whole life insurance policies. They’re all optimized for the purposes of this concept. And I’m looking at adding a 13th one here in the next couple of months. And so I’m always looking at a way to grow my system, just like you want to grow all of your assets. Okay, to me, it’s just an asset in my portfolio of assets that I’m accumulating as I go. Well, I did a conversion on my wife recently. My wife is an amazing stay at home mom. So I needed to convert some insurance on her and I’ve been waiting to do that. I had the original policy set up maybe eight years ago and I’ve been waiting for the right time to convert it. So I did that here about a year ago. And the policy is around $36,000 a year. Okay, so that’s the annual premium. The minimum required amount, I’ll just keep the numbers super simple, is about 10,000. It’s a little less than that, but let’s just call it 10. So 10 is the required amount that I want to contribute every year. And 26,000 is completely optional and totally flexible to me. So I dictate the terms of when I want to put in what time in the year, when I fund it, how I fund it, if I fund it, all those things are up to me. That’s control, control, control, control. You know, the three magic words in real estate is location, location, location. The three magic words in the infinite banking system is control, control, control. Okay. And to what degree do you have control over everything that you’re doing? And so the purpose of this policy was twofold. Number one, I needed to convert some permanent cover to my wife. It was something I wanted to do anyway. So they’re checking a box. And then secondly, well, you know, I have to pay a tax bill every year. You know, I don’t know too many people that get out of the, get out of the year without having something due to the, to the IRS or the CRA in Canada. All right. So, you know, with my business, I set aside, I operate with something called Profit First, which you may be familiar with. And I have accounts that I separate. every dollar that comes in and revenue and I separate that top line revenue and I, and I, you know, I put it towards this different accounts and one of those accounts is a tax account. Well, every year I’m planning for that tax bill and you know, the, the, in my case, the Canadian government’s going to get the money. They have no sense of humor about it at all. If I don’t want to pay them, I mean, they’re, they’re going to make a big stink about that. I can tell you for sure. And so, especially the way they’re spending money these days. So I’m going to go ahead and make that, that payment. Well, I want to harness that payment, that tax payment, to do something for my family before it goes to the government, all right? Well, it turns out my tax bill is, roughly speaking, somewhere between 25 and 40,000 a year for that one corporation. So, it turns out my $36,000 a year premium, I was already setting the money aside to pay the tax bill. So I just ran it through a premium. Shortly after I did that, I borrowed around $23,000 from that policy within a couple of days. And I used that along with a little bit of extra capital. I had set aside in the corporation. I was capitalized enough that I could pay my tax bill and I paid the tax bill. Let’s say that was 35 grand. So I used some of the policy funds to do that from the insurance company’s money and some excess money I had available. But the entire amount of the tax bill ran into a system I own and control for the rest of my life first. In the process of doing that, I instantly created about $120,000 of additional permanent whole life tax-free death benefit on my wife in one job. I increase my ability to earn a dividend, which is a share of the reserve profits, the divisible surplus of the insurance company, which I now co-own for every future year and time that they’re in business. I get to earn a share of their profits because I’m a co-owner. They distributed that to me one time per year. And then I get to decide how to use that, which we won’t get into today. So, that whole ripple effect came into place. So now every time I pay a tax bill, I get to run the money through a policy that I own and control. So I have constant motion on that tax bill that it was gonna go out the door. So it can do more jobs for my family before I give it to the government. Now, once that system is built, each and every year it gets better. And so if my tax bill begins to grow, well, I’ve already built a system that allows me to capture that growing tax bill because I’m being more profitable every year. Does that make sense? So I’ve
Dave:
Epsilon.
Richard Canfield:
created an environment that allows me to take the same money that would already be automatically walking away from me. Cash flow, leaving every single year, going to a government facility, they still gonna get paid, but I’m gonna dictate the terms of how they get paid and where they get paid from. They’re gonna get paid with the insurance company’s money, not my money. My money’s in constant motion. Now, the next year, I have to start saving up to pay the tax bill for the following year, correct? Well, you know,
Dave:
Yes.
Richard Canfield:
the, you know, where I put all that money before I put it in, you know, as soon as they, you know, deposits into the bank, I make a transfer and I pay down the policy loan. The policy loans repaid and then I build up what I need for the premium again. And then I pay the premium again. And then I take a loan and I pay the tax bill. So I’m in a cycle now where I control the environment. Those are all banking transactions. This isn’t an investment. I’m not investing any money in the insurance company or in this or in that. I’m not talking about a rate return. I’m talking about containment. of cash flow for as long as humanly possible.
Dave:
So you’re taking on the control there of your capital and then you’re putting it to work, adding more velocity to it by putting it in the policy before you have to make that future payment. And in addition to that, you’re also creating more value through the life insurance that you set up as well.
Richard Canfield:
That’s correct. And so let’s, let’s talk of another example of that. Something that people do and they, they, you know, a lot of people like to pay down their mortgage. Okay. And you may have different, you know, everyone has different thoughts on that. Real estate investors, you know, have different thoughts on that and they vary all over the map. All right. So, so, but a lot of people will pay down, pay down debt. Okay, great. There’s nothing wrong with paying down debt. However, wouldn’t it be better to recapture the debt? So what if you could eliminate the third party lender? It’s for your car. It’s for the family vacation. It’s for some business equipment that you purchase. It’s for your home mortgage, whatever that third party lender is in your life. Well, you’re going to send your good money to them. Well, before you send it to them, what if you ran it through the insurance company system that’s built and designed by a proper professional, access the insurance company’s money to get rid of the debt. Now you’ve transposed who has the debt. It’s not the third parties anymore. It’s now with a party that you co-own. You co-own the lender. And now you get to pay that debt off from them. And every dollar you pay back to them is a dollar that’s accessible for you to use again for some future purpose in your life. Whereas if you pay off the home mortgage, well now all the money’s trapped in there. You know, there used to be this commercial on TV. It was big in Canada a long time ago, Dave. It was these two little kids and they were walking around the house at night and they had flashlights. And the one little, they were in their pajamas and the one little boy says to the other one. says, what are we looking for equity? Dad said it’s in the walls. Okay. And then, so they’re, you know, they’re walking around, it’s a banking commercial, but well, if you want to access the equity in your property, I don’t care if it’s, you know, a house or rental house or multifamily property, commercial property. I don’t care if you want to access the equity, you got to go and access someone else’s pool of money to do that, or you have to sell the property. Well, if you sell the property, Now you give up the future potential of what that property can do for you. You’re making an opportunity cost decision. So only two ways to liberate equity is collateralization or you got to, you got to sell the asset. That’s it. There’s no, there’s no other option. So you’re always dealing with someone else’s pile of money. Well, if you’re dealing with the insurance company’s pile of money, but you co-own them and you get to share in all their profits and you have all the control of dictating the terms of when and how you reallocate money back to it based on your real estate deal or whatever deal you’ve got going on. You just have total and absolute control. See, Nelson Nash said that when you classify things properly, everything becomes very simple. And the problem is, specifically in the insurance industry, they’ve done a really poor job of classification. They never should have called it whole life insurance. What they should have called it was a personal monetary system with a death benefit on the side for good measure. But that would be a really long, silly, we need some kind of an acronym or, you know, better way to describe it. But that’s ultimately what you have. And then if you understand how to use it, the, you can have, if we had two cars that came off the assembly line, you and I, we each had the exact same car. Now we talked about Colby’s before we hit the record button. We have different Colby scores, okay? I can tell you for sure, I’m probably gonna get a lot more speeding tickets than you. And I’m probably gonna drive the car a little harder than you. I’m just gonna take a wild stab, but that’s most likely gonna be the case. Now, if we had two exact cars off the assembly line, and then five years later, we had a mechanic go and look at those cars and they assessed You know what it looks like on the outside, what the engine looks like, the braking system, the rust, all that stuff. We’re going to have two very, very different cars. But the day they came off the assembly line, they were the same. Would you agree?
Dave:
Yes.
Richard Canfield:
So the car didn’t do anything different. The only thing that was different was what?
Dave:
way we drove it.
Richard Canfield:
the way we drove it. It was 100% based on our behavior. So whether or not you get success in who controls the banking aspect of your life, which is happening now, someone is performing the function of banking in your life. Always. It can be you, but for most of society, it just isn’t. So whoever is the operator and the behavior of that person will dictate the success that they have. And that’s where good education, good podcasts, good training and coaching go a really long.
Dave:
Yeah, so how do you quantify that Richard, right? I think a lot of people are always looking, you know, we’re used to looking at yields, right? On different investment vehicles, whatever they be. So we’re always kind of thinking about what’s the ROI, what’s the yield, right? And since this is a little bit elusive, how are you able to really calculate that value, you know, from a quantifiable standpoint?
Richard Canfield:
I think that’s an amazing question. And I think what that question really matters the most is with the individual getting clear on what they value. So if you don’t have a measuring stick for what you personally value now, then it’s hard to quantify everything. It’s easy to quantify something on a spreadsheet. But spreadsheets can lie to you just as much as they can tell the truth, because it depends on what numbers you feed it. And then it depends on your interpretation of the numbers. So the numbers themselves don’t lie. but how you view the numbers could potentially lie to you. Does that make any sense?
Dave:
Yeah,
Richard Canfield:
If
Dave:
yeah,
Richard Canfield:
you and
Dave:
perfect
Richard Canfield:
I were looking
Dave:
sense.
Richard Canfield:
at the exact same spreadsheet, we never seen it before, is my vantage point, my look at that spreadsheet, and yours gonna be a little bit different, even though the numbers are identical.
Dave:
Yeah.
Richard Canfield:
And we’d have to talk through it to determine what are we actually looking at? And then
Dave:
Yeah.
Richard Canfield:
if we ran that through a filter of what we value, now you can quantify what it really means to you. So, what’s the difference between a
Dave:
Yeah, okay. So I’ve got two additional questions as a breakdown of that. But the first one being, you know, talk to me about opportunity cost, right? So, you know, you talked about putting money in here. We know that there’s a certain portion of that that actually goes against your premium. What on average should, you know, people be estimating from that standpoint?
Richard Canfield:
Uh, okay. So yeah, opportunity costs and then, you know, kind of like how much to put into premium. I think it’s kind of two separate questions there. So I’m going to talk about opportunity cost. Opportunity cost shows up to us in a lot of different ways, specifically if you’re a real estate investor, you’re an investor, you’re looking at that and a business owner looks at it differently, I think than the rest of society. But just fundamentally looking at your, at your capital, you’re going to take, let’s just say you’re going to take, um, $5,000 and put it towards a family vacation. Well, as soon as that money goes, you use your visa and then you pay off the visa, okay? So the $5,000 is gone and you get the memories of the family vacation. So the opportunity cost of not going on vacation is you don’t get the memories. So that’s one of the opportunity costs. Financially though, that $5,000, well, if you’re 40 years old and you’re gonna live until 90, well, you’ve got 50 years of future earning potential on that $5,000, don’t you? And… Let’s if we just use a very simple amount, you know, I don’t have a future value calculator on me But let’s just say was at 4% roughly just to keep it super simple Well, you’re probably looking at about a 25 to 30 thousand dollar decision So that means that five thousand dollar vacation today is actually worth Let’s say five times that amount in your future and it’s a matter of whether or not you were able to contain the money So if you have a containment facility for the money that is in constant motion and always growing for you, you can harness and capture that spending powers opportunity costs in a way that you could never do before. So that’s one way that, again, isolating IBC, you know, infinite banking concept, versus say an investment are different because investments, first of all, Nelson Nash’s definition of investment was something you know a great deal about. Anything else is speculation. Most people call the investments that we do today, they’re investment products. That doesn’t mean they’re an investment for you. What it means is it’s something you can invest in, but you’re actually speculating on the end result. Whereas if you’re well-trained and educated in a niche area and you’re highly knowledgeable about that, now you can make a fundamental good decision that is an actual investment. So that’s the big kind of defining factor. So if you’re gonna access money for a $50,000, you know, private mortgage or $50,000 and piece of investment real estate, well, the money’s gotta come from somewhere. And if it comes from your cash, well, now you’re making a decision that you can only do one job with that 50 grand. You can buy that investment property. But once it’s in that property, now you can’t really get it back out again to go do the next thing. It’s tied to that asset. Whereas if you were able to get the money into, let’s say a well-designed policy first, and then you could access the exact same $50,000 from the insurance company’s money, OPM, Well, now you’ve got money working in two places, in the insurance contract, constant motion for the rest of time, and you got the exact same investment deal. So now you can do two things at once effectively, and you also have a massive amount of protection, tax-free, wrapped around the whole environment, which you otherwise wouldn’t have in the first example. So that, it goes to control, it goes to opportunity costs, and it goes to the utilization of efficiency of your money. IBC is more about efficiency than it is about investing. Investing is something everyone should be looking at doing, but not unless they’re knowledgeable about that, which they are doing.
Dave:
Yeah, I think some people get mixed up too and think it’s maybe one versus the other, right? But the idea here, what you said, which is so powerful is that you’re actually taking the same dollar and using it twice, right? And if you follow the ultra wealthy and what they do so well is, you know, it’s all about creating multipliers, right? With your money and it’s doing multiple things. And you’ve already talked about probably a dozen different things that I, you know, I could I can talk about here, like the creating legacy wealth, creating tax-free growth, creating a tax-free income stream and retirement, having the power of liquidity, just to name a few. So when you encapsulate all of those and then think about the value of that, and then to your point earlier, how does that really align with what’s most important to you? I think that’s how you can place the value on it, which is powerful.
Richard Canfield:
I’d love to share something that you highlighted on about that legacy piece. I can tell you a quick story about something that
Dave:
Yeah.
Richard Canfield:
actually happened last night. So last night I had one of the most epic conversations with my wife. We’ve had a long time. It was just phenomenal. We actually talked about maybe launching a podcast together, which is kind of cool. But we were putting the kids down. So my kids are five and seven and they both had a karate belt test and got a new karate belt last day, which is great. And so my wife is putting my son down. Later we were talking about it and somehow the question came up about, why is our family awesome or whatever? And my son started talking about, well, you know, there’s a lot of reasons why we’re awesome. And, you know, it’s because of you and this and hey, we, you know, you’re able to stay at home and dad works from home and we have, you know, we’re able to go on vacations and do these things. And a lot of that’s because of the family banking system. So we’re late at night and my son’s volunteering this information to my wife. So let me talk to you about the fundamentals of legacy and thinking differently and how we approach things. Now I know you have triplets. I know you’ve got a number of kids and you’re probably gonna be getting into grandkids. zone pretty quick. So we can have a whole fun conversation. I’m sure about that. But, but when it comes to legacy, so I started teaching my kids, you know, as soon as my daughter was about two and a half, I have found an opportunity in a storybook. I was reading her at bedtime to start talking and introducing the idea of the family banking system, the family piggy bank. And so now when we go on vacation, we have a family banking meeting. Now my kids are still five and seven. So it’s not like we take like 25, 30 minutes to keep their attention. They get a treat. All right. This last family banking meeting, we talked about passive income. We talked about books and how the books that daddy’s been writing, they’re going to create a long-term passive income. And we talked about active income. And so when I’m standing in front of a computer screen in my office and there’s you know, a camera on that doesn’t look very active. Whereas when my wife is building a cool art piece out of wood in the garage and that she sells and someone comes and brings physical money to the door, the kids can recognize activity level that produced a result. Does that make sense? So
Dave:
Yes.
Richard Canfield:
the visual connection of that. So we talk about active versus passive income. And we talked about the family banking system. So anytime that we go do something fun, we go out for dinner, we go and the kids get to do a cool experience. We go on family vacation. We, I always bring it back. I said, so kids, why is it we’re able to do things like this again? And they said, they both go, because of the family piggy bank or the family bank. Oh, awesome. High five, high five, you know, big hugs. And it’s like, what do we have to make sure we do? We have to put the money back in dad. Oh great, why do we have to put it back in kids? So we can use it again later. Now do my kids know about
Dave:
Love it.
Richard Canfield:
what a bank is? Do they know what an insurance contract is? Do they know what an investment is and do they care about any of that stuff? The answer is no. What they recognize is that we get to do fun things. It all comes from a reservoir, a warehouse, the money pool, our money pool. When we access from the money pool, okay, we drain some of the water out. we have to put the hose back in and refill the pool. It’s that simple. And we’re operating in an aquarium, and so nothing that we work with financially leaves the aquarium, but the aquarium keeps expanding in size. That’s what infinite banking is all about. That’s what family banking is all about and the legacy you can create. So the stories we tell, the words that we use, how we show up in our conversations around money in the household, in the family, whether your kids are gone and left, or you got grandkids. The way that we show up there is gonna be the defining factor to the success of the generations that follow you. And we all have an opportunity to show up differently there, I believe. And I think, in my opinion, Nelson’s concept automatically bridges some of those gaps with people, if they can start to change the way they communicate and think. Last piece of this story is right here. Imagine for a moment, you have 45 pieces of rental properties. I don’t care if they’re buildings, 45 doors and two buildings are… 45 single family houses, I don’t care. You get 45 of them. They’re all fully paid for. They’re all producing an annual cashflow and they have guaranteed market appreciation regardless of what goes on in the market or the next presidential election. You with me so far? Okay, now you’ve aged up a little bit. It’s your time for graduation. You’re no longer with us. 17 of those properties that were all fully paid for automatically sell. the moment you die, for 100% of their highest value, their highest appraised value ever, there’s no real estate fees, there’s no closing costs, there’s no estate taxes, there’s no capital gains tax. 100% tax-free goes to the family, and a check is cut, you don’t have to worry about listing the properties. You with me so far? Now, you have 28 properties that are still fully paid for. In… Available still producing a cash flow that the family inherits with no tax consequence. How do you like my real estate deal so far? You
Dave:
Pretty solid.
Richard Canfield:
you you want to know who created that his name was nelson nash He wrote this amazing book called becoming your own banker nelson had 45 whole life insurance policies that he owned He actually had 49 at one time. He gave a couple away And he he was operating on his great grandchildren when he passed away at 88 So he had every member of the family including himself and his wife mary So when Nelson passed away, 17 tax-free death benefit checks were paid. 40 or 28 of those policies, which are property, it’s the property in the way of contract versus in the way of physical real estate, but it’s still property transferred 100% tax-free to his family members. And all of those are still producing and growing cash every single day. They’re all seasoned and they will all produce a tax-free estate value on somebody’s life. Some of those things probably are almost a hundred years out before they’ll even materialize in that format, which means Nelson created four generations, four generations of nonstop capital accumulation for his family, all because of the way he thought, not because of the product he used and not because of the investments he did, because he controlled the banking function and he thought about things different.
Dave:
Well, such a great example. I want to ask you another question, Richard, that I think a lot of people struggle with on this topic, if they want to actually proceed. It can be challenging to figure out, you know, what do I figure out in terms of my premiums? Right? What what is that size of the bucket that I want to create? And there’s lots of different ways to look at it. So love to get your thoughts on that.
Richard Canfield:
Yeah, this is a super good question. So I mean, there’s, there’s number one, I mean, everyone said for the longest time, and you know, you go back to some of these well written books, and, you know, the richest man in Babylon, etc, is that you should be saving or, or setting aside 10% of your gross income. Okay, well, so if first of all, if you’ve been able to do that, you’re ahead of the game, then most people because a lot of people just aren’t doing that. Okay, so congratulations to you. So But why would you stop at 10%? So you could start at 10%, but there’s no reason you can’t incrementally increase that. All right, so set a good goal, set a good target. If you don’t have a good goal and a target, I can tell you you’re not going anywhere. You know, you plug in an address in the Google GPS there, it takes you where you wanna go and it even reroutes you if there’s an accident on the road. Well, that’s your life and that’s your financial life. If you don’t have a goal and a target, you ain’t getting there, all right? You need to put some effort into that first. But I would say at minimum, a person should be planning on 10% of their gross household income. And that’s a great starting point. If you can’t get there, well then do what you can. Here’s the key thing though. What we find when we meet with people, and I’m sure you discover this all the time, Dave, when you meet with people and you get to dump out their financial junk drawer and sort through the mess that they’ve created in their life, which everyone has a bit of a mess, you can see things that other people can’t see, but it’s always been there for them. You can see how they’re spending money on this junk mortgage insurance, how they’re spending money on that, how they’re… spending a bunch of things monthly that could be annual and automatically could save them 10% in like seven areas of their life. And that’s all freed up cashflow that can go back into a system. They’re sending money to all of these miscellaneous savings buckets for an education fund, for a vacation fund, for the home repair fund, for the, you know, you got escrow for your rental properties, where you’re putting for future property tax and for insurance payments and for your repair and maintenance fund. your vacancy allowance, all that stuff is building up in the account, but it’s just sitting there wasted dollars that’s not being very efficient for you. So if we take a look at all these buckets of inefficiencies and we were able to pool them strategically or to strategize as I like to say, then you can put yourself in a position where you can reallocate the existing dollars to create a maximum level impact in your family’s life. And so even though you might only be able to do 10% when you get together with a good coach. we might find another five or another 10% and we can help put that to work for you because it’s flexible. And if it’s flexible, it gives you breathing room to allow you to make good decisions. You know, ad hoc, we all had these random things, tax refund, an inheritance, you sell a property, you do a rental flip, you do, um, you know, you have an investment payout, like there’s different things that happen. You get, you get money for your birthday. Like all these different little events happen if you have a place, a dedicated warehouse, to shove that when it happens strategically that’s optimized for your life, everything begins to change, but it all starts with one step. So I personally think 10% of gross income, household income is a good starting block, but people should actually be targeting something closer to 25% because you’re gonna be borrowing and using that money back into your life. So your ability to get more in is actually higher than most people can understand, but until you experience it, you won’t know. Next piece of this is I asked Nelson Nash several times in conversations with him. I said, Nelson, how did you know when it was time to start a new policy? How did you know it was time to grow your system? And he would say, uh, Richard, as soon as my feeble brain could envision doing so. And that was it. And his
Dave:
Well.
Richard Canfield:
answer was laser consistent every single
Dave:
every
Richard Canfield:
time,
Dave:
time.
Richard Canfield:
which which means your behavior. What’s in between your heirs is the only limiting factor to what’s possible to you. That’s basically the summation of Nelson’s 88 years of wisdom around
Dave:
Yeah.
Richard Canfield:
that aspect.
Dave:
Yeah. Awesome. Love it, Richard. Let’s transition a little bit for a second to the personal development side. I know you’re a huge proponent of that yourself. So if you could give the audience just one piece of advice on what practice has yielded the most results for you, what would that be?
Richard Canfield:
Well, I mean, we kind of talked about it a little bit before we hit the record button. And that’s, that’s the Colby A index. I’m a big fan of Colby. And when I say practice, what I mean by that is the Colby index teaches you about your innate instinctual way of getting things accomplished in the world. How do you actually do every day you do things? How do you go about the doing instinctually? You might inherently know some of them, but when you can be detached from that and you can read it to recognize key areas, it really fundamentally helps you think about how you can operate more effectively and efficiently in the world. And today I was having a conversation with my wife about Colby and I actually have a binder. I’m gonna be printing off a lot of that stuff and we’re gonna be starting to introduce our children to some of these types of concepts because they have colored bars, so it’s visually appealing for the kids and it’s gonna create some fun discussions in the household, I really think. And my wife and… I, my Colby are fairly different. She’s a mediator, but we have also some key similarities. And so when we recognize certain like tension or whatever comes up, well, sometimes we can just pull out this binder and we could flip through. It’s like, oh yeah, here we go. This is, this is, this is where I went wrong. I see I’m, I’m doing something in this area that really makes it difficult for you. So, so it’s really helpful tool. And what Colby really did for me is it helped me understand that I was perfectly all right. And that everything that I was doing was doing it. the way it was supposed to be done. Where the world was telling me I was out of place, I was doing things wrong, like why can’t you just do this? Why can’t you just do that? And I got all these like, okay, well, like, is there something wrong with me? Like, why is it that I can’t do it the way that you’re doing it? Well, it’s because I’m not built to do it that way. That’s why. And in fact, if I do it my way, I always get better results. And in fact, my results often outpace your results because I get more done at a faster pace simply because of the way that I’m built. And even though I might, you know, I might start a hundred projects. and I might only get 25 of them done, but where I started 100 and I got 80 of them to 50% and I got 25 of them done to 100%, someone else only started 10 projects. So there’s nothing wrong with either method and there’s nothing wrong with you. But what could be erasing with you is if you understand what’s perfectly right with you and you can amplify that as a game-changing tool in your life, Colby’s done that for me.
Dave:
Yeah. Love it, Richard. I think unique ability is definitely one of the things that’s up there. That’s one of the top things that you could really learn about yourself. And it’s been great to introduce that to our kids. If listeners are interested, we actually had Julia Waller on the show, we talked about unique ability and we got deep into the Colby test. So go back and check out that episode, which is really awesome. And I know it’s been amazing creating a team. that also works in harmony with unique ability, as well as with our family too. And as our kids kind of grow up, having that understanding of a unique ability, I think I love the word harmony, right? It
Richard Canfield:
Hmm.
Dave:
just creates so much more harmony in the household versus having friction to say, someone’s just wired a certain way and they wanna do it a certain way. And I’ve actually gone also on a couple’s workshop. with my wife and we were able to work through each of our Colby scores. And we’re just so much more congruent and understanding because of those things. And I only wish I knew that 25 years ago. So
Richard Canfield:
Right.
Dave:
thanks for sharing that, Richard. Really awesome. And really appreciate you coming on the show today, providing so much value for everyone, so much wisdom and insights. Nelson and from your own journey. I think it’s really, really powerful. And if people would like to connect with you, learn more, what is the best place?
Richard Canfield:
Well, you know, what I’d love to do is offer everyone a copy, a free digital download of our most recent book. We’re launching another one here shortly, but our second book, Cash Follows the Leader is available. It’s, it’s a nice, quick, easy read. It’s got some great pictures and images in it and then go to cash follows.com. That’s cash follows.com and they can go ahead and grab that. A ton of great resources in there. And, you know, I’m pretty easy to get ahold of as far as that’s concerned. You know, you can also go to our podcast wealth without Bay street. We’re on YouTube, we’re on the YouTubes at wealthwithoutbasedreet.com forward slash YouTube nice and simple and You know one last thing I would really recommend people do Dave if you don’t mind is you know Nelson Everything I do and all the good in my life almost all of it has stemmed somehow from getting to know and meet Nelson Nash So I really want to share what what I think that ripple effect can do for other people and there’s a great Documentary film that we commissioned on Nelson Nash. It’s called. This is Nelson Nash the creator of the infinite banking concept And you can go to nelsonnashfilm.com. It’s one hour, one hour well spent. If you wanna get connected to the idea of money and talking about money in the household with your spouse, it’s a great thing to sit and watch together, cast it onto the smart TV from YouTube and you go to that website and you’re really gonna learn a ton and get to understand the impact of what this type of thinking can really do for your family over an extended period of time.
Dave:
Awesome. Thanks so much, Richard. Really appreciate it.
Richard Canfield:
Thank you, Dave.
Hey everyone, welcome to today’s show on wealth strategy secrets. Today we’re joined by a special guest, Rich Fetke. Rich has a passion for helping people improve their businesses, grow their wealth and live more fulfilling lives. He is the author of the wise investor, extreme success and the audio program momentum. Rich is also a co-founder of real wealth. Since 2003, the company has helped over 60,000 members improve their financial intelligence and acquire cash flowing income properties. so they can live life on their own terms. As a licensed real estate broker and an active investor, Rich was selected as a Rich Dad author for his expertise as a wealth mindset expert. A pioneer in the field of business and personal coaching, Rich is past president of the Professional and Personal Coaches Association, and his work has been featured in numerous tier one media outlets. He’s also the former owner of a large health club franchise. and has over 35 years experience in business startups, management and training. And as an adventure athlete, Rich has competed in the ESPN X Games and is a record holding budgie jumper, licensed skydiver, experienced rock climber, lifetime skier, addicted server, surfer, and wait for it, a really lame distance runner, enjoys working and playing in Malibu, California with his wife, Kathy and their two daughters. Rich. Welcome to the show.
Rich Fettke:
Thank you. Really good to be here. Looking forward to this.
Dave:
Yeah, no, I’ve really been looking forward to this, Rich. Um, like I mentioned, you know, we are definitely kindred spirits, I think, on
Rich Fettke:
Mm-hmm.
Dave:
uh, our outlook in the world and, and wealth building and what that really means. So I think listeners are in for a real treat today. Um, and just, I mean, just to, you know, unpack, uh, your bio a little bit. Um, I mean, you can easily see, right, the sense of adventure that you bring, you know, not only in, in sports, but you know, how you approach life, right, and business, and with real estate investing. So, so why don’t you tell the audience who might not be familiar with you and your story. I know it’s, it’s quite a fascinating journey that you’ve had. But if you can help the audience just learn a little bit more about your back.
Rich Fettke:
Sure, absolutely. Yeah, adventure is definitely a big part of my life. It’s really important both in business and physically and all this, I think it’s an adrenaline addiction, positive one, I hope. But yeah, I mean, if I go way back, what started it all for me in getting into this adventure and focus and business and growth and all that was I was bullied in high school. This kid kept beating me up every day in junior year. And so that summer I decided to put on some muscle. I started to lift weights and took martial arts and that just really changed things for me. I was diagnosed learning disabled when I was eight years old. I was diagnosed as hyperkinetic disorder, which today they call ADHD. But for that, it was like I had the self belief or no self belief really, because I kept getting these reports about lacks what it takes to succeed and all these things and put in these special classes. So. The weightlifting and this kid bullying me and everything just completely transformed things for me. All of a sudden I started to get bigger and stronger, but more than anything I learned about self-discipline. And until then I didn’t have much self-discipline. I was pretty much all over the place and that started me on this path of goal setting and growth and getting better and everything. So all that took me down this path of opening that health club that you mentioned when I was 23 years old, I sold that successfully after seven years. moved to California, met my incredible wife, Kathy. And then we, uh, then I started, uh, I got certified as a business and personal coach. So I was coaching people on business and growth and that’s what my degree in college was, uh, entrepreneurship and business. So I took all that and was coaching clients and honestly, it was going great. I got to sign a book deal with Simon and Schuster. I was giving keynote speeches. I was on top of my game. And then I was diagnosed with melanoma. which is not too bad really. It’s a skin cancer. It’s the most advanced form of skin cancer, but they thought it had spread to my liver because they did a CT scan and it showed four masses on my liver. And then the doctor said, this is not good. I want you to get a ultrasound and see what’s going on. And that showed four masses. So I ended up meeting with an oncologist and I said, what does this mean? And he said, it basically, it looks like you got about six months to live. So I was 37 years old, Kathy and I had two daughters. We had a 10 year old, a three year old, and it just rocked our world. It rocked Kathy’s world in a big way because she was a stay at home mom. I had to find a way, or she had to find a way to make ends meet if I died, and I had to find a way to heal this. Thankfully, the doctor’s diagnosis was wrong. It was a, just hemangioma, clusters of blood vessels that a lot of us have, it’s harmless, but. the connection of the melanoma and these scans and everything. It wasn’t until I got a PET scan, which is the most advanced form of cancer scanning that I was basically diagnosed cancer free. So we were celebrating, but in that whole process, Kathy was basically it took three months before we knew if I was going to live or not. And after three months and I got that PET scan, but in that three month period, Kathy’s like, what am I going to do? And she decided to really seek out mentors to find out what she could do to make an income. And she found out that most of these people were successful through real estate. They made most of their wealth through real estate investing. So that’s what turned us on to real estate. Once I was, had my surgeries to remove the melanoma and we had that good, positive diagnosis, then.
Dave:
Hmm.
Rich Fettke:
We started to invest and we basically we took, we did a cash out refi on our home up in the San Francisco Bay area. And we went to a little town north of Dallas called Rockwall, Texas. We ended up buying five investment properties there. And so that is what kind of led us on this path of real estate investing, which has been a great path that was over 20 years ago now. And we honestly, we had friends and family saying, how are you doing this? How are you living in San Francisco? and investing in Texas and all that. So we just decided to form a little group of friends and family and try to support people and show them how we did it and invest with them. And that little group that we called Real Wealth is now over has 70,000 members today.
Dave:
Wow.
Rich Fettke:
So that’s the company that we’ve developed now. It’s called Real Wealth, as you mentioned, and it’s been a blessing really. So that curse of the diagnosis has really turned into a blessing in so many ways.
Dave:
Wow, it’s such a powerful story, Rich. And I talk about this actually in my book as well, is that we hear really moving stories like that, right? That
Rich Fettke:
Hmm
Dave:
got you to the point where you had to just really rethink everything in your life, right? And be forced
Rich Fettke:
Yeah.
Dave:
to prioritize. I mean, literally in a six month window to prioritize everything that’s really meaningful in your life, right? So instead, I always encourage people to not wait for that moment, right? Of the chronic illness, the loss of a loved one, to be able to make that massive shift in your life if you’re not happy. Take
Rich Fettke:
percent.
Dave:
it now while you don’t have the pressure. It takes a lot of courage, right? But just go for it now and don’t wait for one of those events to happen.
Rich Fettke:
It’s a huge principle of my coaching and you know, I was continued to coach clients. I don’t coach as many clients now. I only work with three clients at a time, but it’s a huge focus of my coaching is the whole, as the Stoics called it, you know, memento mori, you know, knowing that you’re going to die, remember that you are going to die and that could be in six months, it could be tomorrow or it could be in 50 years, but it doesn’t matter. It’s like, yeah, how can you live fully and be your best self today and live your best life? It’s huge. It’s my driving force.
Dave:
Yeah, that’s awesome, Rich. So tell us a little bit about, you know, your philosophy on wealth. And I find this topic so fascinating, really, it’s really kind of the psychology of money and wealth. And I think oftentimes, you know, whether it’s the media, or, you know, culture, right, we get caught up in, you know, making more money, doing more things, right, but but we lose sight of what does it really mean? And, you know, I love in your book how you talk about real wealth and what that really means. And, and clearly you’ve got some amazing experiences to shape that. So, so help us understand, you know, your definition of real wealth.
Rich Fettke:
I mean, it really came from that diagnosis and going through three months of not knowing if I was gonna be alive and looking at my daughters, thinking, wow, am I never gonna see them get married or meet my grandchildren and all that stuff. So that is what has driven Kathy and me. And that’s why we called our company Real Wealth, because it’s not just about money. It’s about having the money and the freedom to live life on your own terms. It’s being able to be with your family. And also what… One thing we noticed and why it’s such a big purpose for us is when people don’t have those money stresses, they’re better humans, they’re better parents. They just show up better. They’re better spouses because they’re not stressed out. They feel more abundance in their lives. So money is huge. It’s a huge part of it, but it’s like, what do you do with that money and how can you have that money create more freedom of time? And so you can really live and show up the way you want to live. So it’s, it’s huge. It’s been with us since the beginning. You know, when we formed this company 20 years ago, that’s what we set out to do. It was our purpose is help people create real wealth. And now we even measure it. We track it because it’s our mission. We want to we want to help a thousand people declare that they have fully experienced real wealth. So we created this real wealth assessment that is like 20 questions that people can fill out to see where they are. And most people in the beginning, they they score like a 50 or 60. But over time with putting things in the right place and investing and getting the right team in place and all these things, all of a sudden their score starts to go up and up over time. And then that really, you know, that just, that fires us up. Our whole team gets all fired up when we see someone pass an 80 as a score is kind of our, our litmus test. When someone passes 80 on that real well score, we’re like, okay, we’re doing our work. It’s happening.
Dave:
Yeah,
Rich Fettke:
It’s working.
Dave:
yeah,
Rich Fettke:
That’s huge.
Dave:
yeah, that’s awesome. Yeah, because it’s really about a process, right? It’s
Rich Fettke:
Mm-hmm.
Dave:
not necessarily the outcome. And I also find it really interesting is that when you can get crystal clear on what your vision is and where you’re going, some things that drive fulfillment and freedom in your life actually don’t even require money, right? It might be just taking a different approach, different mindset, maybe having the time to do something. Right?
Rich Fettke:
Mm-hmm.
Dave:
So there’s so much more to it than just, you know, we also think about as, you know, the numbers in our bank account or, you know, our balance sheet.
Rich Fettke:
Yeah, it’s and that’s the biggest challenge that I’ve seen. The biggest problem is lack of clarity when I work with a new client or even when we interview the members of real wealth. It’s a lack of clarity about where do they really want to go? Where do they want to be in 10 years and 20 years? Where do they want to be by the end of their life? When I work with my clients, a lot of times I have them write their own eulogy. Like
Dave:
Hmm.
Rich Fettke:
basically to look at what
Dave:
Yeah.
Rich Fettke:
would you want people to say about you at your funeral? And it’s such a. powerful exercise that brings up tears and and butterflies and all this stuff. But so often we don’t stop. Most people don’t stop to really look deeply at where do they want to be. Even they think about maybe the year goals or they have an idea of where they want to be in 10 years. But really, I think it really starts on taking that big picture and really getting crystal clear on who do you want to be? What do you want your life to look like? All those things. That’s number one.
Dave:
Why do you think that is, Rich? What’s really holding people back?
Rich Fettke:
I think it’s busyness. Honestly, I think we get so busy and we like, we have our kids and our jobs and so many things coming at us that it creates an overwhelm. It’s like, I think we all have a little bit of ADD, right? Because of today’s society and so much coming at us that we often don’t feel we have the time to stop and really ask ourselves those questions. That’s why I wove that into the book of the wise investor where the, the mentor takes Ryan, the protagonist through this. process of meeting his future self, meeting himself in the future. And I’ve done that with clients for the last 25 years. And it’s always just, man, it’s, I love that exercise, you know, looking, meeting myself in the future and looking at, you know, asking him some questions and seeing how he lives. And so it’s, it’s having some tools and a process to clarify that vision of where you really want to go, who you want to be.
Dave:
Yeah.
Rich Fettke:
That’s it.
Dave:
Yeah. So we focus a lot on actually creating a, what we call the holistic wealth strategy, right? Which is building
Rich Fettke:
Hmm.
Dave:
a process and a plan for how you’re going to build wealth. Do you have, do you have a particular wealth strategy or an approach that, you know, you and Cathy are following or that you work with your clients on?
Rich Fettke:
Absolutely. I mean, what we decided and we got clear on is we are experts in single family, like one to four units. We syndicate as well as a company and we do residential developments. Honestly, we usually build single family homes and all that. There’s a lot of great other ways to invest in real estate, but we picked our lane and we just focused on becoming experts in it. So our whole model and what we attract, what we help our members do. is investing in single family one to four, putting together a portfolio of cash flowing properties, it’s going to benefit them with the tax benefits, all that, and the depreciation and the growth of that and the wealth building and everything. So it’s worked really well for us with Kathy and me. And honestly, it’s really worked really well for our members who just kind of follow the process. So it’s like I think in real estate, there’s so many ways to invest and there’s so many ways to. create wealth and cash flow and all. I think the most important thing you do is really pick your lane, choose what is it that you’re most interested in, and like look at all of it and then come back and say, okay, what am I gonna really focus on? And that’s what we did. And that’s what we help our members do.
Dave:
Yeah, for sure. Are there any other components to that around mindset and, you know, with your coaching background and everything and the other components outside of just, you know, the physical investing perspective?
Rich Fettke:
I mean the discipline piece, you know,
Dave:
Yeah, yep.
Rich Fettke:
you know, before we started the show today, you and I were talking about discipline and the importance of it and how powerful that is. So it’s really the, it’s the clarity of where do you really want to go? And so many people come and even like, you know, there’s so many people who look at it like, just give me the tools. What do we need to do? What should it, where should I invest in? What should I invest in? But they don’t step back and take the bigger picture. They don’t look at the bigger picture. So that’s, passionate about that is like, wait a minute, stop, let’s come back. And this is Kathy’s also certified coach. She got certified way back in 1996 when I did. So that’s what we’ve woven into the fabric of our company is drawing out from our clients and our members. What is it that you really want and how can you set up a strategic plan with the goals and milestones? So you know that you’re on track. So I think that’s a huge part of it. And really looking at. first laying out the plan, but then looking at how do you stick to the plan? I think that’s
Dave:
Yeah.
Rich Fettke:
where most people drop the ball. They come up
Dave:
Yeah.
Rich Fettke:
with this great plan, no matter who helps them create it, but then it’s following through on it. That’s I think the sticking point.
Dave:
Yeah. Yeah. I really believe that having a strategy is just absolutely paramount, you know, and if you look at, you know, the ultra wealthy and family offices and how they’re allocating capital, I mean, they have a very distinctive strategy, you know, they’re, they’re allocating capital on a 25 year horizon, you know, they’re not making short-term decisions. And I think it really helps to balance some of the things like, you know, the emotions that come into investing. right, that can kind of take
Rich Fettke:
Hmm.
Dave:
you out of your lane, right, when there are certain highs or certain lows, like, you know, right now there’s so much going on in the marketplace that might cause you to, you know, make kind of a short sighted decision, you know, based on fear or something that’s happening. But if you have a strategy in place, you know, then you can really, it gives you something to, you know, kind of rally to.
Rich Fettke:
I love that. I love that. That’s exactly it. And it’s having those things in place too, as far as a something to take the emotion out of it. Right. And just having that strategy helps take the emotion out of it. When you, when things get emotional, but you say, wait a minute, what’s my plan? Having your personal financial statement in place. So you know exactly where your net worth is, what your monthly cashflow is, having a very clear spending plan or budget in place that you’re checking in on a regular basis, at least once a month. having a bookkeeper that’s keeping up to date and all that. So that’s what Kathy and I have is a bookkeeper who’s constantly each month sends us reports on all these things. We’ve kind of got it dialed in and it’s a whole report on our properties and our portfolio and how each property is doing. It’s a report on the net worth and everything all the way down. There’s some key KPIs, if you will, those key performance indicators on
Dave:
Sure.
Rich Fettke:
how we’re doing as investors.
Dave:
Yeah, excellent. And where do you think the market is today with respect to single family, right? I mean, there’s again, so much going on, right? I mean, six month, one of the most historic rises in interest rates that we’ve had. We’ve had some of the banking failures recently. And I know, you know, real estate is very specific too, right?
Rich Fettke:
It is.
Dave:
I’m sure it’s different in California and Florida. So what are you really seeing and advising investors for 2023, right?
Rich Fettke:
I mean, right now we’re really grateful that we’re in single family. Really
Dave:
Mm.
Rich Fettke:
grateful. I have a lot of friends who are in multifamily and they’re challenged with the short-term loans and the, um, you know, floating debt and all this stuff. It’s like, it’s definitely creating some huge challenges there. I feel for them and I’m, I’m worried for some of them. Some of them got really smart and locked in some rates for the long till I have some friends who locked in debt until 2029, which I think was a really smart move. But with single family, you know, it’s it’s not getting hit. It’s there’s still a lack of inventory of single family properties. It’s still growing in some markets. Yeah, some markets absolutely going down, especially here in California. We’ve seen some some pretty solid drops. But in the where we invest is mostly mostly in the south and the southwest. I mean, southeast, I’m sorry. And like Florida, we have a single family fund that. is all investing in north of Dallas, where the whole chip manufacturing is happening. Tons of businesses moving there, tons of people moving there. The price of property is still increasing. Rents are increasing. So, you know, I think right now, single families strong and looks really good going into the future if you’re in the right market.
Dave:
Hmm. Yeah, interesting. And are you have you been participating at all in the latest trend around build to rent?
Rich Fettke:
Oh yeah, absolutely. Not like a full bill to rent community. We kind of steer away from that just because, um, what we’ve seen in the past with bill to rent communities is sometimes the, because it’s not owner based when there’s not enough owners there, people don’t often take as good care of the properties. So if a built rent community can really work, if you have one management company that’s managing the whole community, then everything’s good and they keep up with the upkeep and they make sure that people aren’t parking cars on the lawns and all that type of stuff. But we’ve done a lot of build to rent properties that our investors have purchased. So we, basically the way we work is we have brokers that we have relationships with around the country in these emerging markets. And then basically they have a lot of, you know, build to rent or their rehab, single family properties. But there was a huge shift because all those foreclosures pretty much got all gobbled up by all the flippers and all the, and you know, the, um, turnkey property providers that we shifted to a lot of kind of that built to rent, not a community, but a built to rent model. And it’s been awesome, you know, because they’re new properties, they come with builder warranties, and you don’t have to worry about them. Sometimes these turnkey properties are built back in the fifties or the forties. They can kind of come with their challenges, you know, even, even if it’s been fully rehab down the road. So Cathy and I, as as investors personally, we really focus on a new builds now for our our portfolio.
Dave:
Okay, yeah, that was my next question is, you know, tell us a little bit about the business model at Real Wealth, right? If you guys aren’t doing turnkey, I mean, how does it really work?
Rich Fettke:
Yeah, you know, 20 years ago we were referring to agents and brokers just who had new builds. It’s funny how
Dave:
Mm-hmm.
Rich Fettke:
things change, you know, that everything comes around. And but it was a little different back then. People could put no money down and they were doing these NINA loans, you know, no income, no assets. And people could just get any type of loan back in 2003, 2000, up to 2008 or up to 2007, really. So we were helping a lot of people get into investment properties that way. And then when the whole foreclosure crisis hit, Then we started to team up with brokers and property teams that would find these foreclosures, fix them up, make them like new again, and then put a renter in place. And as far as the way the business model works, the way we monetize it is as a broker, I can refer investors and clients to another broker in a different state and still get a broker to broker referral fee, just like any broker would get. Usually it’s around
Dave:
Got it.
Rich Fettke:
3% like typical real estate commission. So that’s. Our biggest thing at real wealth is kind of. It’s really vetting and finding the right brokers in the right properties, so
Dave:
Yeah.
Rich Fettke:
way out of 100 brokers and property teams that apply to be a real wealth investor, real wealth network investor or provider. They I would say it’s probably about. Honestly, it’s pretty low. It’s probably 5% of those that we accept, because you know once they. Once they apply to be a provider, then we do a whole background check on them. If they pass that, then we look at their market and really look at, is this a thriving market? Is it emerging? Is it growing? Are people moving there? And if that pass that test, then our property team managers will fly out and inspect the properties, meet that, meet them, look at, talk to some of their investors, do a whole background check. And then even before we release those properties to our members for investing, We release it to just a small group of experienced investors. So they test it out for the usually three or four months. And then if they come back in there, so like, yep, this is good. My property is doing well. The property management’s good. Work out the kinks. Then that’s when we accept them as a property team. That’s kind
Dave:
Got
Rich Fettke:
of that.
Dave:
it.
Rich Fettke:
That’s the model.
Dave:
Yeah. And what an investor own, are they buying the entire property and their name and everything? They own the
Rich Fettke:
Exactly.
Dave:
entire place, right?
Rich Fettke:
Yeah. So in our syndications, obviously not. They’re buying a unit or several units in the syndication. But with this, yeah, most people, it’s people who want to put together a portfolio of their own properties. And, you know, usually it’s like most people get into it that way. They’ll put together a portfolio of 10 to 20 properties that are cash flowing and they’re growing. And some of those, you know, do really well, like some of those properties. And In Tampa, Florida and Jacksonville, Florida, they went up 43% over the year. It was just incredible. So a lot of wealth accumulation there.
Dave:
And then how about from the management standpoint? Because I know that’s typically one of the biggest objections with people. If you’ve got a W-2 job, you want to invest in real estate, so they might
Rich Fettke:
Mm-hmm.
Dave:
go to syndications because it’s passive. But what is actually involved if they have that property? Does your team provide any resources for the property management?
Rich Fettke:
Yeah, all of the properties that we refer to always have property management in place that we have, you know, vetted and really looked at and gotten the feedback on. And, and we’re kind of become like the Yelp for real estate investors in a way for single family properties, because if one of our members comes back and says, Hey, my property management team is not following through on this, or I’m not happy with this. Then we log that we’ve called a, it’s called our resolution process. We log that complaint. And we talked to the property management company and say, Hey, we had this complaint. We, you guys clean it up. Uh, if we get several complaints about that property management company, then basically we will just say, we’re going to have to take you off our referral list because you’re just not working out. You’re not meeting our qualifications. And that usually does the trick where they’re like, no, no, we want to keep getting, you know, these clients
Dave:
Mm-hmm.
Rich Fettke:
and these sales and all that stuff. So they’ll, they’ll clean up their act, but we’ve had to let some go over the years.
Dave:
Yeah.
Rich Fettke:
They just, they can’t get their act together or they’ve grown too fast. And. You know, I’ve I’ve tried to manage properties in our own properties myself, and I realize, yeah, I can be a major pain in the butt to manage
Dave:
Right
Rich Fettke:
your own properties and, you know, deal with the sob stories and my people are late on their rent and all that stuff. So, yeah, no, I don’t do that anymore.
Dave:
Yeah. And then what do you recommend in terms of, you know, guidance around debt in today’s market? Right? Is there certain LTV structure you’re looking at? And also, you know, how about do you do put it in an entity or what? How are you advising?
Rich Fettke:
I mean, definitely putting the properties in a protected LLC just to protect them in the states that they’re in. I think that’s really important. A lot of people miss that one. They’ll just get an entity in Nevada or Wyoming and put their properties into that, not realizing that they’re not fully protected. So an LLC in the state. So I think it’s good to kind of batch your properties if you’re going to buy several single families. I think all in. like a bunch in one state, maybe a bunch in another state. So you have some diversification, like Florida gets hit with a hurricane or something like that. I think it’s good to diversify, but I think it’s, you know, we look for landlord friendly states. So I think that’s really important. And then as far as the debt, you know, it’s basically, it’s just running the numbers and just making sure that you at least get some cashflow. You know, it used to be a lot more cashflow when we had those crazy low rates, but really today it’s looking at this, this property at least has to cashflow a little because we’re for the long haul. You know, we’re boring. I guess you could say our investing model and strategy is boring. It’s long. It’s always looking at things over like a 10 year window and having it slowly build wealth over time. And then when you look back on it, it’s one of the greatest ways to grow, grow wealth. That’s what I’ve seen over the last 20 years when you do it right. So I think it’s finding the right debt. Today, there’s a lot of incentives. where people can get their rate bought down by the seller. They can wait. We have some of these builder loans now that they’re doing for the new bills. Like you mentioned, 4.75 for a for a 10 year arm is pretty darn good. That’s because it’s the builder puts money up front and buys this special rate. So there are ways to do it nowadays. You don’t have to go in with one of the, you know, 7% loans that I just don’t know how you can get those to cash flow.
Dave:
Yeah, yeah. And how about from a tax strategy perspective? Are you just looking at depreciation on these properties? Or is there any other intricacies to this?
Rich Fettke:
Um, mostly just a typical, you know, 27 and a half year depreciation, which ends up, you know, a lot of for Kathy and me, and for a lot of investors, it’s, it really gets your income, your taxes down to zero with the right way, especially if you can set yourself up as a real estate professional, or if you have, if you have a spouse that can be the real estate professional in the relationship and you can really get a lot of those tax benefits. So that’s a big way. And then, um, I think a great model, one thing that Kathy and I put in place is several short-term rentals. So we get that accelerated depreciation on all the furnishings and we get so many write-offs and we try to buy these, these rentals where there are pieces, places where we want to go like Park City, Utah is, and Kathy and I have one there. So it’s pretty good. We’d go up and check on that rental property and maybe tack on a couple of days of skiing up there too. A
Dave:
Yeah, awesome. You gotta love
Rich Fettke:
lot
Dave:
it.
Rich Fettke:
of
Dave:
Hey,
Rich Fettke:
tax benefits.
Dave:
yeah. Now that’s thinking smart.
Rich Fettke:
Hehe.
Dave:
So Rich, from a personal development perspective, what’s the one practice for you that has yielded the biggest results?
Rich Fettke:
Personal development. Ah.
Dave:
I know this is going to be hard for you because you’ve got a lot.
Rich Fettke:
I know my brain’s going all over the place, you know, I’m.
Dave:
Exactly. That’s why I said just one. You only get
Rich Fettke:
Yeah,
Dave:
one here.
Rich Fettke:
I’m trying to think like, what if I were to remove that one thing? What would be the game changer as far as like in a negative way? Honestly, I would say it’s it’s training. I would say it’s working out. It’s it’s so huge. How for me, the physical so much affects the mental so consistent working out because of the self-discipline it takes to make it happen when you don’t feel like doing it and you do it anyway. And, you know, there’s science and based research that shows that we can actually improve and develop our willpower over time. When you do something that you don’t want to do, you actually, your neurons fire to another neuron in that area of the brain that’s about willpower and self-discipline. And that connection gets stronger and stronger. So the more you do something consistently that you don’t feel like doing, it takes discipline, you actually become a more disciplined person over time. And I’ve seen that in my own life. I’ve seen that with my clients. It’s just, it’s incredibly powerful. I’ve seen it with my daughter. She loves to talk about, you know, her workouts and she even does the cold plunges and all that stuff. And she has got incredible self-discipline. And I think it comes from that.
Dave:
No, it’s so powerful. I mean, I couldn’t relate to that one even more. And it’s amazing though, because there’s this cultural tug as well, right? I can remember so many times in my career that I was always training and working out. I was always competing for something or whatever. And the whole time I was doing it, I always felt like I was under pressure. Like, I gotta hurry up and finish this run because… I’ve got, you know, I gotta get to work, I gotta get to the office, right? And because there’s, you know, all of these really important things, you know, that are going on. And I finally was able to kind of let go of that, you know, maybe eight years ago, and actually realize that, you know, when I’m exercising, it’s actually thinking time too, right? It’s actually
Rich Fettke:
Big time.
Dave:
some of the most valuable time of your day. we’re going back full circle to what we were talking about in the beginning of the discussion around, creating your vision, getting clear on your goals, reprioritizing what’s important, and just really setting you up for success in the day to live
Rich Fettke:
Mm-hmm.
Dave:
your day intentionally. So I really cherish my exercise time, not only from the physical aspect and all the benefits you’re getting there. but just also the mental aspect and really, you know, connecting with
Rich Fettke:
Holy.
Dave:
your mind and what’s important.
Rich Fettke:
Yeah, it’s a moving meditation. It’s
Dave:
Yeah.
Rich Fettke:
absolutely. Yeah, it’s, it’s huge. And you know, it’s one thing I finally committed to. It took me forever, but it finally committed to morning meditation. I started using that calm app and I would get on a streak. I’d go for maybe like 15 days or 20 days or, um, you know, 57 days was my longest. And I finally said, okay, I’m going to really commit to this. I’m just, I’m going to, I want to see these benefits that everyone talks about. Cause my,
Dave:
Yeah.
Rich Fettke:
brain would go a mile a minute and always be like, what’s next and looking to the future, like you were saying. And I finally made this commitment today was day 614 in a row, just using that calm app 10 minutes
Dave:
Mm-hmm. Mm-hmm.
Rich Fettke:
in the morning. And that’s been huge for me. It’s, it’s incredible. Just
Dave:
Oh
Rich Fettke:
like
Dave:
yeah.
Rich Fettke:
you’re saying, I used to be so much about what’s next and what do I got to do next and what’s the future look like? And it’s really helped me be way more present with myself, but more important. With Kathy, with my daughters,
Dave:
Mm-hmm.
Rich Fettke:
with people in my life. Yeah, so that’s I would say that’s my number two personal development one now.
Dave:
It’s interesting you said that because as much as I like exercise too, I mean, that would be, it’s kind of a toss up for me as well. And I think about some of those people that sadly have lost the use of their limbs or veterans
Rich Fettke:
Yeah,
Dave:
coming back from the
Rich Fettke:
absolutely.
Dave:
war. And what if you didn’t have the ability to work out the way
Rich Fettke:
Hmm.
Dave:
that you couldn’t go surfing or rock climbing or cycling or whatever
Rich Fettke:
Oof.
Dave:
it might be? You know, you really just have your brain. And so, you know, the meditation is just so absolutely powerful. Um, you know, it really just helps, you know, if people out there have not done it, you know, we talk about this in our family, we, I’ve encouraged my kids. I’ve given, you can’t believe how much money I’ve given them to get into
Rich Fettke:
Nice.
Dave:
the habit of it because I’m like, whatever it’s going to take, this is literally one
Rich Fettke:
Mm-hmm.
Dave:
of the top three skills that you have to have in life to put out the noise, get clear on what’s important. Um, and just, you know, own your day. Um, it’s really
Rich Fettke:
Yeah,
Dave:
critical.
Rich Fettke:
so many benefits and I’m, I’m reading that massive book, outlive Peter Attia’s book right now.
Dave:
Yes, his
Rich Fettke:
It’s
Dave:
latest,
Rich Fettke:
a, it’s a
Dave:
yeah.
Rich Fettke:
great book. And, um, man, it just, what keeps coming around over and over if you want to increase your health span and be healthier and live a better, longer life exercise is number one. It just, it’s like, it’s the no brainer.
Dave:
Yeah, he talks about it as if he says if there was one magic pill or drug that’s out there that could cure, you know, all of the top killers, I mean, you know, you name it, it’s exercise.
Rich Fettke:
Yeah,
Dave:
Right.
Rich Fettke:
yeah, no,
Dave:
So,
Rich Fettke:
no
Dave:
yeah.
Rich Fettke:
doubt about it. Yeah. Yeah. And it doesn’t have to be crazy. It just has to be something and some movement. And yeah, so it’s, so I’m, I’m inspired. I’m it’s like, I mean,
Dave:
Yeah.
Rich Fettke:
we always need those reinforcements, right? You know, it’s like you get up and you’re like, do I want to work out this morning? It’s like, yes, I do. Because it’s like having like reading this book, it’s so inspiring for me to be like, okay, this is also for my health. This is also for my longterm. And you get everything in the dopamine benefit, you know, that natural high. Yeah.
Dave:
Yeah, and I think, you know, back to your coaching background, right? I mean, you know, this is a great, you know, point for listeners out there, you know, if you are struggling with, you know, getting an exercise regime, you know, going that that makes sense for you, right? Get yourself a coach, right? We should
Rich Fettke:
Yeah.
Dave:
actually have coaches in all areas of our business in our lives, right? Not just not just business or health, right? But also just think about it from an exercise standpoint, because I have a cycling coach and, um, you know,
Rich Fettke:
Nice.
Dave:
I’m telling you, I didn’t necessarily want to do the high intensity intervals that he assigns me every day. Um,
Rich Fettke:
Yeah.
Dave:
I get my heart rate up to 190 at 6 AM, um,
Rich Fettke:
Oh my goodness,
Dave:
is, is interesting,
Rich Fettke:
wow.
Dave:
but, uh, you know, there’s that accountability factor, you know, and you know, you have to do it, you know, and perform and so, you know, I think having a coach is really key.
Rich Fettke:
great point. I agree
Dave:
Yeah.
Rich Fettke:
100%.
Dave:
Yeah. So Rich, last one here, if you just had one piece of advice you could give to listeners about how they could accelerate their wealth trajectory, what would it be?
Rich Fettke:
Wealth. See, my brain goes from money to what real wealth is to
Dave:
Real
Rich Fettke:
me.
Dave:
wealth,
Rich Fettke:
So
Dave:
real wealth
Rich Fettke:
yeah,
Dave:
for you, yeah.
Rich Fettke:
you know, honestly, I’m just going to come back to it. Sounds repetitive, but it’s work on your self-discipline. And the more you can do that, everything from, you know, this, I kind of obsessed with this topic. I’ve read so much on it and studied so much on it. Everything from making your bed to just doing what’s best for you in the moment. And challenging yourself, getting uncomfortable. Great book called The Comfort Crisis talks about the need for us to get uncomfortable and how important and healthy that is. So to accelerate your wealth strategy and all that and your wealth consciousness, it really comes back to self-discipline because it’s doing what’s best for you and making the right choice in the moment. You can have all the tools and all the things that you could do or should do. If you’re not doing it, it’s not going to happen. So. I’m gonna go with that one.
Dave:
Awesome. Love it, Rich. I really can’t thank you enough for your time today. Sharing your insights with the audience, I think is really just invaluable. If people want to learn more about what you’re doing at Real Wealth or Connect, what’s the best place?
Rich Fettke:
It’s pretty simple. The realwealth.com is our website. And then, um, if people want to be inspired in around creating real wealth, then my book, the wise investor, it’s a parable. It’s a modern parable. As you know, it’s a story, but it carries in a lot of those key lessons on how to grow wealth, how to grow real wealth. And I really just wrote it to, to inspire people to shift their mindset and get excited about it and have some strategies that they can apply. So, uh, it’s. Everywhere books are sold is the wise investor too.
Dave:
Love it. And we’ll definitely put links in the show notes. Rich,
Rich Fettke:
Thank
Dave:
thanks
Rich Fettke:
you.
Dave:
again.
Rich Fettke:
My pleasure, thanks for having me.
Hey everyone, welcome to another episode of Wealth Strategy Secrets. Today we are joined by return guest, MC Lobsher. MC is a husband, dad, entrepreneur, investor, and educator. As an educator, MC’s passion is to share how investors and business owners can create, recover, warehouse, and multiply cashflow through advanced cashflow strategies. Having figured out how to escape the rat race and replace his income through cashflow investing. He shares how you can do the same through cashflow investing strategies. MC is also the founder of Cashflow Ninja and the creator and host of the top rated business and investing podcast, Cashflow Ninja, which has been downloaded millions of times in over 180 countries. MC is also the president at Producers Wealth, a wealth firm that assists investors and business owners to implement advanced cashflow strategies. And MC is the principal at producers capital partners and investment firm that helps investors to invest in alternative cash flow investments. MC my friend good to see you
M.C. Laubscher:
Great to see you. I’ve been looking forward to this conversation.
Dave:
100% me as well. You know, I think investors had a chance in the audience to listen to you if you haven’t. We had a great interview back at episode six. So please go back and listen to that, which has a full background of MC story and everything. But just as a quick kind of summary of your background, which is which is really fascinating as to how you really got into this space, how you’ve evolved. And I think you’re kind of global and macro view on economics, politics, and cash flow. That’d be a great place to start.
M.C. Laubscher:
Yeah, absolutely. Um, yeah, I grew up in South Africa during a very, very interesting time. So as a, as a young man, I saw, you know, the, the world in front of you just flip upside down, right. And I realized, um, that, you know, during that time, that there’s a lot of things that I, that I wasn’t aware of and that I should become aware of because I even saw adults as a young man completely like not, couldn’t make sense of what was happening. I also grew up on a homestead in South Africa would be qualified as a homestead, which is a huge like advantage in the investment world, believe it or not. I started to realize it become quite a strength because you know how things work and where things come from and how everything is connected. You know, if you don’t plant your seeds at a certain time of the year and you don’t nurture it and take care of it and manage it well and properly, well, there’s not going to be anything to harvest, you know, during harvest season. So coming to the United States, I played at a very high level in sports here. And as I was traveling, I was just, you know, reading history and economic books, that was kind of my passion. And that was my major in university. And I started to read rich dad poor dad, which leads led me to discovering this incredible cash flow investing, took action bought my first investment property. And after collecting all of the you know, the the, well, the rent and paying all the fees associated with it and expenses in cash flow. So the light bulb moment was, wow, this, this can work. I saw I read it in a book, my paradigm shifted, my thinking shifted, I took action, I implemented and executed. And now, wow, this property is cash flow, how many times can I do it? So I became pretty passionate about cash flow investing. But as an investor, I’ve always tried to educate myself of what’s going on because I’ve realized how connected everything is and especially the global economy on a macro level. So I became a student of macro economics and also I try to sharpen some of my technical skills of being This is something, this is a skill set of how you can identify things on a shorter term kind of time frame. So yeah, so as my cashflow journey evolved and grew, there was lots of lessons, there was a lot of great times and success, there was a lot of challenges and obviously failures, which helps you grow as an investor and also as an entrepreneur. And know, I started, I just, well, I discovered the strategy, this advanced cash flow management strategy. And this was as early on as a real estate investor, I had a friend that came from a very wealthy family, and they operated their own family office kind of structure. And I realized how cash flow was managed within their family office structure was completely different than what anybody else was was aware of. And this is where I discovered infinite banking and brought that into what I was doing, which really just amplified and just put a little bit of rocket fuel on my real estate investing. So in 2014, around 2014, beginning of 2015, I started Producers Wealth to help other investors implement and execute the infinite banking strategy too. there was a huge disconnect in financial services between the business owners and investors and actually the providers of it. And as an entrepreneur, when you see a disconnect or you see a gap in the marketplace, well, there’s an opportunity to provide a solution and start a business. So I did that. And we’re still active in 50 states in the United States helping all business owners and investors implement and execute infinite banking. And then with Cash Loan Ninja, my… My journey of learning continues. It’s great. I get to, I learned from the best minds in business and investing on a weekly basis doing a podcast and the podcast has turned into a full fledged education company where we have a book, the 21 best cashflow niches, sharing the best niches that folks share on the show. We also have a newsletter where we share every single month, a new cashflow niche that was shared and also have a mastermind, but It’s been a it’s been a fun ride Dave and it continues to be a lot of fun meeting incredible people and getting to getting to work with a lot of incredible business owners and investors.
Dave:
Yeah, no, I really appreciate your wisdom and insights, MC. I think it is a really unique perspective, having that global view and being, you know, brought up outside of the country, you know, coming to the U.S. and really understanding, you know, the merits of what this country stands for, right? Which, which at the fabric of it, it’s really all about freedom, right? And as an entrepreneur. Right? You’re, you’re, you’re trying to seek freedom in your life. Right. And, and I think wealth and having money and the financial means to do things is part of really achieving that freedom. So, you know, I think that’s a really unique, you know, look at things. And I think a lot of the audience can learn a lot, uh, from you in terms of how, you know, you see the world. And, you know, kind of, you know, segueing really from that as well is. I love that you’re able to study history, always look at becoming a better investor, and you’re really understanding everything at a macro level of what’s going on in the world, geopolitically, politically, economically. There’s so many different sources out there. I think it makes it very confusing for investors to say, how do I make the right decisions? What is best for me in terms of allocating capital, in terms of building wealth? And especially right now, we’re in this environment where everyone is pushing fear is basically what people are doing. There’s a lot of fear and that can be very scary. It can put you in the mode of being paralyzed and the deer in the headlights and not actually doing anything. Or it can make you irrational. right? And you make an emotional decision, right? And that’s where investors always lose when they tie in the emotion. So I think it’s great to create really a system and a strategy around your wealth. But talk to us a little bit about just from kind of a macro perspective. We’ve got, you know, a lot of failures in the banking system right now is one thing that’s really prevalent. But can you give us kind of your 30,000 foot view of of how you’re kind of seeing the worldview, the economy right now in 2023.
M.C. Laubscher:
Absolutely, and to your point, I think one of the things that I learned as a young man in South Africa was that there was a lot of uncertainty. You know, and I’ve already, and this is, I feel that the gift that I received early on in my life is there was so much uncertainty. Nobody knew what was going on, which then, you know, the herd mentality kicks in. So if there’s so much uncertainty, then obviously fear starts, it becomes hysteria. And it’s a very chaotic environment. And having already lived through that, I can see that the folks that have great frameworks and models of how things work and how the world works stay. They don’t get sucked into every single issue and become emotional about it. They just stay focused. They’re going to have a huge competitive advantage. And also from an information standpoint, you have to, as an investor, read everything and why, right? So I look at, you know, the like what’s going on in the mainstream media. And that kind of gives me an idea what the official narrative is, right? And then I read opposing views and then I read opposing views of people around the world. So that kind of makes you see things through different from different angles. And it kind of it gives you a better picture of what’s actually going on. So on a big macro level, you know, there there’s been a world order in place with with the US at the forefront and the US dollar as the world reserve currency. And that’s how the world is operated coming out of the Second World War. Right. So 1944, Britain was agreement was put in place. The United States dollar was was put in as the world reserve currency. The US came out of that war as as an established superpower. really unchallenged because the Soviet Union at that point, they were badly bruised from the war. And the US was a huge producer and creator of goods, which made its way to the warfront in Europe. And a lot of capital came back to the US and made the US very, very wealthy. And this is all cyclical. So now at the point we were at right now, so globally, there is a lot of different themes. And I mean, we could talk about that for hours, but the one thing that I want to drive home is that the world order is slightly changing. Now, it’s not in one way or another, it’s still figuring itself out. And you’re going to start to see a lot of different moves made by different countries, not just on the warfront. Most people think, oh, this war theme that’s going around, there’s a war coming. Well, wars are very, very different than what the average person perceive them to be. They can be economic. They can be financial, they could be psychological, and eventually, you know, we think of war as the kinetic form of that. So there’s already been, I mean, there’s always psychological, financial and economic warfare going on. You know, that’s kind of how the balance in the world order is established, right? So this has been going on and it’s just been taken to another level. Now how does the other theme that you refer to is the banking crisis. And this is very, very interesting. Because of the world order that was established, the US dollar was the world reserve currency, and the world’s monetary system is a debt-based monetary system. So it has been. So because of all those things changing, and especially in the system in the way that it is, this has impacted a lot of the centers of finance where banks are at the middle. So, for example, because it’s a debt based monetary system, you can see every single country just creates more debt, more and more debt. Right. And debt just keeps increasing. It’s the very nature of the system. So the system, the system depends on it. And over the last couple of years, interest rates drop really, really low, really, really low all over the world. You know, we’ve heard the terms. free money and cheap money and, you know, low rates and so forth. And people might have seen their mortgages that they could have locked in at one stage or under three percent if they were fortunate to. Well, this is this is had the result to a lot of exuberance, a lot of asset prices being inflated and inflation, which has become a huge political problem, not just in the United States, all across the world. So. Central banks across the world then started rising rights. Now back to the banks. Well, where do banks put a lot of their capital and warehouse a lot of their capital in that they use as collateral? Well, you and I will chuckle at this, but a lot of quote unquote risk-free assets for collateral is bonds, government bonds. So a lot of banks, like for example, Silicon Valley Bank, and you had Signature Bank, and even SolarGate Bank, they had a lot of bonds. which they bought at a very low interest rates. Now when interest rates double in almost six months, that the values, the value of the collateral which the banks have. Now that’s one thing if a bank can hold a bond to maturity and collect the full amount, but when they cannot do that, well, they have to sell the bond at a loss when depositors actually won capital. And that’s what happened with those three banks and specifically Silicon Valley Bank where there was. essentially a run on the bank for many different reasons, and they had to sell it at a loss. And it resulted in other banks, which was in business with Silicon Valley Bank, to sell their collateral too. So all of a sudden, they were all insolvent. And then it kind of turns out that a lot of the banks were in the exact same situation. And now there’s fear, there’s panic, there’s hysteria, there’s a run on certain banks now. And this is kind of where a lot of banks have found themselves to be. to be insolvent. So what I see happening in the banking industry is that, you know, at the end of last year already, there were, if you look at, um, there was, there’s 4,800 banking licenses in the United States currently. And, um, there is, and I’ve had conversations with insiders in the banking industry where there were banks already by the end of last year, over 700 banks that were technically insolvent. So this, you know, the insiders already knew that a lot of this was coming in this year. And of course, when the first three banks went under, there’s now a contagion and we saw First Republic Bank go under. So, and the hearings that has been held so far and questions that have been asked to the FDIC, to the secretary of the treasury, Janet Yellen, has not produced confidence at all. I know they’re coming out and saying, the banking system is sound and resilient. You know, we’ve had The president come out and say that we’ve had a Jerome Powell from the Federal Reserve came out and say that when everybody comes out and say that you know there’s panic behind the scenes. So what’s happening? Janet Yellen went on to Capitol Hill. She was questioned by a senator. I believe it was from Oklahoma. He asked her point blank, look, we have smaller banks. We have regional banks. Are the deposits in those smaller and regional banks, will they be even the uninsurable accounts or the amounts over the insured amounts as put aside by the FDIC and insured by the FDIC, will they be protected as in the case of Silicon Valley Bank? And a response was, well, they’re not insured. And he then said, well, so you’re telling me that Silicon Valley Bank was their depositors were being made hold. Side note, there was a lot of politically connected people that bank with Silicon Valley Bank, but the other depositors wouldn’t. And she said, they’re not insured. And he said, do you understand that now smaller banks and regional banks, the deposits will move from these banks into larger banks? And she said, well, we certainly wouldn’t want that to happen. That is exactly what’s happening. So since that meeting, so for folks, the big takeaway, if you’re wondering what’s happening in the banks, is deposits are fleeing smaller and regional banks and they’re going to bigger banks because people are now afraid that all these smaller and regional banks are the next to fall. So you’re going to see a lot of the smaller banks disappear and go insolvent. You’re going to see bigger and medium banks and regional banks disappear and go insolvent. And this is going to continue as deposits flee. And nobody’s doing anything to stop it at this point. So that’s what’s kind of happening there. And it’s going to play out very, very interesting. It’s the one thing that investors should know. And this is kind of like, I jokingly said, I grew up on a homestead. So I figured that everything is connected. I know where eggs came from. I know where
Dave:
Hehehehe
M.C. Laubscher:
the chicken wings came from. I know where milk and butter and all those things came from. If you think about like how things work in the banking world, well, who are some of the biggest lenders to small businesses? and smaller investors. Well, it’s smaller and regional banks. So investors are going to be affected by that because the most of the lending is done by the smaller and regional banks. So it’s definitely going to have an impact on small businesses, smaller investors, it’s going to have a profound impact in the economy. So it’s going to, you know, again, we’re seeing what’s coming from a kind of a macro perspective and looking at what’s happening inside there. So there’s not, It’s important to know this is happening. And it’s also important to know that there’s things that you can do to protect yourself from any of the chaos that’s happening in the banking system.
Dave:
Yeah, that’s such a great backdrop. And I know that we are aligned in terms of how we share our viewpoints, right? Because again, a lot of the things you hear in the media, mainstream, there’s always agendas hidden beneath, right? And everyone is trying to push you to think a certain way. So one of the things we’re trying to do is really objectively look at what’s going on with these different types of things. And then also figure out, okay, how can we help the investor make better decisions about allocating
M.C. Laubscher:
Yep.
Dave:
portfolio, about insulating themselves, whatever it might be? So just remove the emotion from the situation. And then let’s try to figure out where are we going? Where do we want to be? So it’s kind of taking that uncertainty and creating certainty with it. So I think for people out there… You know, if you’re concerned about your bank, right, you there’s, there’s multiple things that you could do to actually, you know, redeploy that capital. Also, you know, from an overall economic standpoint, you know, what could you do with all of this certainty, right? Well, the way I like to think about it is, okay, well, if you lost your source of income, whether you’re a business owner, or W2, whatever, you know, are you going to be impacted? Do you have enough runway? right, to get you through this until you can figure out the next thing. So whatever that might be for you, maybe six months, maybe 18 months. You know, I know family offices, ultra high net worth, they actually have like three years of liquid capital to move through an entire cycle, right, of liquidity. Right. So I think a lot of this is around how do you actually manage your liquidity, right? And no one really kind of talks about that, right? You know, from a portfolio standpoint. you know, how, you know, what is the best way to manage liquidity? Um, and as you discovered, you know, we, we came into infinite banking, you know, myself and my wife 10 years ago, uh, and found the merits of that. And, and I wish actually I had known that even, you know, 20 years ago, uh, because, you know, one of, one of my inflection points was, you know, having, having a pretty significant crisis in my business and I had all my eggs in one basket. I wasn’t diversified enough and I didn’t have that liquidity to get us through. So it caused us to scramble and everything. So what can you share with the audience about trying to create certainty, about uncertainty, and how does that tie into some of your cashflow strategies with infinite banking and others?
M.C. Laubscher:
Yeah, and I think what folks should be thinking about, and you really stated it very, very well, is where do you warehouse liquidity? Because if you’re listening to this, and you’re a business owner and an investor, you do need access to operating capital, right? So you have to have some sort of a diversification strategy in place with regards to warehouse and capital, it could be uh, you know a couple of banks and different accounts it could be some credit unions But you know, I would definitely because you you know, you need in some cases three to six months at least of just operating capital uh In a bank, you know So that’s one thing that I would would highly encourage folks to think about I don’t have all of your eggs in one basket. There was a lot of folks uh in our network that had um everything, all their money in First Republic, you know, in one bank. So they were very, very nervous. And again, this brings in a lot of anxiety, a lot of fear and so forth, and just distracts you takes you away from your business and your invest and your investments. So if you have some diversification strategy in place, just from from an operating standpoint, that that’s already going to serve you very, very well. And then You know, with the infinite banking concept, and this is using mutual insurance carriers as a vehicle and more specifically, a life insurance policy, dividend paying, whole life insurance policy with a mutual insurance carrier as a place to warehouse large amounts of cash. Now, one theme that I spoke about ad nauseam last year was counterparty risk. And I said that the one of the biggest lessons that investors are going to learn, they’re either going to learn it now, and listen to me speak about it at Noaseum, or they’re going to learn the hard way in the next coming months and next coming years, is what counterparty risk is. And that is, counterparty is the other party on the opposite side of a transaction that has to make good on contracts. So for example, when you put your money in a bank, the bank is a counterparty to your capital. If they don’t, you know, if they don’t allow you to access your capital, if they default on, let’s just say their, their contractual obligations, then. You know, you’re going to lose your capital. And of course there’s a lot of different things in place with banks, right? That people should know about when you put your money in a bank, it’s no longer your money legally. Those already on the books. That’s why folks said, how can bail ends be legal? Well, that’s already legislated after the last crisis is all over the world, not just in the United States. It’s also. not there because of the fractional reserve banking model. You should know about this in analyzing a counterparty. When you look at where to position capital, look at the counterparty risks and do your research of each and every single one of them. So when I look at other places where, where you could warehouse cash, I’ve mentioned banks, how about bonds? Well, there’s counterparties there. Bond is a debt instrument. The issuer of the bond is the counterparty by definition. So if you have municipal bonds, if you have even state specific type bonds, if you have federal bonds, let’s just say US treasuries, which a lot of folks do, the counterparty is the government entity on the other side of it. So there’s a default risk. There’s also, you know, the risk there too, of course, is the interest rate risk, which we don’t have a lot of control over. We don’t have a lot of control what the federal reserve’s gonna do. So, and what the market’s going to determine that way. So look at different risks. So mutual insurance companies, when I look at counterparty risk, they’ve been around since the mid 1800s. They have been profitable and kept their promises every single year since the mid 1800s. And I look at, you know, from a historical perspective and economic perspective, like what storms have these carriers weathered? If you’re in the United States and you’re a mutual insurance life insurance carrier, you do experience the Civil War, the US Civil War, where there were literally most people are unaware of this. There were two types of currency circulating in the United States. You had greenbacks and graybacks, and they still provide a profit during that time, time of massive uncertainty, chaos, disruption, panic, and of course, hysteria. Then you go into the creation of the Federal Reserve in 1913. You look at World War One, World War Two. You look at recessions, market crashes, the Great Depression, all of these things that went through. So, you know, when I when I analyze counterparty rest, too, it’s, you know, how are people going to behave in the future? Well, that’s a very tough one to predict, but there’s a very high probability that people and institutions and organizations. will behave in the future as they have behaved in the past. So that’s why we look at from where do we wear our set. And, you know, with infinite banking, what it is for folks that have never that have never heard this term before or this is your first time of hearing of the strategy, you use a very specifically designed life insurance policy. This is how they design it in family offices. And it’s designed for to increase the cash value, not just for the death benefit. Most people think life insurance, you know, is actually death insurance. Somebody has to die in order for someone else to benefit. You’re using the vehicle of life insurance, and it’s specifically tailored and structured so it becomes a vehicle of where you can warehouse capital and with guarantees, guarantee growth in the policy tax free growth, by the way, too. The dividends that you that you will earn in the policy is. And it’s not guaranteed, but these companies have paid them since the mid 1800. So there’s guarantees, tax free growth, tax free access, the dividends are tax free. And then of course, from a wealth preservation standpoint, you know, and this is why the folks might have heard of the Rockefeller family banking strategy where they’ve used these life insurance contracts, because the death benefit is also tax free and it goes tax free to. the beneficiary, whether it be a trust or whether it be a spouse or whether it be children. So this has become a great vehicle to warehouse cash because it’s outside of the banking system. I saw last year, you know, I’d mentioned this to you actually in previous conversations, I saw last year, so much capital flight from family offices with some of my my colleagues that I’m friends with in their saw. how all of a ton of capital went out to banks into these life insurance contracts at the end of last year. And, you know, full disclosure, I set up a policy for another policy for myself last year too, because I went through this exact same exercise of where would I sleep well to warehouse cash? And I just came back after going through, looking at banks, looking at bonds, looking at 401ks and IRAs, which completely… takes control away from your from you over your capital. I couldn’t find a better place. So when the crisis started hitting a lot of folks in our network just kind of smirked and smiled because the majority of their bulk of actually their cash reserves were outside of the banking system in these life insurance contracts with mutual insurance companies.
Dave:
Yeah, great point. And can you also comment on you had mentioned the other day, which I found really interesting. You were in a group with some of the executive teams of one of the large mutual insurance companies that was talking about record inflows into life insurance in the past two years.
M.C. Laubscher:
There’s been, yeah, so the executives in a lot of these mutual insurance carriers, they’ve seen it too, where a lot of folks, the smart money has realized where do we need to go to, to position capital, where it can be protected from a storm, regardless of what that storm is, and so that we can eventually access it to capitalize on opportunities. So these companies have had record profits. in the ball, you know, since since 2020. And they continue to have record profits because it’s become a safe haven to warehouse capital effectively and efficiently. And if you look at, you know, even where banks themselves buy these exact same life insurance policies, bank owned life insurance, there’s only a certain amount of their tier one capital that they can put in there. Corporations use this. It’s called corporate on life insurance. So And then of course, you know, family offices and so forth. So, you know, the inside the insiders and the smart money knows where to warehouse it. So if you look at what, you know, banks and corporations and you look at what family offices are doing, very wealthy individuals and so forth, where they’re warehousing capital, this is this has become a place for them and they’re seeing it. You know, those for folks just and this is very interesting, too, from. some of the meetings and insights that I’ve had with these carriers, they have billions of dollars of excess cash reserves. So over the amount even that what they need to pay out death benefits. So they’re very, very financially strong. They’re very sound mutual insurance companies too. This is also I think an interesting little little tidbit, which which I found very interesting is their mindset. They think in terms of, you know, 50, 100 plus years. You know, one of the things that I, that I learned is interest rates doubled, like literally in like, I think it was a period of almost like six months or maybe a little bit more, but round about there, these mutual insurance carriers don’t have to make sudden movements to adapt to that because they, they have a very long runway and they manage their organizations, their, their companies on behalf of the policy holders. So they don’t have to make any sudden movements to make their stock appetizing for wall street and all of the wall street media to promote it. They can do what is in the best interest for their policyholders. So they can, you know, wait another 12 to 18 months, see if this is a trend, see what’s happening and then make it adjustments. And that’s why they’ve been in business so long, you know, try to find a company that’s been listed on the stock exchanges. You know, how many of them are over 100 years old, right? And have been profitable for 100 years consecutively. So it’s a little bit of a different mindset.
Dave:
Yeah, for sure. And so when I started this journey myself, probably about 10 years ago, and I had first heard about this concept, and again, studying the ultra wealthy and figuring out how they’re managing. You know, I learned about this strategy, but I found that there was so much confusion in the marketplace. You know, if you talk to your financial planner who might have a life insurance division, right, if he’s a larger organization or, you know, you call in and talk to different people. So why do you think there’s so much confusion in the marketplace in terms of, you know, carriers who can actually provide, you know, the vehicle to support this? Um, as, as well as, you know, why, why is there, is there a misunderstanding in the marketplace of the infinite banking concept versus, you know, a cash value life insurance policy?
M.C. Laubscher:
Yeah, there’s a lot of confusion. And it’s also, you know, one way that I look at it is if you look at the financial world, there’s different incentives, right? So with the asset under management kind of incentive is what drives most of financial services, which this is this is not this is not a product or a vehicle where the financial professional has that incentive of asset under management. So I found. to that, you know, in my journey, when I saw a huge disconnect between financial services and business owners and investors, I find I saw that, you know, the best place for a business owner and an investor to keep their capital is where they can access it to grow their business and their investment portfolio. You know, that is the best place to warehouse it where the incentives on the financial in the financial world is well, no, no, no, your best places. Give me your Give me your capital and I’ll invest it for you in a diversified portfolio, stocks, bonds and mutual funds and investing in other people’s businesses and ventures, right? Which is kind of crazy. If you look at it that way, you should put it in a place outside of the banking system with guarantees within a tax free bucket where you can access it through policy loans or life insurance lines of credits to grow your business and your investments. And I would say You know, the confusion in the market place is and this is where you get a lot of different commentators with such strong opinions, you know, which is kind of kind of funny, right? Most topics in life, people don’t have strong opinions. Pitbulls and life insurance, very strong opinions, very, very strong opinions. It’s just the way that life insurance itself is a very, very misunderstood asset clause. And there’s different levels of strategies. So you have your very basic retail strategy. And that is all the majority of the public, unfortunately, by life insurance, I would say 99% of the public just by retail kind of life insurance, they’re going to overpay for it, it’s not going to be effective and efficiently. Some of it, you know, you could have some products that could fit the need like a good, you know, solid term or a convertible term policy for a while. But that’s about it. You have your and most folks don’t talk about the advanced kind of life insurance strategies that does exist. Right. So, um, I’ll give you an example. So we have commentators, everybody’s favorite financial commentator, Dave Ramsey that talks about and bash his life insurance all the time. And a lot of the stuff that he says are great points. When you look at how retail life insurance are sold, but what Dave then fails to. on to the question to ask himself or his audience is well, if this is so bad, and I’m just laying out all the points and bullet points why this is so bad, why do banks, corporations, family offices and very wealthy individuals buy as much life insurance as life insurance carriers would sell them? Because there’s a different type of strategy. It’s an advanced strategy. It’s a warehousing strategy. And then obviously, you know, we talk about a lot of different advanced kind of life insurance strategies from a cash flow management perspective, from a legacy planning perspective. And then also where you get to leverage, you know, third party capital to actually fund life insurance strategies creatively through premium financing. But I think that’s why there’s so much misinformation. It’s very misunderstood because the industry itself. is there’s just so many, you know, there’s so much noise just on the retail kind of sales side of it and there’s not a lot of information about advanced planning when it comes to life insurance.
Dave:
Yeah, no, appreciate that clarification. I think it’s really important to objectively look at these things. And what would you say around from capital allocation, right? If someone was looking at a policy, what’s really the best perspective you could give them in terms of, do I set this up and pay it over time for the next 20 years, the next five years, or maybe I have a liquidity event, or what’s? you know, a comfortable number or process they should look at.
M.C. Laubscher:
That’s a very good question, because everybody’s in a different situation, right? And this is very, very customizable. So this is a we’re creating a custom strategy specifically tailored for every single individual. There’s no one size fits all. There’s no cookie cutter kind of planning in this kind of, in the advanced planning space. So we will see, you know, what liquidity you have that you would want to move to safety. you know, like I shared right now, good rule of thumb is if you have three to six months of operating capital for your business, you should probably then look at positioning all other capital in different areas. And look at look at moving it into a place with guarantees. So yeah, there are some folks that come into liquidity events, whether it be inheritances, whether it be businesses that they sell, whether it be investments that they sell. There are strategies that you can quickly fund a policy within five years, fully funded, completely funded, paid up, there’s no more funding needed. Then there’s, you know, 10 pays where folks, let’s just say, want to pay a certain amount of their capital into policies for 10 years, you know, in 20 years. And then there’s folks that want to continue to buy into that with flexibility of when they can stop. So we can do that too. So yeah, the other thing I think that people should know about if you have a 401k, like or an IRA, for example, one of the biggest threats, the biggest threat that we talk about in our network quite a bit is that is taxes in the future. So if you have money and qualified plans and you’re over 59 and off, you can take money strategically with the help of a tax professional out of those plans, fund these policies and create a bucket that produces a tax free retirement for you income stream. So you can do that too. I think that’s one thing that I didn’t touch on earlier when it comes to some of the things that people do this. It produces a tax-free income stream for you for retirement or to supplement retirement in the later years. So if you have assets that are allocated in buckets that are taxable and that are subject to market forces, you wanna look at diversifying and at least putting capital. in a different place where it’s protected from market forces and taxes. Because, as I mentioned, this banking crisis that have started, it’s going to continue. It’s going to it’s a contagion that’s going to spread, it’s going to pick up steam. And eventually, this is going to lead to a bigger and bigger banking crisis, which could, which could then go into the financial markets. Now, that’s just there’s a very high probability if I see if I look at the world right now to play that out. So You don’t have to be a victim of that. You can see this coming a mile away. You could take necessary precaution, diversify your liquidity in banks, diversify your liquidity into things like the infinite banking strategy in a mutual insurance company that has a life insurance policy with guarantees and tax-free growth so that you have capital to access to capitalize on opportunities. Because with all the chaos that I think that’s coming, There’s going to be so much opportunities for folks.
Dave:
Yeah, I think we could do an entirely another episode on this MC because I’d love to talk some specific use cases. Because I’ve seen examples of how people are using this in their overall strategy, which is really, really powerful. And, you know, the other thing we talked to with folks is that this is really a process, right? you have to work on that process. You have to work on that in your wealth strategy, right, to get maximum advantage of it. And I think we’re constantly inundated with just thinking that, you know, one product is going to be the solution for something, right? Okay. You might have the vehicle to do something, but you need to understand the process, how it works to be able to maximize it. So… I think the next time you come in, it’d be great to walk through some specific use cases of how people are actually leveraging that. And then one other just quick question I wanted to ask in terms of like an age. So you’re talking about 401k at 59 and a half. Is there a certain point where this becomes too cost prohibitive based upon your age?
M.C. Laubscher:
That’s a great question and just a comment on on Nelson’s book Where he talks about becoming your own banker and he says You know, he’s the discoverer of the of the infinite banking concept, you know And he talks about unlocking and becoming you know, these are all process words and he was a stickler for words That’s why it’s becoming your own banker not become. It’s not a one-off thing. You just put a policy up and that’s it. And unlocking the secrets of the infinite banking concept because you keep unlocking them and you keep learning and you keep growing. And it’s this is part of your overall holistic wealth strategy. When it comes to age. Yeah, we’ve we’ve even had policies for folks in their late 60s, which made sense. Every situation is different. But we’ve seen that and then of course, You know, when folks are in their late 60s and 70s, there’s children, there’s grandchildren. You know, you can really set up a family legacy and a family bank, which is something that I’m very, very passionate about and talking about, because you can really change the trajectory of the financial future for your entire family by structuring and setting this up correctly. So you can be the person that… was the person that changed the entire trajectory just by establishing the strategy and establishing a structure for future generations to implement and execute.
Dave:
Excellent. And if you could give just one piece of advice to listeners about how they could really accelerate their wealth trajectory, what would it be?
M.C. Laubscher:
I think that it’s as an investor, it’s realizing and recognizing cycles. You know, folks, somebody asked me the other day, do you believe in cycles? MC? I said, well, you know, last night the sun went under and this morning the sun came back up and, you know, we just had winter and we’re into spring and summer is coming pretty soon. So the world operates on cycles and so does the financial world too. So I think the one thing that I would share with folks is recognize where you are in economic and financial cycles, and then invest accordingly. There’s different strategies at different parts of the cycle. So, you know, there are times in a cycle, um, where, I mean, that’s, that’s the time to deploy as much capital as you possibly can. Then there are other parts of the cycle where This is now your build up, build up as much capital as you possibly can, because pretty soon you’ll be able to use that. You know, if you were in 2007 and 2008 in a capital allocation mode and set up in position capital where you could, you can access it lighter, you know, you would be in a fantastic position to keep to capitalize on opportunities that became available. Really, if you think about it, the bottom was around what, 2011, 2012, but you would have had like three or four years of just capital allocation and accumulation that you can now deploy and buy at rock bottom prices and then keep buying up, you know, up into the cycle. So I think, you know, that’s one thing that I would share with folks is it’s a great time. to set up good proper legal structures, whether it’s asset protection, estate planning, it’s a great time to set up infinite banking policies to warehouse capital so that when the chaos arrives, which we could see coming from a mile away, that you’re not gonna be that affected by it and you’re gonna be in a position of strength to capitalize on opportunities.
Dave:
Really appreciate those insights and everything that you’ve provided today. I think it’s been super valuable and really, uh, you know, really relevant to the times that we’re in. So thanks again for your time. MC, uh, always appreciate the wisdom, always, always learning from you as well and getting together. It’s, uh, uh, grateful for the opportunity. And, um, if people want to reach out, learn a little bit more about what you’re doing at a producer’s wealth or anywhere else, what’s the best place.
M.C. Laubscher:
Yeah, so, um, Cashflow Ninja is just where the education things are with regards to cash flow investing as folks are interested in about infinite banking, just go to your own banking system calm, there’s a video up there about 30 minutes where we explain the entire strategy, we give you examples, we give you case studies and more. And it’s all done. I think it’s around 30 minutes. So yeah, that’s that’s how folks can can learn more and get in touch.
Dave:
Awesome, thanks so much for coming on the show, MC.
M.C. Laubscher:
Thank you so much for having me.
Hey, everyone, welcome to today’s show on wealth strategy secrets. Today we’re joined by Pete Reese. Pete is the president of RealVest properties, a land development and investment company. With nearly two decades of real estate experience as a broker and investor, Pete has successfully purchased and sold hundreds of pieces of real estate for profit over the years for himself and on behalf of his clients. He did three and a half million in revenue in 2022 with his land flipping and development business. and he’s pushing to do 10 million in 2023. Pete’s always looking for his next deal, including his longtime dream of his own private island. Besides his professional accomplishments, Pete is a proud father to three beautiful girls, keeps up with his family by working out and enjoying a vegan diet and is the 31st great grandson of King Henry II. Pete, welcome to the show.
Pete Reese:
Well, thanks Dave, I appreciate it and I appreciate that intro.
Dave:
Yeah, you bet. And we’re going to have to just start right there and unpack that intro for a second. So first of all, love it. You know, a dream to have your own private island. That’s absolutely awesome. That’s Richard Branson level Necker
Pete Reese:
Yeah, yeah.
Dave:
Island. So so tell us tell us how you know, what was the inspiration for that? What are your what are your thoughts there?
Pete Reese:
Yeah, you know, I’ve always been a fan of Richard Branson, and I think I’ve always had that stuck in my head, that that would be kind of like the coolest ultimate thing, to kind of have your own piece of the world, and it’s kind of like your own, you know, it’s an island in more ways than one, you know, it’s actually an island, but you’re kind of off by yourself, and you can kind of create all the rules there and everything, which I always thought would be pretty cool. So I’m not looking for some island that’s on a river somewhere or something, but maybe in the Caribbean, I think that would be a nice spot, but. Maybe I’ll maybe I’ll have to use my land my land skills in order to try to acquire one in one day.
Dave:
Yeah, perfect. Well, I love it because we talk a lot around wealth strategy, right? The first step is actually creating your vision, you know, because if you don’t have a target, you’re going to miss every time. So creating that vision is so important. And that’s certainly a huge vision. So really love that. And also have to just ask about this. I mean, what a cool fact here that you’re actually the 31st great grandson of King Henry the second.
Pete Reese:
Yeah, well, I think I am. You know, I found this out on ancestry.com. Actually my daughter did, you know, they give you those clues after you, you know, after you upload your DNA and everything. So they give you those clues to keep tracing your, your ancestry back. And it just kept going and kept going. It went all the way back to him. And there’s some other people, you know, before him that were. Kings and Kings of different, you know, countries and things like that. So I just thought it was pretty cool. I have no way to verify any of that. but I thought it would be pretty cool to put in my bio just to get people talking. So I threatened my wife that I was gonna put in my Instagram bio, but she said it wouldn’t be a good idea.
Dave:
I think it’s a super fun fact and there’s a lot to learn from history. My last name is Wolcott and actually Oliver Wolcott was one of the signers of the Declaration of Independence.
Pete Reese:
That’s awesome.
Dave:
So we actually named our son, one of our sons is named after him. So he’s an Oliver, but yeah, the lineage and history is really cool. you know, pass on some of those traditions, you know, I think that’s all part of, you know, building a legacy, right, around your family, your values and virtues. So, Pete, tell us a little bit about how did you get into real estate space and, you know, and then ultimately into land?
Pete Reese:
Yeah, you know, I’ve been in real estate for quite some time, or since the early 2000s. My wife and I were actually flipping homes way back then. And, uh, you know, we just watched some shows on HGTV and we thought, oh, that looks pretty cool. We could do that ourselves. So we started getting into it and it was going very, very well. Um, I got my real estate, my broker’s license out here in California in 2006 because I was getting all my deals on the market, you know, it’s just working out deals with, with MLS listed properties. And I did it just to kind of get better access to deals and maybe say that buyer’s commission that would help the numbers work a little bit better. But then when the market crashed here in 2007, 2008, it kind of came in handy because at that time, you know, it was the foreclosures that was what’s happened, what was happening and what was selling. And I thought, well, I can position myself to these banks as being a listing broker for these properties, an Ario listing broker. And that’s what I did for two, three years. That was kind of my, my My whole focus was just doing that. And that was a good business at the time. You know, there’s a lot of transactions happening and I was thankful to be able to have that in a time where a lot of people in real estate were struggling. So that was, that was good, but it’s not the best business to be in. There’s a lot that goes into that and a lot of emotions and things that, uh, you know, are not the best. So that, uh, did lead me to a bunch of great connections with larger companies that were buying up. foreclosure properties and just either holding them or flipping them. So for a while after that, I just sort of focused on finding them deals. And they would buy as many deals as I could bring them that fit their, their criteria. So that was kind of fun for me. I wasn’t doing any sort of investing myself after the market crashed. I guess I was gun shy. That’s the time I should have been buying up properties, but instead I was doing the opposite, but live and learn. So, so then that kind of led me to, after a while, I got a little bit burnout on just dealing with clients and things on the, on the, that side of things. And then started up a business with my wife, um, online education business related to blogging and travel blogging. So she hadn’t established travel blog and blog at that time and tons of people asking her how to do it. So we created a whole business around that showing other people how to do that. That was really successful and, uh, had a really good run. We just kind of, um, lost a little bit in interest in that. And I knew I needed to get back into real estate investing and I just didn’t know what model to choose. And then was doing some reading and research online and I stumbled into some stuff about people who were doing land flipping, so anecdotes of people buying a property for 10,000, selling it for 30,000, you know, in a couple of months. And I thought, well, that’s pretty cool. I like to buy and sell stuff and I like this, that profit percentage. So. So I just kind of bought a course on it and I went all in, learned how to do the business model and learned how to evaluate land. And then in 2021 was the first, March of 2021 was when I flipped our first piece of land and that just kind of started a whole chain reaction of things. So that first year did about 1.2 million and some change at about 50% gross profit margin. And, you know, there’s a partial year and then 2022 did about 3.5 and, uh, just shy of 50% gross profit margin and then 2023 looking to do 10 million. So I’m trying to scale it as high as I can.
Dave:
Wow, that’s really awesome. You know, I love the ingenuity and innovation, right? In this space as being, being an entrepreneur, being an investor, you know, you get to be so creative with these types of things and how you were able to kind of put the pieces together and make it work for you. Before we jump into some of the nuts and bolts, can you just share with the audience a little bit? We like to talk a lot about, you know, wealth strategy and if you have, you know, certain portfolio allocation and coming from real estate, now that you have land, is everything in land or do you have a particular wealth strategy that you’re following today?
Pete Reese:
Yeah, I guess my wealth strategy is I’ve got my land flipping business, which is the cash generator. It’s a short-term cash type business. These holds are generally 60 to 90 days, so everything’s moving quickly. There’s no real tax advantages to doing any of those types of deals. No depreciation, no long-term capital gains or anything like that, or no 1031s. We don’t do any of that stuff with this. It does allow me to then, it does generate a considerable amount of profits. And then we, we’ve been buying rental properties and different commercial type properties to use for accelerated depreciation to offset that income. So that’s kind of how we’re canceling it out and kind of the overall wealth strategy is just generate generate as much cash as we can in this business. And then funnel that other money into long. longer term holds or longer term, you know, maybe value add plays in some way, but they’re going to be long term investments. So
Dave:
Yeah.
Pete Reese:
that’s kind of the main strategy.
Dave:
Yeah, no, that’s a, that’s a great strategy. And are you buying like commercial real estate local to you or in syndications or
Pete Reese:
Anywhere, we haven’t done any syndications or anything. I mean, we bought a motel in Wisconsin. It’s not really a motel, it’s a collection of mini cabins, 18 mini cabins, so that’s a project that we’re working on. Bought some other units and things in North Carolina and just always kind of looking. I guess the good part about this is that we’re making profits, but the bad part is we’re kind of feeling under the gun that we’ve gotta buy a certain amount of properties. you know, each year or we’re going to be paying a lot in taxes. So it’s a good problem to have. I can’t complain about
Dave:
Yeah,
Pete Reese:
that.
Dave:
it’s a good
Pete Reese:
Right.
Dave:
problem to have. Do you
Pete Reese:
Yeah.
Dave:
but do you have anything any systems in place? Or is your wife helping you with manage some of these properties because they’re not local to you and you know, you have to have an active role.
Pete Reese:
Yeah. Um, you know, at this point I’ve, I had a project manager on our team and didn’t quite work out. So. Looking for a new project manager that’s going to help me manage these properties. For, but for right now it falls on me and my, my wife helps out a lot with that as well.
Dave:
Yeah, yeah. Awesome. So tell us a little bit more about the land flipping. Can you walk us through like an end to end example? Because I think this is probably new to a lot of listeners on, you know, how it actually works.
Pete Reese:
Sure, yeah, so it’s a pretty simple business in a way. We generate all of our deals with direct mail. So we send out actual letters to the people in the mail. First of all, to back up before that, we actually build a list and we pull a list from DataTree or PropStream, one of these services that collect data. And we’re just doing a basic filter. We’re looking for vacant land and we’re looking for a certain. property size. Generally, we’re looking at most of these areas we’re dealing with. We’re looking at properties that are 10 acres and above. So we’re looking at those basic filters, and we’ve got some other things that we filter out as well. But we’re building a list, and then we look at average price per acre in each of these areas that we’re mailing. So we might take a particular county, and we’ll look at the comps, and we’ll say, okay, average retail price per acre is 10,000 an acre. And then we back off a percentage from that, and then we generate an offer price per acre, basically, in those type of areas. So we send out actual offers. So the first page, it’s a two-page letter. First page is kind of like who we are, why we’re contacting them, what we can do for them. Second page is an actual purchase agreement with an offer amount on there, their parcel number, the acreage, and some real basic terms. And some people respond and say, and are really angry at me that I offered a low amount for their property in their eyes. Some people are interested in sign that offer and mail it back to me. Some people call up and are interested in selling, but they want a better price or something like that. So when they respond, that’s where we really dig into the looking into their property individually and seeing if we could work out a deal. So we do that, we buy these properties. off market, directly from these sellers. As soon as we get a contract signed, we go through a whole due diligence process. We send out a photographer, we get broker opinions, we have a whole list of due diligence things, bunch of calls and things like that that we make on these properties to try to determine if it’s a buildable property or what it is that we’re getting and make sure there are no red flags on that property. We also run every deal through an attorney, title company, escrow company, depending on the state. So there’s that title search and sometimes things come up in that title search that sometimes can be corrected, sometimes they can’t, but we just make sure that any of the properties that we’re buying are insurable and we get title insurance on those. And then after we close on them, we’ve been closing on them with our own cash, and then after we close on them, we then go ahead and list it with a local agent or land agent or broker and try to sell it as quickly as we can. And sometimes we do some minor value add stuff to these properties. And sometimes we don’t just depends on what that particular property is.
Dave:
Wow, and you’re getting a 50% margin on those flips.
Pete Reese:
Yeah, our goal
Dave:
And I’ve.
Pete Reese:
is always to double our money on the deals that we do. So buy a property for 50,000, sell it for a hundred thousand. Now it doesn’t always work out that way, but that’s kind of the benchmark that we try to shoot for. Uh, but, uh, you know, on average, you know, we’re probably our average deal. Last year we made $23,000 profit on each deal. Um, so it’s just, um, you know, and we’re constantly trying to do bigger and bigger deals. It’s, uh, you know, to. to get that figure up, but
Dave:
Sure. And on the
Pete Reese:
overall
Dave:
acquisition
Pete Reese:
it’s pretty
Dave:
side,
Pete Reese:
good.
Dave:
are you focusing on particular markets? Do you have a kind of a sweet spot or niche that you’re going after?
Pete Reese:
Yeah, we’ve been really focusing, last year especially, and a portion of this year, really focused on the East Coast, kind of like New York down to Florida, kind of
Dave:
Hmm.
Pete Reese:
all the states in there. But we really wanna expand to a bunch of different markets. How it kind of works in this business, how it’s worked for us, is that we’ll test a certain market, send some mail there, see if we get any momentum, any deals in that particular area. And then we tried to build the team and the infrastructure around there, and if we can, find good people to work with. land broker, agent, and title company and things like that. If we can find good pieces to kind of help us in those particular areas, then we try to do more and more business in those areas and kind of really start. It’s almost like a little satellite operation in all these little areas. So we’re trying to expand into as many different little areas as we can. And we’ve been expanding westward. So I’ve done deals in random other places, Washington State and California and kind of all over, but… But the East Coast has been our focus to this point, but I’m not, I’m not solely limited there. I I’ll do a deal anywhere.
Dave:
Yeah, interesting. And can you tell us a little bit like some more around the metrics, right? You know, does it take, for instance, a hundred offers before, you know, you actually get one accepted, you know, what are you seeing or 20 or, or, or what is it, what is the uptake?
Pete Reese:
Yeah, the main metric that I look at is the cost per deal,
Dave:
Okay.
Pete Reese:
mail cost per deal.
Dave:
Okay.
Pete Reese:
So it’s been averaging about $3,000 per deal, which for the volume of mail that I’m sending, it’s about 6,000 letters for one deal. So the other metrics I know that some people look at are call response rate and things like that, but that really is difficult to… kind of quantify because so much of it depends on the amount that we put on an offer. Like if I offer a certain percentage, like a higher price on these properties, I’ll get a great response rate. I won’t get as many deals, you know, but I’ll get a higher response rate. So I just kind of look at the end of the road, like what is the important metric, and it’s cost per deal. So. If it cost me $3,000 to generate one deal, on average we’re making $23,000 per deal, then it’s a pretty good return on investment.
Dave:
Yeah, yeah. No brainer. And, and what about from a time perspective, right? I mean, how, how much, how much time is involved in, in doing this?
Pete Reese:
Well, there’s a lot of different things that go into it. You know, it just depends on what kind of scale you’re doing. You know, at the level we’re trying to go to, I’ve got a bunch of staff built up that kind of do a lot of these different pieces of the business for me. When I first started, it was me and an assistant that I had that I brought over from another business, and I was doing pretty much everything, and then sort of the administrative type tasks I would sort of offload to him one by one, and then… I started hiring for specific roles. You know, I’ve got, I mean, at this point I got a pretty big team. I’ve got two acquisition managers that are doing all the communication with the sellers that call in or email in or text in whatever the case may be. And then I’ve got a head of acquisitions and he kind of looks at all of these deals that come in, determines value, determines if we want to buy the property or not, then I’ve got a transaction manager and she handles all the transactions on the buy side. And then when we resell it, you know, communicating with the attorneys, title companies, all that kind of stuff that goes into it. I’ve got a list manager. I’ve got someone that is a lead and due diligence manager that enters everything into our CRM and then also orders all the due diligence. Once we get a property under contract. Um, and then I’ve got an executive assistant. So all the, I’m, I’ve got a lot of different people helping me out at this, this point. And at this point, I’m kind of just. approving deals, I’m kind of trying to improve processes within our business, and putting out fires and solving problems and things like that. But eventually I wanna hire someone to take over that role for me, and so then I can just kind of think and work big picture. But it’s possible to do as a side hustle type thing. It’s just not sending out 100,000 letters a month like what we’re doing right now.
Dave:
Yeah,
Pete Reese:
So.
Dave:
that was exactly where I was going with this, Pete, right? Because we have a lot of investors out there that might be W2, right? And they have decent W2 positions, but they’re looking to increase capital, free cash flow to be able to invest in different opportunities and continue to scale. And this sounds like a really intriguing way to be able to do this as like a side hustle. What
Pete Reese:
Yeah, very
Dave:
would
Pete Reese:
lucrative
Dave:
you? What
Pete Reese:
side
Dave:
would you
Pete Reese:
hustle
Dave:
think?
Pete Reese:
too.
Dave:
Yeah.
Pete Reese:
Like there’s a lot of things that you can do, like if you’re setting it up that way. First of all, I have a phone service that basically they answer the phone for us 24 hours a day. I don’t have anyone on my staff to do that, I hire that portion out. And then they send an email with the lead information. Then I have my acquisition managers calling back. But if you were gonna do it as a side hustle or something, you would just cherry pick the ones that you wanna call back, that would be good potential deals. call them back, email them back, whatever the case may be, and then work out those deals. And then you can bit piece certain add-ons where you don’t have to have a member of your staff, like have a full-time staff member doing them, like a transaction manager can be a transactional type thing that you hire as needed on transactions. I would definitely recommend, as soon as you’re able, to hire an assistant that you can train maybe from overseas or something to keep the costs down. And you can train them to do sort of those administrative type tasks that are very repetitive and that would free up a lot of time. But I know a lot of people that do it as a side hustle and, you know, they’re, they’re very happy to do a deal a month or, you know, something like that. And that can be like very, very life changing, you know, to be. Do an extra deal a month, you’re making, you know, 10, 20 grand on that deal. I mean, that’s, uh, it doesn’t take too
Dave:
Yeah.
Pete Reese:
long before, before people are starting to really wonder like if they want to stay in their W2 job or not, even if it’s very high paying.
Dave:
Yeah, 100%. I think that’s great. And so do you actually offer some kind of training or program to help people do that now?
Pete Reese:
Yeah, so I’ve got a website, it’s called turningprofit.com, where every month I do a monthly income report where I break down everything that happens in our business. Basically, the revenue in our business, the profit, each and every deal that we did that month, like what we bought it for, what we sold it for, the profit on that deal, notes on that deal, how many days we held it for, everything. I try to be as transparent as I can. And the goal with that is to kind of show people what’s possible in this business. And, uh, you know, so, so if it is interesting to them, then they could kind of see if it’s a, something that might align with their skillsets, but, and then I’ve, I started up this community, a land flipping community where we’ve got people that want to learn how to flip land and I’ve got a bunch of experience in land investors in there doing over a million dollars a year. Just And I’ve got people collaborating, funding deals, like all kinds of stuff. It’s, it’s been really, really cool to see it grow. So I’ve been putting a lot of effort into trying to build that community. And I’m actually working on a training program that would probably be released in the next two to three weeks, but doing everything I can to make it as, as good as I possibly can, and that’s being released for free in the community. So I don’t have anything to sell at this point, but you know, at some point I’ll probably do some sort of mentorship program. People look. are interested, but at this point I’m just trying to put out as much value as I can. And you know, if some people find it valuable and able to do some deals, that would make me pretty happy. And plus, I want to be able to partner with my students as well, you know, so I’d love to be able to train people how to do this and then they find the deals, I’ll fund the deal for them and then we split the profits. So
Dave:
Yeah.
Pete Reese:
I think that
Dave:
Yeah, that’s
Pete Reese:
that
Dave:
really,
Pete Reese:
would be
Dave:
that’s
Pete Reese:
a.
Dave:
really awesome, Pete. I think, you know, being in a group of like-minded people, right. And always learning, always not being the smartest person in the room is really key to growing. But, you know, I think this is really an awesome side hustle. And, you know, there’s so many opportunities, right. As much as there’s so much craziness in the world going on right now, it’s also one of just the best times to be alive. Right? I mean,
Pete Reese:
I agree.
Dave:
the ability to start a business, you know, from your house, even if you’re 16 years old, you know, nowadays, it’s really staggering. So I think it’s really thought provoking for people to kind of, you know, listen to this idea and look at your scale. I mean, how fast you are able to scale is really impressive. And then, you know, if you can create some kind of side hustle, it could… It could certainly create an additional revenue stream for you, right? Which is always good, right? Having that alternative revenue stream, but it also could actually be a gateway for you into entrepreneurship, right? To leaving that W2 and really focusing on your strengths.
Pete Reese:
Yep. I’ve got, you know, kind of one example of that, which I think could be maybe interesting to people. I’ve got three daughters, two of them, 23, 20, are my two oldest ones. And they saw what I was doing with the land flipping and they kind of took an interest with it. And they, you know, we have them as employees of our company, so we have them doing some, you know, some tasks and things. So I had them doing, you know, evaluating properties for me and things at one point. So they’re very, very like interested. in the business and they said, well, dad, can we start doing some deals too? And I said, well, why not? I think, I think that would be a great thing. So they, um, they had about $8,000 that they had started with that they pulled together and they had a corporation form they were going to do a different business with, but that, that never took off, but so they had the entity form. They had $8,000 that they pulled together. And what I did was a couple of the, you know, smaller deals and things that, um, were not going to be very impactful for me. I thought, well, I’ll just let them have it if they want to do it and kind of try their hand at this. So, um, to make a long story short over the course of a little over a year, they parlayed that 8,000 into 84,000 and, uh, you know, about six deals, I believe it was, and, uh, they learned how to do the whole process and, you know, it was very lucrative for them. They live with us still, so they don’t have a lot of expenses and
Dave:
Thanks for watching!
Pete Reese:
they just were able to keep that money and just keep it rolling.
Dave:
That is so awesome, Pete. I love to hear those stories. Minor in my 20s as well. And, you know, we have household masterminds and we have since they were in high school. And it’s so great to be able to take all of these learnings that right that it took us, you know, so
Pete Reese:
Yeah.
Dave:
many decades to figure out all of this stuff and, and to be able to pass this on to our kids is just so powerful so that they can think differently. for themselves, they can be independent. Because a lot of this also is around autonomy. If you can learn at that age that you can create your own capital and income at that point, well, maybe I don’t necessarily need to take this W2 path. That’s maybe not necessarily for me. And it’s just the
Pete Reese:
different
Dave:
beginning
Pete Reese:
world
Dave:
of
Pete Reese:
these
Dave:
the journey.
Pete Reese:
days.
Dave:
Yeah.
Pete Reese:
Yeah.
Dave:
Yeah.
Pete Reese:
Yeah, it’s crazy. I always talk about that. Like I think a lot of people are kind of, you know, like thinking about things the way they used to be instead of what they are right now and what they’re gonna be in the future. And really when you think about it, work is really just a way to earn money. And if you can figure out a way to earn money and where you’re enjoying yourself and you don’t have to go work for someone else, then I think that’s a pretty viable option.
Dave:
Yeah, for sure. It’s really a system, right? I mean, they’re trying to put us into a system from grade school, right? That’s really kind of archaic, right? And it’s been around forever. But now if you have that ability to really not have someone telling you what to do, where to be, and you’re learning skills like critical thinking, problem solving, right? Creating value. you understand those kinds of skills. These are the kinds of skills is what, you know, people need in the future. So really great to see that, you know, you pass that on to your kids and, you know, we share the same philosophy on that front. So Pete, what do you think, you know, clearly, you know, you’ve accomplished a lot. I know it looks like health is your passion, which is one of our passions as well around, you know, being holistic in terms of building your wealth, but from a personal development perspective, what’s the one practice that has yielded the biggest results for you?
Pete Reese:
Consistency and persistency, I guess, but mainly the consistency part of it. I’m a very regimented guy, and I didn’t used to be that way when I was younger. I picked it up over time, and I kind of realized that whenever I could be super regimented about something, something that’s important to me, that great things will follow. And now I’ve built my life in the way that I’m super regimented about everything. to the point where my wife makes fun of me that I’m too regimented and too rigid on some of these things, which maybe she’s got a point. But I wake up the same time every day, go work out the same time every day, eat the same stuff every day for the most part. I’m very into time blocking and things like really controlling my schedule. So all these things, and the consistency of it is really where the key is. It’s easy to just kind of start something and do it for a couple of days and then move on to something else, but you’re never gonna get great results that way. You have to really consistently do the same thing over and over again to get those results. You know, like the, I don’t know if you’ve ever read the book, Atomic Habits, but it’s a
Dave:
Chains
Pete Reese:
very,
Dave:
clear, yeah.
Pete Reese:
yeah, it’s a great book about that concept. But it just, you know, you gotta put the habits in place in order to achieve those goals. It’s not like just setting a goal and somehow hoping it’s gonna happen. It’s about putting those actual steps into place. And the consistency that I’ve been able to, you know, to put into my daily routines and everything like that has helped me achieve a lot and hopefully will allow me to achieve a lot more in the future.
Dave:
Yeah, such a great point. And I think really, you know, when you think about the process of, you know, wealth building, it’s just that, right? It’s a process, you know, but but unfortunately, we were kind of trained to think that it might be a product or an event, like I might win the lottery, I might exit a business for eight figures, or something. But when you can create that consistency and focus on the process, the outcome will come. You know, but it’s so important to lay that groundwork and have that done. I should share with you, if you haven’t heard of the Colby test before, but a lot of our listeners, we have talked about this before and it’s something that measures actually your instinctual wiring and how you think in four different domains. And the second one is called follow-through, which is like how systematized of a thinker you are. So. For you and I, we actually, I can guarantee you’re very high on that one. That’s my highest one as well. And that’s why when I think about wealth, like I’m trying to put this entire process into something that’s repeatable, right? And it’s a system, right, of how you can build wealth. So just like you do that. But it’s interesting. You should take a look at it. And also if the listeners haven’t heard it, it’s colby, K O L B E dot com. And we’ve had our whole family do this as well. And it’s so cool because you can find out people’s strengths versus where they’re not so good at certain areas. And then you can build so much more harmony on your team, in your household, with how you think, because it’s more natural to you.
Pete Reese:
Yeah, I love
Dave:
So.
Pete Reese:
it. I appreciate it. I’ve heard of that, but I’ve never dug into that at all. So I’ll check it out for sure.
Dave:
Yeah, yeah, it’s a really good concept. Pete, if you could give just one piece of advice to listeners about how they could accelerate their wealth trajectory, what would that be?
Pete Reese:
Yeah, get really, really good at one specific niche within real estate. Since we’re talking about real estate and wealth building associated with that, if you get really, really good in one area, become an expert. Read everything you can, watch as many videos you can, listen to as many podcasts as you can about that particular subject. Don’t get caught in the shiny object syndrome where you’re kind of chasing all these different things. Find one model that someone’s already. figure out how to do it, don’t reinvent the wheel, learn everything you can about that and then just repeat it over and over again. It’s not rocket science at all. It’s just, you do have to get really good in one area though in order to get some of those returns.
Dave:
Awesome. And if people wanna reach out to you, Pete, and learn more, can you talk to, tell us about those links again so we can make sure they’re in the show notes for everyone?
Pete Reese:
Sure. Yeah, so turningprofit.com, that’s our website where I’ve got all those income reports on there. And that’s the name of our podcast that we have as well where we talk about real estate investing and landflipping, which our podcast is on all the podcast platforms. Just search turning profit. You can also find it on YouTube and we’ve got a bunch of other videos on YouTube. And then our land community, our landflipping community, if you just go to landconquest.com, You’ll see buttons on there that you can join the community. And then that’s where you’ll get access to the free training that I’m releasing in there. And, um, so I also do a zoom call normally once a week. I’ve got one later today, two hours about each call. And basically all I’m doing is evaluating properties. You know, people submit their deals that they’re working on and I just. Go through them live on my screen show how I evaluate deals, what I think it’s worth. And, uh, people I think find that pretty valuable because that’s really how I learned the business, you know, like how I learned to evaluate property, seeing someone else do that. So I figured it would be pretty valuable to kind of pass that on.
Dave:
Yeah, awesome. I love that ethos as well is really what’s in it for them and trying to create value for others the whole time. So Pete, thanks for coming on the show today and creating so much value for the audience. I think this was really insightful and definitely worth looking at, especially if you’re considering a side hustle or you’ve been thinking about getting into entrepreneurship. this could be like a really nice niche to get into.
Pete Reese:
Yeah, well, thanks for having me, Dave. I really appreciate it.
Dave:
You bet, Pete. Thanks.
Lior,
Lior Gantz, WealthResearchGroup.com:
Lior,
Dave:
welcome
Lior Gantz, WealthResearchGroup.com:
welcome
Dave:
to the show.
Lior Gantz, WealthResearchGroup.com:
to the show. Thank you for having me.
Dave:
Yeah, really
Lior Gantz, WealthResearchGroup.com:
Yeah,
Dave:
looking
Lior Gantz, WealthResearchGroup.com:
really
Dave:
forward
Lior Gantz, WealthResearchGroup.com:
looking
Dave:
to
Lior Gantz, WealthResearchGroup.com:
forward
Dave:
this discussion,
Lior Gantz, WealthResearchGroup.com:
to this discussion,
Dave:
Lior,
Lior Gantz, WealthResearchGroup.com:
Lior.
Dave:
you have
Lior Gantz, WealthResearchGroup.com:
You
Dave:
such
Lior Gantz, WealthResearchGroup.com:
have
Dave:
an
Lior Gantz, WealthResearchGroup.com:
such
Dave:
interesting
Lior Gantz, WealthResearchGroup.com:
an interesting.
Dave:
background, um, even when you grew up and really how you got into the space,
Lior Gantz, WealthResearchGroup.com:
space
Dave:
uh, as well
Lior Gantz, WealthResearchGroup.com:
as
Dave:
as
Lior Gantz, WealthResearchGroup.com:
well
Dave:
today,
Lior Gantz, WealthResearchGroup.com:
as today
Dave:
I find
Lior Gantz, WealthResearchGroup.com:
I find
Dave:
that,
Lior Gantz, WealthResearchGroup.com:
that
Dave:
um, you know,
Lior Gantz, WealthResearchGroup.com:
you
Dave:
in terms
Lior Gantz, WealthResearchGroup.com:
know
Dave:
of
Lior Gantz, WealthResearchGroup.com:
in terms
Dave:
information
Lior Gantz, WealthResearchGroup.com:
of information
Dave:
sources that
Lior Gantz, WealthResearchGroup.com:
sources
Dave:
are out
Lior Gantz, WealthResearchGroup.com:
that
Dave:
there,
Lior Gantz, WealthResearchGroup.com:
are out
Dave:
right.
Lior Gantz, WealthResearchGroup.com:
there
Dave:
There’s
Lior Gantz, WealthResearchGroup.com:
right
Dave:
so
Lior Gantz, WealthResearchGroup.com:
there’s
Dave:
many,
Lior Gantz, WealthResearchGroup.com:
so many
Dave:
uh, media
Lior Gantz, WealthResearchGroup.com:
media
Dave:
sources,
Lior Gantz, WealthResearchGroup.com:
sources
Dave:
news sources,
Lior Gantz, WealthResearchGroup.com:
news sources
Dave:
talking
Lior Gantz, WealthResearchGroup.com:
talking
Dave:
heads,
Lior Gantz, WealthResearchGroup.com:
heads
Dave:
you know, you
Lior Gantz, WealthResearchGroup.com:
you know
Dave:
name
Lior Gantz, WealthResearchGroup.com:
you
Dave:
it,
Lior Gantz, WealthResearchGroup.com:
name it
Dave:
right, that
Lior Gantz, WealthResearchGroup.com:
right
Dave:
I
Lior Gantz, WealthResearchGroup.com:
that
Dave:
would say
Lior Gantz, WealthResearchGroup.com:
I would say
Dave:
have particular
Lior Gantz, WealthResearchGroup.com:
particular
Dave:
agendas,
Lior Gantz, WealthResearchGroup.com:
agendas
Dave:
right.
Lior Gantz, WealthResearchGroup.com:
right
Dave:
and that want you to think a certain way. But what I’ve found in discovering
Lior Gantz, WealthResearchGroup.com:
in discovering
Dave:
you
Lior Gantz, WealthResearchGroup.com:
you
Dave:
over the past
Lior Gantz, WealthResearchGroup.com:
over the
Dave:
couple
Lior Gantz, WealthResearchGroup.com:
past
Dave:
of years
Lior Gantz, WealthResearchGroup.com:
couple of years.
Dave:
and following Wealth Research Group, you are one of the few sources
Lior Gantz, WealthResearchGroup.com:
sources
Dave:
of data
Lior Gantz, WealthResearchGroup.com:
of data
Dave:
that I’ve found
Lior Gantz, WealthResearchGroup.com:
that I found
Dave:
that I
Lior Gantz, WealthResearchGroup.com:
that
Dave:
allow
Lior Gantz, WealthResearchGroup.com:
I allow.
Dave:
into my filter that’s making
Lior Gantz, WealthResearchGroup.com:
making
Dave:
really
Lior Gantz, WealthResearchGroup.com:
really
Dave:
intelligent
Lior Gantz, WealthResearchGroup.com:
intelligent
Dave:
decisions,
Lior Gantz, WealthResearchGroup.com:
decisions,
Dave:
understanding
Lior Gantz, WealthResearchGroup.com:
understanding
Dave:
trends,
Lior Gantz, WealthResearchGroup.com:
trends,
Dave:
providing
Lior Gantz, WealthResearchGroup.com:
providing
Dave:
insights
Lior Gantz, WealthResearchGroup.com:
insights
Dave:
into.
Lior Gantz, WealthResearchGroup.com:
into
Dave:
all the things
Lior Gantz, WealthResearchGroup.com:
all the
Dave:
that
Lior Gantz, WealthResearchGroup.com:
things
Dave:
are happening
Lior Gantz, WealthResearchGroup.com:
that are happening
Dave:
in the world
Lior Gantz, WealthResearchGroup.com:
in the
Dave:
today
Lior Gantz, WealthResearchGroup.com:
world today,
Dave:
and also
Lior Gantz, WealthResearchGroup.com:
and
Dave:
from
Lior Gantz, WealthResearchGroup.com:
also
Dave:
a global
Lior Gantz, WealthResearchGroup.com:
from a
Dave:
perspective.
Lior Gantz, WealthResearchGroup.com:
global perspective.
Dave:
So
Lior Gantz, WealthResearchGroup.com:
So
Dave:
I think
Lior Gantz, WealthResearchGroup.com:
I think
Dave:
the audience
Lior Gantz, WealthResearchGroup.com:
the
Dave:
is
Lior Gantz, WealthResearchGroup.com:
audience
Dave:
really going
Lior Gantz, WealthResearchGroup.com:
is
Dave:
to
Lior Gantz, WealthResearchGroup.com:
really
Dave:
enjoy
Lior Gantz, WealthResearchGroup.com:
going to
Dave:
this
Lior Gantz, WealthResearchGroup.com:
enjoy
Dave:
today,
Lior Gantz, WealthResearchGroup.com:
this today,
Dave:
but
Lior Gantz, WealthResearchGroup.com:
but
Dave:
why don’t we start
Lior Gantz, WealthResearchGroup.com:
why don’t
Dave:
things
Lior Gantz, WealthResearchGroup.com:
we start
Dave:
off
Lior Gantz, WealthResearchGroup.com:
things
Dave:
with
Lior Gantz, WealthResearchGroup.com:
off with
Dave:
telling everyone
Lior Gantz, WealthResearchGroup.com:
telling everyone
Dave:
a little bit about
Lior Gantz, WealthResearchGroup.com:
a little
Dave:
your
Lior Gantz, WealthResearchGroup.com:
bit
Dave:
background
Lior Gantz, WealthResearchGroup.com:
about your background
Dave:
and how
Lior Gantz, WealthResearchGroup.com:
and
Dave:
it all
Lior Gantz, WealthResearchGroup.com:
how
Dave:
started
Lior Gantz, WealthResearchGroup.com:
it all started.
Dave:
for you.
Lior Gantz, WealthResearchGroup.com:
Well, first of all, I appreciate all the compliments. In terms of how I got started in investing in business, the sort of the background has to do with my father’s business, which was furniture or upholstery and then furniture. But anyways, it didn’t go well. And by the time I’m 13, that business kind of goes under and I begin to work just because I can’t. Asked my parents for money or anything so some babysitting and I’m tutoring in the neighborhood like basketball like young kids six-year-olds just the fundamentals and and then I Did you know the scoreboards for for basketball games? I got paid for that handing out flyers the whole thing and by the time I’m 16 I’m delivering pizzas and sushi and this and that and just saving money just saving a lot of money and depositing it in the bank account. So at some point one of the bankers calls me into his cubicle and this is like I think around the year 2000. I’m 16 then and he says look You’re saving a lot of money. Why don’t you put it to work? He kind of prints out from a printer like a summary of why the Chinese economy is gonna blow up in a good way and this was like 2000 So he says, start looking into mutual funds. And then I buy books, I buy like Peter Lynch book and Warren Buffett books, and I’m the kid in high school that has like the history book and then inside of it there’s like an investment book. And I’m starting to put money into the stock market as a teenager. I actually had to get my parents into the branch to sign like a waiver. So I can, I don’t know if they do it today as well, but. if you’re under 18. So then because I’m Israeli at 18, you finish high school, you go to the military for three years and when I get discharged, it’s late 2006 and because my dad’s second go-around in business didn’t go well as well, he kind of wiped out all the savings he had left. So at that point, I’m 22 and there’s no cushions from Family savings or anything else I have to like figure it out on my own and At the same time the world seemed to be ending. It’s 2007-8 and You know, it looks very grim. We’re going to do a huge recession and I’m trying to figure out what to do I go to the states and I actually get into real estate but the first thing I do from the airport is go into a Barnes & Noble because I’ve heard a lot about it and it Was my first time going to the states as an adult and I picked up a gold and silver book. So at the same time that America is on sale, I also start to understand the world of the Federal Reserve and inflation and everything that has to do with that because up until that time between 2000 and 2008, I invest in a way that’s Peter Lynch and Warren Buffett, what you love and what you know, and just talks. So 2009 onwards is sort of the new investment strategy and the business strategy where you combine real estate stocks alternatives which is at that point just gold and silver but grows to be more but also that train of thought that it’s best to be more aggressive when everyone else is exiting the building or that contrarian view sort of kicks in in my brain and funny enough in Hebrew. we don’t have a word for a contrarian. So it’s even like when I talk to then people my age 25, 26, and I tell them, look, I’m trying to be a contrarian about this recession, I can’t even find the right word in Hebrew. Anyways, through that period of 2009 to 2015, I expand my businesses, I open more businesses, But in 2015, I’m 30, but I see that other 30 roles don’t investigate or don’t research, as you say, the same content that I am. They’re not even interested in that content. And I just found it insane that I can’t speak to them on the same level, most of them. And that’s how I… The idea for wealth research group… as a free financial newsletter just to gather my thoughts and put into writing came about but it attracted people that are not just my age group. So 2015 I founded Wealth Research Group and early 2016 actually the first articles go out and it’s a free financial newsletter. The idea is to three times a week. gather everything that I see and read and study in the financial markets and just life in general with emphasis on economics, investments in lifestyle and everything that I talk about with the fund managers, CEOs, et cetera, and put it in three, five minute, six minute read articles that are very generic and up to date. And if I see anything interesting that’s more actionable to also put it as a point of reference for people to learn more about. So for example, my entire portfolio is actually out in the open. If you go to wealthresearch.com.com. You can download my entire stock market portfolio. So it’s a marriage of both generic and personal.
Dave:
Wow, that’s awesome. I find it so fascinating how people’s background really shapes them. Right. And, um, I was actually in the military as well. I traveled to Israel and
Lior Gantz, WealthResearchGroup.com:
Oh,
Dave:
I got to
Lior Gantz, WealthResearchGroup.com:
wow.
Dave:
spend some time, yeah, working with some, uh, Israeli soldiers and it was so fascinating, you know, that they all have to serve, you know, uh, you know, growing
Lior Gantz, WealthResearchGroup.com:
Mm-hmm.
Dave:
up and you know, that, you know, that really leaves an indelible mark on you. You know, being in the military, understand what’s going on from kind of a global perspective and also, you know, concepts such as freedom, right? Which I think is really behind the curtain to a lot of investing, right? And what money really means, it’s actually trying to create more freedom in your life. And not to mention, you know, the people you get to work with and the, the teamwork and things like that. But, but it’s interesting how that kind of, you know, shapes your view, uh, on the world as well. Um, but why don’t we talk Lior, you know, really specifically, I think investors are really wanting to know, like just how do you make sense of all the things that are going on today? I mean, it’s just. It’s almost mind boggling, although we’ve been here right for, for really centuries, it goes back in time, right? With, uh, different wars, you know, geopolitical events, um, energy crisis,
Lior Gantz, WealthResearchGroup.com:
energy crisis.
Dave:
right, all of these different types of things. Um, but how would you kind of, you know, frame this whole thing
Lior Gantz, WealthResearchGroup.com:
this whole
Dave:
and
Lior Gantz, WealthResearchGroup.com:
thing
Dave:
how would
Lior Gantz, WealthResearchGroup.com:
and
Dave:
you
Lior Gantz, WealthResearchGroup.com:
how
Dave:
really
Lior Gantz, WealthResearchGroup.com:
would you
Dave:
assess
Lior Gantz, WealthResearchGroup.com:
assess
Dave:
all of these
Lior Gantz, WealthResearchGroup.com:
all
Dave:
different
Lior Gantz, WealthResearchGroup.com:
of these
Dave:
data
Lior Gantz, WealthResearchGroup.com:
different
Dave:
points
Lior Gantz, WealthResearchGroup.com:
data?
Dave:
within the economy and where we are in the cycle right now?
Lior Gantz, WealthResearchGroup.com:
Mm-hmm. Okay. I think that when you look at COVID-19 as an event, you would think that a global crisis would have led to a massive unified corporation, G20, G7, the UN, etc. And it didn’t. There was a lot of finger pointing between countries and a very different approach to how to solve this from various countries. Sweden never closed for a second. Australia closed and went very draconian on their citizens. China went zero COVID policies for a year further than the rest of the developed, the big economies. The United States, you had… at first a brushing off and then a big problem and then a switch of presidents. You just saw that the globalization period that we’ve been in since 1945 has ended. And essentially globalization really kicked off when the United States and the Soviet declare two victors of World War II, for each for their own reason. And the clashing between them and the atomic fears that both countries created to their citizenry that the other country is preparing for a nuclear war birthed a big period of the Cold War. But economically speaking, what had birthed was the Bretton Woods Agreement. And the Bretton Woods Agreement was the underpinning idea that the United States and its allies will have the dollar as a reserve currency backed by gold. And the United States economy will help the countries that want to follow it into Western values, etc., that will fight off the Eastern Bloc or the Soviet Bloc. By 1971, that idea fell apart and instead of defaulting on a 35 to 1 ratio gold to the dollar, Nixon decided to do a trick of wizardry and just announce on national TV that they’re temporarily cutting the ties between or that gold window, the 35 to 1 conversion. But basically he birthed the fiat monetary system or the petrodollar system where the is now used as a reserve currency not because it’s backed by gold but because it’s the international way to transact with oil especially Saudi oil that will be sold cheaply to its allies. That idea helped the United States continue to thrive through the 70s and 80s and by the time the early 90s come around the war, the cold war has been won. There’s only one superpower in the world. At that point globalization should have And instead of that, it went into hyper-globalization, where countries that really had nothing to do with globalization, or with its agendas, et cetera, were now added into this idea. And that’s why you see in the early 2000s, when America goes into war in Iraq and Afghanistan, that many soldiers are asking, why are we here? What’s the purpose of this? What am I missing? By 2011 with Obama’s speech about hey, we need to shift priorities from the Middle East. We’re done here Like there’s nothing here for us to China and then with Trump’s speech in the UN in 2018 saying hey That’s it. We’re done policing everything Now everyone needs to pay his fair share and build his own military. We’re not gonna do this for you guys and then with COVID Really showing that supply chains and globalization as an economic idea, not as a political idea has fallen apart, we are now entering deglobalization. And that is a very different environment. And in that environment, the first thing you have with deglobalization is all of the existing supply chains need to be rethought. And because of that, you can think about it like a fully furnished apartment. When you have a fully furnished apartment, but your wife doesn’t like… the furniture or your husband doesn’t like the furniture and says hey we need to replace everything. That’s very inflationary if you just purchased the whole thing and now you need to dump it and buy a new, that’s time consuming and it’s costly. And that’s what we’re doing right now. We’re changing existing systems with redundancies. We need to build them anew because of political risk, because of geopolitical risk, because of economic… arbitrage is closing between China and the rest of the world because China isn’t cheap anymore and That’s creating inflation. It’s creating inflation and sustaining inflation because we have labor shortages in the Western world and In China as well. So in the cycle where we are right now is we are in probably a 5-7 year period of Re-engineering the way that this deglobalization period will kick off. So everyone’s trying to assume their positions. And by the time 2030 comes around, we’ll have a nice picture of how this world or this economic system will look like.
Dave:
Yeah, that’s really fascinating. And I really respect your macro view on really understanding the trends, right? Because a lot of times, you know, everyone gets lost in the details because, like I said, you know, certain agendas or certain things that are top of mind, you know, what’s the Fed going to do this week or this month or what just kind of came out of the White House, right, which is impacting things. But understanding these macro trends. And then how do you align, you know, your investing philosophy around this? Right. Because I think that is one of the top three reasons why investor lose investors lose is, is not paying attention to global and macro trends.
Lior Gantz, WealthResearchGroup.com:
Yeah, I think that in general, you either are an investor that’s active and then it needs to be a passion of yours and something you love and something you put a lot of work into or you need to be a passive investor and there’s nothing wrong with that because the world on aggregate is always growing richer. over the long term, over the course of your life, if you’re invested in equities and real estate and in anything that’s productive, you’re gonna do very well. So the question is, do you wanna do it as a passive investor and kinda have a result that’s at par with the growth of the economy? Or do you wanna put a lot of effort in and see if you’re capable of creating outsized returns in terms of your personal abilities and also the amount of time that you’re going to devote to this. Or if you want to do a married approach, which is basically what I do, which is you match the passive portfolio with an active portfolio.
Dave:
Interesting. So you are really bullish then in terms of equities, real estate, just businesses investing into the future right now.
Lior Gantz, WealthResearchGroup.com:
It always I’ve never been not bullish over the course of for myself with I’m going to be 39 in two months I in in the next 30 years I’m going to be a buyer of equities a buyer of real estate a buyer of stocks a buyer of businesses a buyer of gold a buyer I’m going to be a buyer I’m going to keep buying more assets. So yeah, I do think that the world will be far richer 30 years from now than it is today. Far more efficient, far more beautiful, far more everything. It’s just on average. Some people will lose, some people will gain, but on average, GDP of countries will be bigger. Everything will be better. And that’s if you look at the human history in general. there’s never been a period where that’s not true. Just pinpoint to any year, take 30 years forward, and you can be bullish. Now, if you’re 55 to 65, and thinking about retirement and throwing away your active income altogether and living off investments and savings, then you need to figure out something else, which is time risk management, okay? Timing, and timing the market, and things that have to do with risk on and risk off because you’re not a buyer of equities anymore. You’re a buyer and a seller. Or you’re a buyer and you’re taking money out through dividends or or other cash flowing means. And if you do that then yeah you need to think in terms of cycles way more. You need to think about are we at an end of a long bull market? Are prices elevated? Etc. But for me It makes no sense over the long term to think about that. If I look at, for example, just the easiest example is Amazon stock, which was a hundred bucks I think at the height of the dotcom bubble. It was six dollars at the bottom of the dotcom bubble. And if you split adjust it, it’s worth I think like fifteen hundred today. So even if I bought at the height. of the dot com bubble and just kept buying all the way through to the bottom and then kept buying all the way up, I will have made a fortune. And that’s because I picked the right business and I didn’t have to time anything over the long term. And so it’s just a matter of your age group and whether or not you’re just a net buyer of equities or do you need to start thinking about living off of those equities. And when you do… need to start thinking about that, that’s when you need to change your thinking to preservation and defenses.
Dave:
Yeah, good point. So if you are a buyer right now, I mean, look at, I mean, BlackRock, I mean, some of the top institutions, right? I mean, people taking money off the table, right? And,
Lior Gantz, WealthResearchGroup.com:
Ahem.
Dave:
and they’re being very liquid. At this point in time, the VIX is really high, right? So I think people are looking for opportunities to be a buyer. Any particular sectors stand out for you in terms of buying?
Lior Gantz, WealthResearchGroup.com:
I think that because globalization is contracting, the arbitrages and anything that benefited from the relationship between cheap labor in China and the consumer economy in the United States or anything that’s multinational in nature is going to be going through this adjustment period. Any big, big business that has… has to change a lot of its moving parts, it’s going to take a while to recover. I think that, so those are companies that I’d love to see first of all recovery and then to accumulate shares in. And if I already have shares, just to follow the core earning calls and to understand whether or not management is doing well or not. Because the ultimate risk is basically losing your competitive advantages. I don’t care about companies going through some recovery period. That’s fine. Every business goes through that. But if they are losing to other competitors, they’re doing it better, that I do care about. And then big tech. Big tech or tech in general will suffer more from these very high interest rates compared to the zero interest rates of last decade. And so what I really want is… is the same always. I want to find companies that when I listen to the earnings calls, the CEOs are incredible. Just people of vision, somebody that when I listen to him, I say that’s exactly who I want to run a business that I own a stake in. And so it doesn’t matter the sector that much. You can make money in any sector and fight off any… sort of change or crisis, it’s about the actual people running the company. So that’s what I care about and that’s what I focus on in terms of stocks. In general, yeah, I’m very bullish on stocks and so I’m buying stocks. I’m buying stocks today, I’ll buy them next week, etc., etc. So I think that that’s the only thing I do which is defensive is create… price limit. So the fact that I love a company and listen to an earnings call and I love everything that I heard about the earnings call doesn’t mean that I’ll go and accumulate more shares. There’s a price that I’m willing to pay for what I heard. So that’s the way to be defensive, right? To set a price where you think this business should be worth and sometimes you know you I listen to seven or eight or ten. quarter of a report. So a year and a half, two years can go by before I buy a share of a company that I like. In terms of real estate, you know, in America we have a shortage of homes. It’s not gonna go away. The millennials have postponed marriage a lot. First of all, because they were not comfortable financially. They live in their parents’ homes as a, you know. as a general rule of thumb for longer than previous generations. They went to college for longer periods of time because of, you know, you need a first degree and a second degree, et cetera. And then the COVID came and postponed marriages or in dating for two years. So now you have an entire generation getting married. You have the generation ahead of them, the baby boomers that are bigger in size, mass in mass retirement. So you know, the Millennials are moving up in the corporate litter, have more money, getting married, foreign families, they need homes. And builders have just not built enough homes. So, couple those two things together, and I don’t think that we are entering a 2008 environment in real estate, no matter how high these interest rates will go. It more looks like we’re going to be in a period where people are going to be very selective. And they’re gonna think twice about what you know about purchasing a home There’s not gonna be a like a hundred offers above the listing on every single family that comes to market But yeah, the market is normal right now. I’m called normal for the single-family homes As we go into these more large transactions the either the commercial real estate or just institutions buying and selling large multifamily units, three, four, five hundred doors among themselves. That’s where I see a real freezing up. It looks like buyers are saying to themselves these sellers are not going to be able to refinance and the sellers are thinking about yeah we will be able to refinance we don’t need to liquidate this portfolio just because of higher interest rate we’re going to figure it out. So because of that buyers are not buying, sellers are not selling. they’re at a standoff. And that’s creating a major slowdown in the housing sector. And that obviously plays into this recession theme in the United States because housing is a huge sector of the economy. It’s the largest sector of the economy. And it created 70% of America’s millionaires in its history, including the former president etc. so housing is a big deal in America, construction is a big deal in America and until such time as the Fed offers more clarity that they’ve stopped raising interest rates or halted it or paused it, anything that will give solace to these interest rate sensitive industries that the Fed has kind of reached whatever… point I wanted to reach. Until such time, we will have some phrasing up.
Dave:
You had such a great analogy a couple of months ago, Lior, you were talking about doing some F1 simulation
Lior Gantz, WealthResearchGroup.com:
Okay.
Dave:
and comparing that to the Fed. And, you know, if you’ve ever, you know, taken a track car, you know, into corners, right, that it’s all about breaking before you get into the turn and then accelerating it through it. And you were making the, the analogy, right, that the Fed is just, is doing the opposite, right? of what they should be doing trying to manage inflation. So what are your thoughts in terms of, you know, where we are with the Fed right now and inflation?
Lior Gantz, WealthResearchGroup.com:
Okay, so we are by definition in an inflationary decade. So the Fed’s role, just like any central bank, is to stabilize prices. And that doesn’t mean to do what Paul Volcker did, which is basically raise interest rates double, or double interest rates overnight. plummet the economy into a recession so that prices will come down because demand will come drastically down. That’s one approach and it was appropriate at the time that Paul Volcker was at the Fed and appropriate for the time of the 1970s when the Fed several times said, hey, inflation is under control and then it went out of control so the public was in real distress as to these failures so they had to be drastic. The Fed right now is far more gradual in what they’re doing, and yet they’ve done a lot. So I think at this point, what they will start to think about is one, whether or not continuing to raise interest rates has any benefit. In other words, does raising it to 6%? really going to move the needle and if it won’t can we just stay here for a long time can we just create a new normal for interest rates and that’s what i think they will choose they’ve obviously stopped hyperinflation which 2021 was almost it was borderline hyperinflation you saw prices of lumber going nuts all commodities went really through through the roof For a combination of reasons, not just demand inflation, but just supply chains opening up and closing the whole, you know, the core of the economy and opening back up, it created a lot of issues. But once things start to normalize and stabilize, and they just couldn’t afford to let them do it on themselves, you know, at the pace of a free market, they had to intervene at some point, and they did. And then Russia and Ukraine going to war and that brings more pressure to the prices of energy. What you have essentially is a Fed that has to do more than usual and that’s what they did. They did a lot and now I think that what they’ll choose to do is either keep it here for a very long time, so at 5% for a very long time and continue to… to sell their balance sheet off and reduce their balance sheet. Because anything they do now to reduce their balance sheet will help them later if they need to combat a recession. But in my assessment of this, I think that the Fed’s role was to just smoothen out the period of inflation. Make it… as livable as possible, but they can’t change the fundamental demographic trends and geopolitical trends that have birthed this inflation worldwide. They just help us to live with it in a way that’s manageable and not crisis or panic. So when they fail, it looks like 2008 or like 2020. When they don’t fail, it just looks like a long… very lengthy cycle that has to play out. And that’s what’s happening right now. People are just adjusting to these higher interest rates to this new employment environment. And I think that what we’ll see in the second half of the year is whether or not we’ll actually go into some sort of a GDP recession. And if we do, then I think that they will start to. Gradually cut I don’t think that they will Handle this as a crisis no matter No matter if we actually go into a recession, but I don’t see a severe recession. I don’t see a 2008. I don’t see a crazy environment happening because when I listen to earnings calls of CEOs and I’ve listened to 17 so far this earnings season so in the past five days I’ve listened to over 17 hours worth of Q&A sessions, probably 150 questions posed to CEOs from various sectors. Every company in the world is doing everything it can to transition into this new world of higher interest rates, margin cutting, all the deadweight employees out of the door, pleasing shareholders with profit margins and net income. In my world, we are already so much in a recovery that it just takes a lot of time to transition the entire economy into the recovery. But a lot of, if you think about it almost like a sleeve where you go into the sleeve and then come out, then a lot of the companies are already coming out. But there’s more that need to come in. It’s just a big, long process.
Dave:
Yeah, really interesting take on that. Um, I also find it fascinating that there’s so much talk, uh, now in mainstream media about, uh, devaluation of the dollar, right? Which, you know, it’s really the whole bricks nations has been going on for years,
Lior Gantz, WealthResearchGroup.com:
Yeah.
Dave:
uh, and the move off of the Petrodollar, uh, so a lot of movement there. Um,
Lior Gantz, WealthResearchGroup.com:
Mm-hmm.
Dave:
what, what do you, what are you thinking, uh, from that perspective?
Lior Gantz, WealthResearchGroup.com:
Yeah, the BRICS is an association. It’s not even a real treaty between these countries. So I don’t see them rolling out a joint currency or disrupting the dollar for now. I do see that, I do think we entered into a bear market for the dollar that will last a few years. So I do think that the dollar will depreciate in value. Compared to other fiat currencies you can track that on the DXY. But I don’t feel threatened by Brazil and Russia coming up with the currency with South Africa and India and China to compete with the dollar for now. The dollar is sort of a, the dollar’s relationship with the world is sort of a broken marriage where the divorce would look even worse. So there’s no reason to… to go through the divorce unless you find already an alternative. And right now there is no real alternative. So that’s why central banks are buying gold at record amounts and gold is trading at all-time highs versus virtually every fiat currency in the world except for the dollar. But by the time this posts it could be also an all-time high versus a dollar. So just to kind of sum it up. The dollar has its issues. It’s not going to be the reserve currency for 100 years more. But for now, it’s certainly not threatened by other fiat currencies. I do think at some point it will be and it will probably continue as a reserve currency alongside another reserve currency engineered and brought about by the Chinese. But just keep in mind something about the yuan. Yuan is not a real currency. It’s basically pegged to the dollar. We’ve never seen a free-floating Yuan. So unless, you know, until such time as China says, hey, we want to be a currency just like the US dollar. We want to have rule of law. We want to be an open economy. We’re not going to manipulate our currency. And then we can see what that currency looks like. I think only then will… other countries be willing to really buy into this idea of buying Yuan. For the meantime they buy dollar, euro, some Swiss, some yen and gold.
Dave:
Interesting. So do you have any type of hedging strategy in place right now? I know you’re a buyer of, you know, precious metals. You know, what does your portfolio look like? Or do you have some type of hedging strategy, you know, in this market today?
Lior Gantz, WealthResearchGroup.com:
head drinking against what?
Dave:
devaluation of the dollar like you know are you doing some foreign currencies or do you have precious metals or life
Lior Gantz, WealthResearchGroup.com:
Purchase
Dave:
insurance
Lior Gantz, WealthResearchGroup.com:
metals.
Dave:
or sometimes yeah
Lior Gantz, WealthResearchGroup.com:
Yeah, I mean anything that’s valued at US dollar terms, which is everything in the world, is a good hedge against dollar devaluation to a degree, right? But what really is the hedge is the ratios between things. So for example, If I choose to buy more gold today than real estate, that ratio interests me, right? The gold to real estate ratio. In terms of saving in pure fiat or not doing that, I almost never save anything in fiat. I save enough to have a cash position that I can deploy, but for the rest of it, it’s not going to be just in pure fiat. it’s definitely going to be either in alternatives like gold or silver, short-term lending, so any debt that I can be involved in at 10 or 12%, for a year or two I will do that and mostly stick to stocks and real estate.
Dave:
Right. Lior, if you could give our listeners just one piece of advice about how they could accelerate their own wealth trajectories, what would it be?
Lior Gantz, WealthResearchGroup.com:
partner up. I think if you can find at least one, but preferably two people that are as excited about investments as you are and form some sort of a brainstorming alliance, a business endeavor, etc. and live your life in a way that you don’t have to do all the thinking, I think that that will be… my main thing. If you look at Buffett, he is monger. If you look at Bill Gates, he will tell you that he had a lot of help, like a lot of help at Microsoft. And, you know, we all know today that Steve Jobs had Tim Cook by his side for those years. But I can go on forever. I mean, even Beyonce has a voice, how do you call it, like a coaching for
Dave:
Coach,
Lior Gantz, WealthResearchGroup.com:
her.
Dave:
yeah.
Lior Gantz, WealthResearchGroup.com:
Yeah. So…
Dave:
Yeah.
Lior Gantz, WealthResearchGroup.com:
Even Michelangelo, like a painter, even he had coaches, etc. So
Dave:
team.
Lior Gantz, WealthResearchGroup.com:
no matter what the solo sport is, you need to be around at least one more person, but preferably two more people that form some sort of alliance. And I think that will really help you in life more than anything else that I can say on a podcast.
Dave:
Love it. Yeah. It’s really increasing that relationship capital and, um, in many different ways, whether it’s, you know, with your, your business, your family, uh, the coaching, your health, any type of investments in relationship and constantly thinking about, uh, let’s like Jim Rohn’s quote, right? That you’re, you’re a product of the five people that you spend most of your time with, you know? So
Lior Gantz, WealthResearchGroup.com:
Wow, okay.
Dave:
are those people really elevating you or not?
Lior Gantz, WealthResearchGroup.com:
That’s a classic, yeah.
Dave:
Yeah. Yeah. Awesome. Leo, I really
Lior Gantz, WealthResearchGroup.com:
And Leo,
Dave:
appreciate
Lior Gantz, WealthResearchGroup.com:
I really appreciate
Dave:
you coming
Lior Gantz, WealthResearchGroup.com:
you
Dave:
on
Lior Gantz, WealthResearchGroup.com:
coming
Dave:
the show
Lior Gantz, WealthResearchGroup.com:
on the
Dave:
today.
Lior Gantz, WealthResearchGroup.com:
show today. Absolutely.
Dave:
Really sharing
Lior Gantz, WealthResearchGroup.com:
Really sharing
Dave:
such great
Lior Gantz, WealthResearchGroup.com:
such great
Dave:
insights
Lior Gantz, WealthResearchGroup.com:
insights.
Dave:
with the audience. I think that’s going to be super value for people. And if they want to learn more about Wealth Research Group or they want to connect with you, what is the best place?
Lior Gantz, WealthResearchGroup.com:
Subscribe on the homepage.
Dave:
Okay. And we’ll, we’ll provide a link in the show notes to wealth research group.com. Right.
Lior Gantz, WealthResearchGroup.com:
Sure.
Dave:
Awesome.
Lior Gantz, WealthResearchGroup.com:
Awesome.
Dave:
Lior,
Lior Gantz, WealthResearchGroup.com:
Lior,
Dave:
thanks
Lior Gantz, WealthResearchGroup.com:
thanks
Dave:
again for
Lior Gantz, WealthResearchGroup.com:
again
Dave:
your time
Lior Gantz, WealthResearchGroup.com:
for your
Dave:
today.
Lior Gantz, WealthResearchGroup.com:
time today.
Dave:
Really appreciate
Lior Gantz, WealthResearchGroup.com:
Really appreciate
Dave:
it.
Lior Gantz, WealthResearchGroup.com:
it. Thank you.
Dave:
All right, take care.
Dave:
Hey everyone, welcome to another episode of Well Strategy Secrets. Today we’re joined by Amanda Hahn and Matt McFarland. Amanda and Matt are CPAs and tax strategists that specialize in helping people use real estate to save massive amounts in taxes and keep their hard earned money. They help educate investors on how to maximize tax write-offs, legal entity strategies, tax efficient ways to access profit, and how to use 401k money for real estate. They’re also authors of the highly rated book, Tax Strategies for the Savvy Real Estate Investor, and have been featured in prominent publications, including the Forbes Finance Council, Money Magazine, Talks at Google, CNBC’s Smart Money Talk Radio, as well as BiggerPockets podcasts. Matt, Amanda, welcome to the show.
Amanda Han & Matt MacFarland:
Thanks Dave, thanks for having us, appreciate it.
Dave:
Yeah, you bet. As I was mentioning earlier, really excited to bring you guys on. We are what a week, two weeks post tax season. So appreciate your time and can only imagine what it’s like during tax season. But I know this is a really relevant topic for many of our investors and part of, you know, having a solid wealth strategy is really having a good tax strategy in place. So, I think this is going to be a really valuable show for listeners. So as we kick things off for people who maybe not necessarily have heard of you guys before, can you provide us a little bit about your background and your journey and how you really got into this tax strategy position?
Amanda Han & Matt MacFarland:
Yeah, well, I mean, Matt and I met when we started out our career at one of the big four public accounting firms. I happened to end up in the real estate specialty group. So most of my clients were, you know, larger real estate companies to real estate development. And although I grew up, in a family of real estate investors. My grandparents invested quite a bit in real estate. My parents dabbled a little bit. But I always was taught just to get a job, have a stable career as a CPA, and didn’t happen to do real estate ourselves until later on in our career. Yeah, I know. I remember when I worked at that same big forefarm, kind of my aha moment that I was like, hey, I want to deal with real estate from the tax side of things was. I was probably a couple of years in, I was reviewing somebody’s tax return. It was 60 something year old gentleman, retired, looking at his return, he was making over $200,000 in cashflow, but with the depreciation expense, he wasn’t paying any taxes. And that was kind of when the light bulb went off for me. It was like, oh, there’s something here. You know, and so, you know, fast forward, we both, we both went to work other places and then we decided to start our own firm, you know, for full disclosure, we are married to each other. So, for listeners benefit there. But so we’ve had our own firm, Keystone CPA, for the last 15 years. And as you kind of mentioned, we do specialize in working with real estate investors. Probably 85%, 90% of our clients are real estate investors, whether it’s full-time real estate or working and investing on the side passively, whatever the case may be. It kind of runs the gamut. So it’s just something we enjoy. It’s what we understand. We’re not experts in manufacturing or retail clients, but we understand real estate. So.
Dave:
Sure. So, answer me this question. Why in the CPA industry, why are there very few tax strategists versus traditional CPAs?
Amanda Han & Matt MacFarland:
I think that The first thing is there’s not a lot of CPAs who focus on the strategy side, right? When you grow up and you go to school, what we’re typically taught is filing tax returns. And so the majority of CPAs you come across who do taxes, their firms are composed mostly of compliance work, helping people file tax returns and things like that. So that’s the first hurdle. There are not many people who are on the strategy side. And then you drill down a little bit more to people who specialize in real estate specifically, that’s an even smaller population. I think most CPAs like any other business, when you open your doors, you kind of take on all types of clients, right? I have no clients and someone comes to me that owns a restaurant or a clothing business, I thought I would take it. So I think Matt and I are very fortunate that by the time we started our firm, we were already real estate investors. And we already had found that need just with our other peers of investors to really realize that this was a niche that, you know, there was a lot of need for within the real estate community.
Dave:
Yeah, sure. I find that in the market, there is such a misunderstanding of tax. And, you know, through my entrepreneurial journey, you know, it took me, I literally fired over five CPA firms. I paid more and more in fees every year. I was constantly surprised by, you know, what my tax liability was because there wasn’t any proactive planning. And it became just super, super frustrating until I had the opportunity to read Tom Wheelwright’s book, Tax-Free Wealth, which I think he’s one of the early thought leaders in this space on tax strategy and how you can think about taxes in a different way as an investor and as a business owner and how you can kind of maximize those. So I think people really need to you know, have a real paradigm shift in their thinking about taxes to be able to properly leverage a tax strategy.
Amanda Han & Matt MacFarland:
Well, you know, for us, coming from a big four firm, tax planning historically was something that was reserved for very wealthy individuals, right? High income, high net worth people. That’s kind of who we worked with in the big fours. But really, our goal has been to take some of those same strategies, but apply it to everyday investors, everyday business owners, because the concepts are very similar, right? dollar amount in savings is different. But someone who makes $10 million and they save a million dollars in taxes, that’s great. But someone who makes $300,000 and they save $100,000, now that is life changing for them.
Dave:
Yeah, absolutely. The only downside I’ve found to having, you know, a really strong, you know, tax strategy is that traditional lenders really don’t like it when you go to them and you’re looking for some type of financing and they say, well, your income is zero or next to nothing. Have you guys been able to kind of cross that hurdle for any of your clients or help assist them in getting financing?
Amanda Han & Matt MacFarland:
Yeah, for sure. We get that question a lot. It comes up, you know, especially with real estate investors, they’ve, they’re refinancing a property or looking to buy another property. And, you know, to your point, they’ve, they’ve taken advantage of the, you know, strategies are available to them to reduce their taxes legally on their tax return. But we get to an underwriter or a lender or mortgage worker, whatever it is, and they’re like, hey, you know, your income is, you know, too low or, you know, whatever. But so what we, what we advise clients is just to make sure they’re working with And you know, knowing this ahead of time, making sure you’re working with an, you know, an underwriter, broker, whatever it may be that works with real estate investors and understands that, yeah, you’ve taken, you’ve maximized depreciation expense on your tax term, but that’s not necessarily something that you paid for out of pocket. It didn’t cost you, you know, if your deduction was $50,000 didn’t mean you spent $50,000 necessarily this year, you know, because you could have used leverage to buy your property and all that good stuff. Right. So Yeah, it’s just important they’re working with people on their team that have the experience of working with real estate investors and kind of know how to navigate that. And it’s sort of like a team sport too. So we’ll work with for our clients, we work with them and their lenders to see because like Matt said, there are certain things that we can write off on the tax side for benefit, but doesn’t hurt their debt to income ratio, right? So
Dave:
Yeah.
Amanda Han & Matt MacFarland:
that’s the first you know, we want to maximize those and then there’s going to be things where, you know, you write off your taxes, it does hurt your debt to income ratio. So then just becomes any other business decision. What is the cost for me to forego some of these expenses as a deduction and what would I gain from that? Maybe that allows me to get the next property or lower interest rate. So it’s just really understanding the numbers and making an educated decision on it. But we typically see though in the hurdles are usually for newer investors starting out with maybe a couple of single family homes. But typically as investors scale up their portfolio, that becomes less of an issue because they get into commercial property where it’s no longer based on their income or they get into alternative financing, creative financing, seller financing, private money, that kind of stuff. So there are always ways to overcome that issue.
Dave:
Yeah, sure. You made such a brilliant point there, Amanda, about having a team, you know, and through my journey in this space and kind of creating a well strategy, I found that, you know, you’re kind of swimming upstream in this space of real estate investing, alternative asset, investing, you know, tax strategy. It’s just such a unique perspective than the, you know, 99% of the folks that are out there. So your point about creating a team, I’ve found absolutely critical, which is why we’ve actually created a virtual family office and a mastermind group, which is a team of different experts in their specific domains so that everyone is like-minded and speaks the same language that can support you and your goals. But I’ve had countless discussions with you know, clients, let’s say entrepreneurs that are trying to work on a tax strategy because they’re exiting their business, right? And they’re trying
Amanda Han & Matt MacFarland:
Yep.
Dave:
to really optimize for that. But some of the ideas that, you know, you guys are probably familiar with, we kind of talk about, you know, most tax attorneys, most M&A folks are just not familiar with these ideas. And it can be, you know, really frustrating, right? If you don’t have a great team around you to get there.
Amanda Han & Matt MacFarland:
Yeah, I mean, even for us, you know, the because I think that you it’s hard for you to be a specialist in all these different areas. And that’s why kind
Dave:
Mm-hmm.
Amanda Han & Matt MacFarland:
of the team approach is so important. Even within the tax world, we have colleagues that specialize maybe in charitable planning and other people who specialize in the estate side, you know, which we can’t help plan, but we might not be as specialized in that specific area or scenario. So I think yeah, it’s really important. And sometimes taking the client out of being the middle person, you know, having to translate like, this is what my attorney said to the CPA and vice versa. I think that’s what I love about your mastermind concept is everyone is, you know, kind of coming to the table together.
Dave:
Yeah, sure. So can you share with the audience some of your, you know, top strategies that you could, you know, recommend to folks that you’ve, you know, seen people put in place?
Amanda Han & Matt MacFarland:
Gosh, I mean, there are so many strategies. I don’t know where
Dave:
Yeah,
Amanda Han & Matt MacFarland:
to start.
Dave:
so if you could just give, let me, let’s go simplify this. Like if you could give just your top three tax strategies for passive investors, what would they be?
Amanda Han & Matt MacFarland:
Yeah. Well, so I mean, if we define passive investor as someone who, you know, just maybe is working full time or still has a business that they’re running and they’re just doing real estate on the side, I think there’s a common myth that investing in real estate passively gets you no tax benefit at all. And that’s really far from the truth. Yeah, because you think about it, when people are investing passively, obviously the goals that they’re they’re investing in, you know, I guess not the goal. But a lot of times they’re investing in like syndications. Right. So some, you know, company goes out there syndicates a deal, buys an apartment building, mobile home park, whatever it might be. When you invest passively in that deal, your goal is obviously to generate, you know, to receive cash flow from it. So you know, people need to look at it from the perspective, hey, I’m getting, you know, question comes up, well, I’m getting a 20, I got a $20,000 distribution check this year. So that means I’m paying taxes on it, right? Well, actually, you know, probably not necessarily, you know, it’s like even the first couple of years because of the appreciation and things that the syndication is gonna do inside the company. you’re likely going to pay very little income taxes on a $20,000 distribution in year one or two, and might even show a loss on your K-1. So that by itself is a huge tax advantage I think people forget about is that they’ve got $20,000 in their pocket, our example, and not paying any income taxes on it right now. So that’s a you know, that is tax free, you know, tax free wealth, right? Tax free cash flow. Yeah. And I think, you know, for you know, for most people to be a passive investor in these types of asset classes, you have to be accredited, which means you’re either high income or high net worth, frequently translated into high tax bracket. And so for people like that, you know, if they’re paying between federal and state taxes, if they’re not in Florida, like us in California, and you’re paying high taxes, it’s really, really important to to understand that real estate is one of the a few asset classes that allows you to have, you know, income like cashflow without increasing your tax. So I think when tax advisors say, oh, there’s no benefit because you’re just a passive investor, they’re really doing a disservice, right? They’re just looking at a tunnel vision saying, oh, maybe it’s not offsetting taxes from your business, but certainly it is helping to reduce your overall taxes because now I’ve made more money and I’m able to keep all that profit without losing 40, 50% to taxes like my business or like my W-2 job.
Dave:
Yeah. Yeah, for sure. Um, and in another piece that I learned, I think that was really important along the journey is that, you know, I think if you’re an active participant in tax strategy, right, with your, you know, tax advisor, then you think about the world differently, you know, every time you go on vacation, every time you purchase something, you know, whatever it is, you know, it should actually be part of. you know, your decision-making process, right? Because there’s typically a way to, you know, get, you know, tie it into your strategy. And, you know, one of my best examples of this, you know, for us was we actually purchased a property in Italy about 10 years ago. And so, you know, we were able to, we rented it for like one month out of the year, but we were able to travel there. tax free, we got to go visit our asset, we were able to put our kids into the business to help kind of work on that. And even a side benefit of that was teaching our kids all about the strategy, right? In a really real and meaningful way. So do you have any additional thoughts on, you know, what people could do to, you know, to learn more about track tax strategy be positioned ideally to really take advantage of some of the opportunity.
Amanda Han & Matt MacFarland:
Yeah, I think you brought up so many great points. I mean, it’s being, you know, first step is just being proactive and having that open line of communication with your tax advisor, with the rest of your team of advisors, because you know, you’re the, we’re the person who knows what’s going on in your life. Right. So like, we don’t know that you’re potentially selling a property unless you tell us. Right. So just having an open line of communications. And I think once you start that process, it becomes a lot easier. And it’s not, it doesn’t have to be an hour long conversation. It can be as simple as a quick email saying, Hey, I’m thinking about doing this. But what that does is in our experience, at least what it, obviously we can help you better, but it also helps the clients get more in that frame of mind of this is what I’m thinking about when I’m doing things. ahead of time so that yeah when I’m planning that business trip or you know it could be as simple as going to the store to buy supplies like hey how does this relate to my business? I mean that’s you know very good you can run the gamut right but it’s all along the same lines of thinking as how are we incorporating you know being proactive in our planning process to kind of achieve our goals. Yeah, and I think even in your, just that one personal story you shared, it encompassed so many different things that we always talk to clients about, pre-planning for a trip, income shifting to your kids, we have just great, but also income shifting to family members. If you have parents who are… retired or semi-retired in a lower tax bracket, why not take them with you on the trip, making sure that they’re doing what they can to help out with that particular property and that real estate. So, one tip we tell investors when we do these type of educational events is we tell them, when you’re spending money on something, before you spend the money, and especially if it’s a significant dollar amount, ask yourself the question, is this a potential tax deduction? or how could it potentially be a tax write-off? And if you don’t know the answer to that, that’s what your tax advisor is for, right? Like Matt says, send an email, give them, do a quick phone call. The word how is so powerful, because we’ve done, you know, our clients have put this back on us as well. It’s like, hey, you talk about how. There’s something interesting about that word that kind of puts you in a different mindset when you are, when you’re thinking. So, you know, can I write off my trip to Italy? No, I cannot. But how can I do it? How can I do it? Do I have all the real estate activities arranged ahead of time to do so?
Dave:
Yeah, that’s such a great way to put it and to always be thinking about how you can position that. And I think for some of the folks who are listening who might be W-2, high income earners, we’re always thinking about how can we add value to our clients or solve some of the problems that they have. So for instance, if you’re W-2 income earner and you don’t really have some of the opportunities that a business owner does. I mean, one thing, we actually have an oil and gas fund, which is 100% tax deductible, as you know, against your investment. So on active income, which has been really powerful for folks. And then I always tell folks that, hey, okay, even if you don’t have a business, how about starting one? You might actually have, you might have a passion or a hobby or an interest or maybe something with your spouse or your family. that you can start to develop and then start, you know, at least moving some, you know, creating an additional stream of revenue, uh, and then start to put some expenses under there. Um, any, any thoughts around, you know, ways that W two people can, can do that, or if, if that makes sense from your perspective.
Amanda Han & Matt MacFarland:
I think one important thing for people to understand is that as a real estate investor, if you own rental property, even if it’s passive, you know, one turn key rental somewhere, you are still a business owner in the eyes of the IRS. So when we talk about maximizing your write offs through, you know, business development, travel, business meals, all that kind of stuff, it is available to you simply because you are in the business of real estate investing, right? You don’t have to have an LLC or corporation. is just available because you are a real estate investor. And this works regardless of whether you’re W-2 income or, you know, doing real estate full time. But I think, you know, for folks who are high W-2 income owners, but also interested in real estate, you know, we work with them a lot on the short-term rental tax loophole, because that’s a really great way for people who have real estate as a side hustle, but still really be able to receive some really powerful tax benefits. Yeah, I mean, there’s ways with with short term rentals that, you know, if clients are willing to self manage it for, you know, the, you know, first year or so or year two, there’s ways that you can create losses on that through, you know, accelerated and appreciation cost segregation studies, and use those losses offset their W two income just because they are self managing those short term rentals. So a lot easier to, in our experience, a lot easier to kind of be able to do that than maybe trying to be a you know, what they call full-time real estate professional or something, you know, where you’re, you’re full blown into real estate, obviously. Yeah. I mean, we have people who make like $300,000 and they’re able to write off over $200,000 against W-2 income using that loophole. So, um, you know, definitely a one that a lot of our high income clients are looking at, but I loved your example about oil and gas, cause we also have a lot of clients doing oil and gas. And, you know, in addition to that really great first year, uh, benefits of being able to write it off against all different types of income like that. What also happens a lot is in the future years, right, when now this investment is kicking off royalty income, most of the time that’s passive income. So if I’ve written off my investment in the first year, in the second year if I got, you know, 30, $50,000 of royalties from that investment, now I can use my rental losses or losses from other syndications. of real estate that I’ve invested in, and really being able to pay no taxes on that income from the oil investment too. So we’ve seen some phenomenal tax benefits, multi-year.
Dave:
Yeah. And can you explain a little bit about IDCs and depletion?
Amanda Han & Matt MacFarland:
I mean, I can a little bit like, you know, we, we have clients that, you know, like, from the investor side, we’ve, we don’t have the clients are actually doing the drilling and things. But yeah, basically, the the IRS is allowing people when they invest in these oil and gas partnerships that are doing the drilling and things like that, that you can write off a huge chunk of those deals kind of those drilling costs, if you will, in the first year or so to your point, sometimes it’s know, it can be 80% of your original investment, some we’ve seen it up to 100% of original investment. And if they’re structured the right way, then those losses are non passive and where it allows you to offset against your your active W-2 business income, whatever else you have going on.
Dave:
Sure. And let’s go back to the real estate professional status. So maybe first you could just give a high level overview for people on, you know, what it is, what it, what it takes. I know it’s 750 hours, but you could kind of just explain that briefly. And then the second part of that is, you know, do you see that kind of, you know, phasing out as bonus depreciation starts to sunset here and people are starting to look at other strategies or. What are your thoughts from that perspective?
Amanda Han & Matt MacFarland:
So real estate professional really is important for people who have higher income, so over 150,000 of income, and have rental losses, whether it’s natural losses from the investment or losses strategically created. Because if you are not a real estate professional, those losses are considered passive losses, which means they only offset taxes from passive income. and not W-2 income. And so one of the goals of a lot of people is, hey, I’m investing in real estate, how do I use my rental loss to offset my W-2 income or my business income? And the way to do that is if you or a spouse is a real estate professional. Real estate professional has nothing to do with licenses, whether you’re a realtor or a broker, it simply means you have to spend the right hours on the right activities during the year. So a couple of different tests, you have to spend more time in real estate combined. So if you’re working full-time at 2,000 hours, you have to have more than 2,000 hours to be a real estate professional. But if you don’t work full time, or if you have a spouse who’s not working, then you just have to have at least 750 hours in real estate activities. And then the third part is you have to meet material participation, which means more active hands-on hours with respect to your properties. And that’s $500. So if you meet three of those requirements, then the benefit is you are a real estate professional. Hence you can use rental losses against W-2 and business income. Now the key distinction here is we’re talking about long-term rentals. So if you own long-term rental investments, you have to be a real estate professional to use the losses when you’re a high income earner. But if you are a short-term rental investor, Airbnb, verbal, things like that, IRS actually doesn’t care if you’re a real estate professional, you just have to meet that third test, which is material participation. And again, that’s the reason why, depending on what your profile is, if you have a job full-time or not, the decision of what type of real estate you do, long-term, short-term, mid-term, can impact how and when you benefit from the tax losses. And to your second question about bonus depreciation, they’re kind of phasing out, and whether it’s gonna take away kind of the benefits of real estate professional. I see it maybe a little bit. I mean, obviously the, from, you know, trying to do it, if someone’s doing it, you know, trying to accelerate as much depreciation, get the benefits upfront. You know, this year we’re, you know, we’re not at a hundred percent anymore bonus, we’re at 80%. I mean, that’s not a hundred, but it’s better than zero, obviously. So the power is still there. But fast forward a few years when it is set to kind of phase out 20% per year. I wouldn’t be shocked that, you know, by that time comes in a few years that it gets put back into place. I mean, it’s, it’s been, it’s been here in some form or another for the last, you know, I don’t know, 15, 20 years for what I can recall. So I wouldn’t be shocked if it’s brought back, you know, at least to some extent in a couple of years without actually going away entirely.
Dave:
Yeah, good point. I mean, benefits around energy have been around since the Reagan era. So, you know, there’s quite
Amanda Han & Matt MacFarland:
Yep.
Dave:
a bit of history around that. And again, kind of going back to that paradigm shift, right? That’s interesting is, you know, the, the government’s actually looking for you, for, you know, you to partner with them. Right. Because when you’re doing things like, you know, energy, right, it supports our GDP across the country. supports our national defense, right? So many different things across industries, real estate, you’re providing housing for people. So, you know, businesses, you’re providing jobs, right? So that’s why those incentives are actually there. And I find it interesting as well, the, you know, sometimes the psychology around taxes, you know, people talk about, you know, the word loopholes or, you know, people cheating on their taxes and things like that. But I think for the educated, and the people who really understand it, it’s more just about a strategy, right? And leveraging the strategy and that the tax code is really a series of incentives for business owners and investors.
Amanda Han & Matt MacFarland:
Yeah, that’s exactly what they’re incentivizing you to do what they want you to do. Right. Yeah.
Dave:
Yeah.
Amanda Han & Matt MacFarland:
And I think in reality, they are both, you know, there are incentives and there are loopholes, right? The incentives are like you said, you know, why do we have bonus depreciation? Why do we, we were able to write off a hundred percent of meals in 2022 because they’re trying to incentivize you to invest, right? Or eat out to the restaurants when the restaurants were suffering during COVID. Um, and then there are loopholes. It’s just like, maybe that was not the intent of the tax law, but this is kind of just, you know, what happened because of some court. cases or they missed out. I think that the short-term rental space we’re talking about, that’s likely a loophole. I don’t know that the government is really wanting to incentivize people to do more Airbnb’s.
Dave:
Yeah,
Amanda Han & Matt MacFarland:
So I think
Dave:
yeah.
Amanda Han & Matt MacFarland:
definitely both exist in the world. And that’s also really important as part of tax planning is to make sure you have a good advisor because these kinds of things are always changing too, right? What could be a loophole right now might be closed or might be modified. So really important that your team of advisors is staying on top of all those changes as it comes down the pipe.
Dave:
So that’s a perfect segue. Do you see anything, right? It’s now, you know, we’re just finishing April, 2023. So going into the remainder of the year, any changes, key changes, do you think that people should be aware of?
Amanda Han & Matt MacFarland:
I mean, in my thought process, you know, in all political commentary aside, you know, like President Biden and his team have kind of at various times over the last couple of years have tried to bring proposals to the table and they don’t seem to kind of get anywhere for lack of a better term. So I know he just announced that he’s wanting to run for reelection and you know, so it’s up in the air what happens, right? But I guess if I was a betting person, I wouldn’t say I’m not expecting anything drastic to happen in the next year and a half. But you know, again, things can change overnight, obviously. Yeah, I mean, just I think the traditional things you hear on the chopping block taking away, you know, real estate, the unfair real estate tax benefits, you know, one example is getting rid of or limiting 1031 exchange, those things are brought up time and time again, every time there’s a budget that’s always included. But I think like Matt said, they really they really haven’t gone anywhere. and our expectations is probably just more of the same, hopefully, right, not having any of that going.
Dave:
Yeah, well, the other thing I find quite interesting around this is it always depends on, you know, which congressmen have a stake in certain things. You know, a classic example is the Augusta rule, right? Where,
Amanda Han & Matt MacFarland:
Yeah.
Dave:
you know, you can rent out, basically rent out your house and, you know, they clearly had some houses, you know, in Augusta and wanted to take advantage of that. So they wrote a law to be able to
Amanda Han & Matt MacFarland:
Yeah.
Dave:
support that. So.
Amanda Han & Matt MacFarland:
Just as easy as it goes.
Dave:
Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
Amanda Han & Matt MacFarland:
You just write a law. But it’s interesting, though, that although that’s been and that loophole has been in existence for so long, but there are still a lot of people who don’t understand it or
Dave:
Hmm
Amanda Han & Matt MacFarland:
who don’t know how to use it correctly. So.
Dave:
So why not, can you unpack that one quickly? Cause that is a pretty cool one that I think a lot of people aren’t aware of.
Amanda Han & Matt MacFarland:
Yeah, I mean, it’s just it refers to that that situation where if you do rent a particular house for less than 14 days during the year that the money you receive for doing that is totally tax free to you. So situations, you’ll see it obviously in Augusta and the Masters Golf Tournament out here in California. There’s a lot of music festivals and, you know, Paul Springs areas. So I think people do that sometimes where there’s a second house, but they they rent it out for two different weekends and they collect, who knows how much money they can get for those things. But that’s one of those things where it’s just basically tax free money to you. And, you know, so yeah, I can work well in the right situations.
Dave:
Yeah, and I
Amanda Han & Matt MacFarland:
And
Dave:
think
Amanda Han & Matt MacFarland:
we
Dave:
another
Amanda Han & Matt MacFarland:
even have.
Dave:
good one. Sorry, go ahead.
Amanda Han & Matt MacFarland:
Oh, I see. You know, it also makes sense to as a strategy, even if you’re not renting it out to the public. We have clients who just have beautiful, phenomenal homes, and they’ll hold events for their businesses. So if they have a corporation, and they wanna host their top clients or their internal team at their house for a mastermind group or some kind of training event, they can also, the S corporation or C corporation can pay them to rent the house. And still the same concept, same strategy that it’s a deduction to their business, but non-taxable to them individually. to.
Dave:
Yeah, I was just going to add to that part. It’s, it is a great strategy if you’re a business owner. So another question, um, I think that would really help the audience is also really understanding, uh, recapture, right? Cause I know there’s some complexity around this. Um, and you know, there’s, I mean, we have investors that are up to 50 different syndications and, you know, how are you planning, you know, different exits and what. You know, recapture, there’s so many different variables there. Uh, but can you help to explain to the audience, you know, what recapture really is and then how can you kind of plan and plan that as part of your strategy?
Amanda Han & Matt MacFarland:
Yeah, recaptures really is, you know, obviously when you, you know, high level, you buy an investment property, you take, you’re taking, you know, you pay, you know, picking up with $500,000 for it, you take $150,000 depreciation on a property over time. For tax purposes, your basis in that property now is down to $350,000 because you’ve expensed $150,000. So whenever you go and sell that asset for anything more than $350,000, the first $150,000 of any gain is going to be called depreciation recapture. So basically, they’ve given you this deduction upfront. They’re making you pay it back on the back end. Now, a lot of people think that’s a terrible thing, like, oh, my God, why would I take depreciation if I have recapture in the back end? But keep in mind, a lot of times, especially for high-income earners, they’re saving taxes at 32 35 37 cents on the dollar, but a lot of times when you do the recapture it’s it’s you know, good chunk of time it’s set at a statutory rate of 25% so you can still come out ahead. Now and fast forward to kind of from a planning perspective to your, you know, and kind of your point is, you know, you, when you were doing a lot of different investments or passive investments syndications, there’s going to be varying exit points in time, right? I mean, you, you, you, usually an investor can’t control that the sponsor or the syndicator doing all that. But again, that’s where it’s having that. kind of open line of communication with the sponsor to like, Hey, what’s, what is coming down the pipeline in the next six to 12 months? Are we expecting the exits? If so, kind of what, you know, we have an idea of what, you know, my share of the, of the gain or loss is going to be, uh, cause it’s not always going to be the same as the cash you get. So that’s something important for an investor to know. And then you take that information and you, you know, you again, have that conversation, open dialogue with your tax advisor and say, here, Here’s what’s coming down the pipeline. What can we do to minimize this? There’s things that you can do to minimize, the sponsor can do to minimize recapture by allocating sales price and different types of things. But from an investor perspective, it’s looking at it holistically, like what do I have going on? What attack attributes, what carry forwards do I have? Can I sell something here that maybe isn’t a loss position? I can offset some gain. Can I reinvest some money in another syndication before a year and to offset that gain through depreciate? Oh, all kinds of different things. But it’s, again, I think it goes back to what we’re talking about just having to open line of communication with all parties involved.
Dave:
Sure. Now that’s helpful. So let’s take this scenario that an investor wants to get to tax zero. Okay. They have real estate and other investments and things. Is there anything else as part of your strategy that you could recommend that would be beyond, let’s say, buying assets, right? Because if you’re always buying, then you’re resetting that clock on depreciate, you’re getting the depreciation, whether that be active or passive on those assets. Clearly if you have a business, you have certain deductions, different things. But just from an overarching standpoint, is there anything else really from a strategy perspective that people could do to really mitigate that tax burden?
Amanda Han & Matt MacFarland:
Yeah, it’s definitely possible to get to zero tax, you know, actually that’s available for every single person. But you have to have the right facts, right. And it might not happen in first year of planning. It, you know, typically is going to be multiple years of getting from, let’s say, 35%, 37% bracket down to zero. Some of the pillar strategies that we talked about already, you know, real estate, real estate. But outside of real estate, you know, we look at entity structure. How do you shift income into different entities so that you get low or zero tax rate. What about shifting income to other family members who might be low or zero tax rates, shifting income into retirement accounts, right? You can have 401k’s to find benefit plans that get your personal tax rate now personal or business income down to as low as legally possible. Also shifting assets or income in the future to charities. We have a lot of clients who are very charitable minded. And it’s what we call doing well by doing good. So not only are you helping charities that you’re passionate about, but also getting a huge tax benefit in the interim too. So yeah, there’s definitely ways to do that. We see that time and time again with clients. But it’s not as easily done as like hear about it and just go ahead and implement. It does take. You know quite a bit of work and maybe over several years with your tax advisor to kind of reach the ultimate
Dave:
Yeah, no, that’s really great insight, right? And really just thinking about it strategically and working with your tax advisor kind of on a proactive basis to really do that, right? Versus the opposite, which is more reactive, which is just send me all your historical, what happened over the past 12 months, and then your tax planner can’t really do anything with it. But if you have that good relationship, that good communication, planning for things ahead of time. And I really think, you know, I really appreciate your time guys and coming in and sharing these insights because, you know, this is to me such an understated opportunity in the world of investing and how people are really trying to grow their wealth. And, you know, the ultra wealthy have completely figured this out, right? So if you look at their portfolio allocations in Tiger 21 and ultra high net worth groups like that, right? You know, over 50% is in real estate, private equity, and these alternatives. And part of the key reason is because of these different tax benefits that you can get, right, drive up their overall wealth. Because for instance, if you have, let’s say you’re looking at a particular ROI on a deal, and maybe one is 10%, maybe one is 15%, but what if you could actually reduce your taxes by 10, 20, 30%? That could be even bigger than the investment return itself. Right. And then if you add that on top of what the investment is doing, like it’s, it’s really exponential.
Amanda Han & Matt MacFarland:
Excited to
Dave:
Any,
Amanda Han & Matt MacFarland:
be here and share.
Dave:
yeah, for sure. So any parting words of wisdom in terms of if you could give just one piece of advice to listeners about how they could accelerate their wealth journey, what would it be?
Amanda Han & Matt MacFarland:
You know, I think it’s I know we talked a lot about different tax strategies and To and you know ways to save taxes and for some of our listeners and it might be a little bit overwhelming But I think the key takeaway I would leave listeners with is that the goal here today is not for You to become a CPA. It’s not intended for you to understand how to calculate depreciation or you know, do any of that stuff But it is important to make sure that you have the right person on your team when it comes to tax planning and tax strategies and making sure that you have that line of communication open with them to consult with them prior to making any significant financial moves, because then your team can help you with guidance on, you know, here are your options and opportunities that you can take advantage of. I think the thing that comes to my mind actually twofold is for those people who are maybe early on in the journey in terms of wealth building, my advice would be to pull the trigger and get started. You’re trying to, you’re working the W-2 job, no better time to get started and start earning that passive cash flow and some other stream of income as you can. And then for those people who are kind of farther along in their journey, I would just recommend maybe, you know, look at expanding your sphere of influence, you know, who are the people around you that you’re surrounding yourself with? And can you are they going to help you get to your goals? Or are they the right sphere of influence for you for that matter?
Dave:
Yeah, awesome. Love it. Really appreciate it. And if people wanna reach out and learn more or wanna kind of work on their own tax strategies with you guys, what’s the best place?
Amanda Han & Matt MacFarland:
Uh, best place to find us is on our website. It’s a keystone CPA.com. Uh, I got a lot of good information on there. A lot of resources, a lot of, uh, You know free resources for investors all kinds of different things on there Yeah, we have a free tax savings toolkit which people can download a part of that is a Self-assessment tool because I think one of the most frequently asked questions we have is am I paying too much in taxes? Unfortunately, we don’t know the answer to that but we’ve developed this self evaluator You can go through answer some questions to kind of see where you rank in terms of risk level And the byproduct of that I think which is really awesome is that it gives you clarity into what are the areas where you might be deficient in. And that’s what you can take to your tax person, you know, kind of as next step for planning ahead. For any of our listeners who are on social media, I am mostly found on Instagram as Amanda Han, CPA, and try to post daily tax tips.
Dave:
Awesome, love it guys. We’ll definitely link to those in the show notes. And again, thank you for your time and providing so many valuable insights for the audience today. Really appreciate it.
Amanda Han & Matt MacFarland:
Thanks Dave, appreciate it. Thanks for having us.
Dave:
You bet.
Dave:
Hey everyone, welcome to another episode of wealth strategy secrets. Today we’re joined by Kevin Bup. Kevin is a real estate and marketing professional with extensive experience in business development and has a sincere passion for helping investors achieve above average and safe returns. Kevin’s core areas of expertise include mobile home park and multi-family properties, as well as parking garages, also comprehensive investment analysis and due diligence. identifying above average investment opportunities, large rehab projects and property management. Kevin, welcome to the show.
kevin bupp:
Dave, I’m excited to be here. Thanks for having me.
Dave:
Yeah, you bet. It’s cool. We just realized we’re right around the corner from each other in Southwest Florida. And really, I’ve been enjoying my sunshine and lifestyle upgrade since I got here. I wish I got the memo when you did though.
kevin bupp:
It’s a beautiful place to be, that’s for sure. I’m grateful every morning I wake up to be here.
Dave:
Yeah, yeah, awesome. And it makes such a difference, right? In terms of your outlook. And I always tell people, it’s kind of like, it’s interesting how people talk about things, you know, so much of all this is around mindset, right? And sometimes people talk about, you know, getting older, right? And, you know, I believe that ageism is a mindset, you know, if you feel old, you talk like you’re getting older, then you are older, you know, it’s just kind of an excuse. And it’s really the same. with the weather, right? If you surround yourself in an environment that’s upgraded, right? And it makes you more productive. It expands your mindset, it expands your thinking, you know, how much more productivity, you know, you can actually gain from it, right?
kevin bupp:
Absolutely. You know, it’s funny because before I moved down here, and I think it’s the general sentiment, if you live in an area that you’re not too keen on maybe the weather patterns, maybe love the summer, maybe love the fall, but you know, you kind of hate that dreaded four or five months of winter where the sun might not peak out all that often and days are short. You know, during that period of time, you might take a vacation down to where we live and you’re here for a week, you get the sunshine, but then you kind of dread that last day, you get the anxiety about going back and not too happy about leaving the sunshine. And so I think there’s a better way. The better way is to, you know, literally live where you vacation. And so my wife and I always joke that when we, we do quite a bit of traveling, you know, we, when we find ourselves going to, you know, whether it be Caribbean islands or just other exotic places. What we always find is that we’re. Equally as excited to come back home, you know, we’re like, gosh, we travel, we traveling to these places to see beaches and, you know, clear water, white sand and, and tropics, but we literally, that’s our backyard. That’s what we have every day. And so, um, it’s, it’s really hard to beat it. It really is. And it just really creates a phenomenal added positive attitude each and every day that, you know, you’ve got the sun shines 300 plus days out of the year here. And, uh, the weather’s pretty amazing with it.
Dave:
Yeah. Awesome. So I know you’re from Pennsylvania up north. Like
kevin bupp:
Mm-hmm.
Dave:
we have a large contingent of our investors from the East coast as well. But for folks who aren’t familiar with your background and everything, can you tell us a little bit about, you know, your experience and how you really got into this alternative space of investing in real estate?
kevin bupp:
Yeah, sure thing. And so I always joke and say that real estate found me and I didn’t find it. But long story short, I was introduced to real estate investments, started in the residential single family space when I was 19 years old. And it was just literally by accident. But I was tending bar in the evenings and going to school, local community college, not really having a true direction of what I wanted to do when I grew up. But I was lucky enough to meet a local gentleman who became my mentor, he was about 25 years older than I and just lived a very different lifestyle than what I knew growing up, I grew up in a great middle class family, took vacation a year and both my parents worked, you know, full time jobs and you’ll split the shifts so that we’d have the babysitter you have to watch us, myself and my brother and so I met David who then became my mentor, but he was a local real estate investor and he just lived again, very different lifestyle than what I knew he was an entrepreneur and had been for many, many years and I got to be friends with David. He invited me to a conference down in Philadelphia and I attended with him. And again, not knowing anything about real estate, never reading a book about it, but just knowing that there could be an opportunity here. This is something, I was looking for something. I didn’t know what, but I was looking for something to really pour my energy into. And I went to that conference and ultimately came back from it and offered my. whatever services or value that I could to David that he was a, he was a solopreneur. He was a small business owner. He owned a number of single family and small multifamily rentals in and around central Pennsylvania where I grew up. And, and, and, um, you know, I wanted to figure out a way to, to get around him more, but not just in a, uh, you know, not just the after hours when we might get together and kind of chit chat, but like, I want to learn his business. I want to learn what he does and ultimately what, what his day to day looks like. And so I ended up working, he accepted my offer. I offered to work for free in between tending bar in the evenings and going to school during the day. And I would basically be either at his own office or I’d be out in the field delivering leases for him, picking up leases, just anything he needed. Simply put, if he needed me to run to the grocery store for him, I would run to the grocery store. But I did that for about 14 months. And I did that to just really engulf myself in the information that had taken him. 20, 25 years to obtain and, and I just knew I knew it was an opportunity. I was excited about it. It got me fired up each and every day. I just I got to be involved in many different aspects of his business and see how the inner workings you know, what the inner workings look like and ultimately 14 months later. So I was 20 at that point, I bought my first single family investment property and that was that was really the start of it. I used $7000 I had saved up tending bar. and and use some private money that was from a relationship that David introduced me to and that was the first deal and that was the first of many and so I you know I don’t like reinventing wheels I don’t like you’re trying to you know forge my own path when there’s been many others that have going down you know similar paths that are you know the ultimately are a successful model and I just I was like you know what what David does it makes sense it works I’m just going to literally emulate what what you know what he’s taught me and That’s what I did. I started buying single family homes and rougher parts of town really quickly realized that that just wasn’t the tenant base I wanted to necessarily deal with. And one other thing I realized in that beginning stage of that journey was that well, David was much further ahead of me, right? He had been doing this for over 20 years. And so he typically would buy and hold like that was his objective, you know, what is now known as the you know, the BRRR strategy, right? That didn’t really have its own acronym back then. But That’s what he did. He bought and he held and he would basically do some minor, some mostly minor rehabs, never full blown 40, 50,000 rehabs, minor rehabs, turn them into rentals. Um, you’ll initially buy my discount, you know, improve the value and then, and then pull capital back out of it and do it again, you know, um, rinse and repeat, I realized very quickly that. You know, I used all my money I had and that it was going to take me quite some time to save up more money to buy that next property from the measly couple hundred dollars of cash while I was getting from that rental. And so my. My model shifted in the beginning fairly quickly. And I, what I started doing is I got really good at finding deals and that became kind of my, my Forte was finding the opportunities and I created a, you know, wholesale two or three homes, keep one wholesale two or three, keep one. And I did that long enough until I developed enough private lender relationships, you know, started developing my own war chest to capital to where I could actually start keeping more and only wholesaling the ones that I didn’t necessarily want for XYZ reasons. And that was beginning of it, it morphed into, you know, building a fairly large single family portfolio, my, you know, early to mid 20s of, you know, 120 plus properties and started buying multifamily during that period of time as well. So smaller multifamilies and then before the before the crash of of oh, eight really started delving into commercial properties as well. Self storage, office retail, just want to play a bigger game. I I felt that there was a more efficient model. I’d started studying underneath different mentors that were in the commercial space. And I just knew that there was a better way to be spending my time, energy and resources rather than buying one house at a time. And so fast forward, you know, 08 happened. 08 was a disaster, really challenging time, especially down here in Southwest Florida. Florida was like ground zero. It was a complete, just catastrophe down here with the housing market. Um, took me a couple of years to, to really get things, um, I guess, you know, damage, damage control settled. And then in 2011, I bought really what is the first property of the second phase of, of kind of my, my real estate legacy. And that, that was a mobile home park and that was an asset class I had never considered before and, uh, bought that back in 2011. I’ve been buying mobile home parks ever since we own them in 13 different states. Uh, in addition to mobile home parks, we also own parking assets. So parking garages, parking lots, those are kind of our two niches nowadays. Um, you know, again, we’ve bought over, you know, quarter billion dollars of assets in the past seven or eight years and having a lot of fun doing it and love both those niches. They’ve been incredibly successful for us and have left the single family world in the dust don’t really have an interest in that anymore because there’s just a much more efficient way to deploy our capital dollars.
Dave:
Yeah, such an interesting background in the fact that you actually got into it really early on. Um, so many people, it takes many, many years in life to have some kind of light bulb moment, right? They read a great book or they met a friend that says, Hey, you know, you got to start investing in real estate. And, you know, and I think sadly, you know, most people think the only option is to invest in their 401k, um, you know,
kevin bupp:
Yeah.
Dave:
max those out, right. And then you get kind of handcuffed, uh, right from that kind of position. So. I was interesting that you started early on and really kind of developed that. And I also find it, you know, it’s fascinating too. Many people always start in that space of, you know, single family, fix and flips, wholesales, burr, all of that, and then move up into the commercial
kevin bupp:
Mm-hmm.
Dave:
space. Um, and starting to get into some of these bigger assets, you get more leverage, you get more quality team players, right. And you can get into better
kevin bupp:
That’s right.
Dave:
deals. So a lot of you know, a lot of passive investors don’t even realize that right that they have the opportunity
kevin bupp:
Yeah.
Dave:
to invest in Some of these assets right out of the gate
kevin bupp:
What? Yeah, I think one of the one of the lessons I learned in you know, it was just it was theory until I actually put it to use when I when I really started delving into the the commercial side of things. One of the initial mentors I had, and I and I’d read many as many books as I could back then there wasn’t necessarily as much information as there is today. You know, podcasts didn’t really exist. And there was a few folks teaching the commercial investment world most of most of what you could find was like fixing flipping houses and wholesaling houses. But Even then, one of the things that was intriguing to me, and again, it was all theory until I actually put it to use about my first commercial property, was that financing, obtaining debt was typically much easier with a cash flowing commercial property than it is with getting a single family property. And again, the world’s changed, the world’s a little different. I know there’s a lot more investment leaning banks that will lend on single family, individual homes, portfolios, things like that. That didn’t really exist back then. It was kind of, you know, build a relationship with your local bank or a hard money lender or a private lender, one of those three. And the banks was kind of the last option. I mean, it was like banging your head against the wall to try to get a loan on an investment property, especially if you owned more than a few. They really just wanted to solely rely on your W-2 income, which I didn’t have, right? I mean, I was an entrepreneur. And so like they’re looking at your tax returns. to determine whether or not you can qualify for this loan. And then you look at hard money and private lender rates, the rates are not all that attractive, the terms aren’t all that attractive. And so anyway, I learned very quickly that obtaining a commercial loan was much easier that came true. And then really just the deals, not necessarily that they’re not more complex, they definitely can be more complex in nature, but most of the time when you’re talking about just a. Let’s talk about a multifamily, comparing a 24 unit multifamily property to a single family home. There’s really not that many differences other than just simply a larger deal size. I mean, you’re going to do a lot of the same due diligence, just a little bit more of it. You’re going to go through the same exact motions of buying that 24 unit that you will with that single family. Again, it’s just a little bit more work, but it’s all the same steps along the way to get there. And the debt terms typically are more attractive than what you might have received. from a private lender or hard money lender on a single family home. So it just, it really shifted my mindset. And, and I realized very quickly that, that my time spent, you know, it didn’t take me much longer to buy a 24 unit property than it did to buy a single family property. And, uh, that, that was, that was the most attractive factor to me of everything was how do I be as efficient as possible with my time, my time energy resources. When I initially built that, that single family portfolio, my early mid twenties, I wasn’t married. I didn’t have kids. Um, again, went through a very challenging time in oh eight and realize that when it was time to rebuild my life number one, my life was very different. Number two, I wanted more free time. I enjoy the hustle, but I also enjoy the actual life work balance. I enjoy actually enjoying my time enjoying my money doing the things and again, we talked about living in here in Florida and going boating and spending time at the beach and and enjoying time with family. There needs to be an even keel there. And I found that it was much easier to obtain that with larger commercial properties, whatever they might be, whether it be multifamily retail office, what have you, than it is with building a substantial size single family portfolio.
Dave:
What would you say was the biggest learning lesson you had from the 08 downturn?
kevin bupp:
Yeah, that’s a great question. You know, and again, the world the world’s a little different than what it is, even Florida, the Florida, Florida’s economy is a very different landscape now than what it was back then. But I would tell you some of the big things that that really hurt us back then. And our leverage point was fairly low across that portfolio. But we had a lot of inefficiencies. Number one, you know, we had been hit by two major hurricanes here in Florida. Charlie and Ivan. And so, you know, the insurance rates were absolutely insanity. And so what I realized very quickly after those couple hurricanes, you know, our cash flow, what was still fairly minimal, like we weren’t killing it gangbusters on the monthly cash flow that started getting squeezed pretty significantly. On top of that, there were just a lot of inefficiencies that existed with the property management side of that business. repairs and maintenance, you know, our properties, our portfolio was spread out across about five counties, 122 single families at the peak of it. And this is, you know, again, today’s landscape is a little different. There’s a lot of technology, there’s a lot of, you know, more advanced property management methodologies that exist today that didn’t exist back then. But it just, our cost of management of these assets and turning these assets was incredibly expensive. I just learned that it’s very difficult when you’ve got those inefficiencies with the spread out single family portfolio that you’ve got, if you’ve got one turn in a 12 or 18 month span, there’s a really good chance it’s probably going to wipe out your cash flow. Any cash flow that you might’ve been putting in your pocket, if you’ve got to go in and redo paint, redo carpet, have two months of downtime. And I just… That didn’t make sense to me. It didn’t make sense that, you know, that one property, literally it was a, it turned into a dud if I had any turns in 12, 18 or 24 months, whereas in a multifamily property, you’ve got one turn in that building. It’s you’re still going to have positive cashflow if you’re doing it right. So, um, that was a big part of it, but you know, I think the, the other aspect of it was we’ve been able to achieve a lot better, um, uh, relationships with lenders, tight relationships with lenders in the commercial side of things. It’s almost like more of a team sport on a lot of deals that we do with the lenders that we work with than what I felt when we were building the single family portfolio. Just a lot more flexibility when times are tough. I mean, it’s kind of you work through it together. If there’s challenges with challenges with a particular deal, you work through it together. And I didn’t necessarily feel that way. with the different lenders that we had worked with historically in the single family space. And so, um, it’s just, I feel there’s more of an alignment of interest, um, on these larger deals and the banks that, that we have on our side. It’s, it’s more of a, Hey, like we’re doing this together, both in this to make money, if there’s any hiccups along the way, like COVID, COVID calls a lot of hiccups across the board. And I feel like I had many personalized conversations with lenders, just not knowing what was going to happen and felt that there was, um, empathy on the other side and that ultimately we would work through this together and that we’re kind of in this for the long haul. And so I never felt that way with a lot of the loans and the lenders that we worked with in that, in the single family portfolio. So there’s, there’s litany of reasons, but the big part for me, Dave, was really the inefficiencies. It’s just much more efficient to run larger properties where you can get professional management in place. You can hire a professional asset manager, um, whether it be in-house or third party, what have you. You just, you’ve got a lot more ability to bring in professionals into the organization than what you do with a, with a single family home portfolio. You know, there was a big portfolio we have, but if you’re just getting started, you’ve got four or five homes, 10 homes, 15 homes. It’s very difficult to get yourself out of the business. It’s very difficult until you get scale to get yourself out of the business. And you can get scale much faster by buying a commercial property, literally one commercial property of the right size can be the scale that’s necessary. to truly get yourself out of the business and get professionals in to help you run the business.
Dave:
Yeah, a lot of similarities between that and Rod Cleaf and actually what he
kevin bupp:
Rod’s
Dave:
went
kevin bupp:
a good
Dave:
through
kevin bupp:
friend of mine.
Dave:
as well.
kevin bupp:
Yeah.
Dave:
Yeah. And he lives down the street. So yeah, that’s pretty interesting. So if you bring that forward into today’s market, you know, what are you seeing as the biggest challenge in today’s market?
kevin bupp:
Yeah, that I mean, like as we sit record this today, I mean, I think the you have the one that smacks us in the face is the is the volatility of the debt markets and the capital markets are all over the place. It’s as far as I mean that if you’ve got good long term fixed rate debt in place, and your business model solid, you know, then you’re probably in a very good position. But I think the, you know, the biggest risk right now, depending what type of investor you are, I mean, we’re a value add investor. However, We run fund models and so we’ve got some flexibility as far as what we put in that fund. And what I mean by that is, you know, we’ve got certain target metrics that we look to achieve for our investors, but that allows us to blend a mix of value add properties along with maybe some more stabilized properties. And I think the biggest challenge today is buying value add properties in today’s climate. It’s just it’s very difficult to get things to pencil out and it’s no one’s got the crystal ball. Right. And the rates keep going up, up, up. No one knows when that’s going to end. And no one knows. what it’s going to look like in two to three years when you maybe foresee your value added plans is going to be completed. What’s, what’s the landscape going to look like then? What’s going to be the, you know, the terminal cap rate of that property? You know, if, if your intent was to refinance, pull some cash out and, you know, maybe put Fannie or Freddie debt on it. No one knows what that’s going to look like at that point in time. It makes it very difficult to make intelligent business decisions. So I think that’s I think that is plaguing everybody that’s in our space. You know, there’s still people buying, we’re buying, we’ve got a number of deals under contract. But I can tell you that it’s literally a day by day. I just had a term sheet change this morning on me and it literally changed by 64 basis points, which is a fairly significant swing on a $20 million transaction. And so that could potentially kill that deal. And we’ve been working on it now for over a month. So it’s a tough time to buy. But with that being said, I will say that now’s the time to really sharpen your pencil and to hone your skills. If you’re a syndicator or if you’re just a, even if you’re just a small time investor that that’s looking to buy maybe some opportunity, um, if you’re out there raising capital, either on small scale or big scale, now’s the time to really sharpen your skills and, and, and just get your business tight, get, get your house in order. And I’m not going to say there’s gonna be a flood of opportunities, but when times get tough, that, that pushes a lot of people out of the marketplace. Capital was very easy to come by for the past, what seven years. I mean, it was, you and I saw every, every one of their brother could just literally go make a post on Facebook and probably raise a million bucks. That isn’t that, that is changing very, very quickly. And I think folks being able to raise capital for opportunities when they do come up. is going to be a big challenge. And so, you know, get really good, get your business house in order, and be able to actually take advantage of some opportunities that might come your way. Again, I don’t, it’s really hard to say whether it’s gonna be just, you know, we’re gonna get flooded with, you know, a bunch of foreclosures and distressed debt deals. I think in the office space, yes. Just multifamily, not sure, and other commercial asset classes, just not sure yet. But we do know that there’s a lot of debt come and do over the next couple of years. Um, and sorry, putting stress cracks in the, in the markets and, uh, time will tell how that all plays out.
Dave:
Kevin, you also talked about one of your unique abilities is really trying to identify unique opportunities with above average returns.
kevin bupp:
Mm-hmm.
Dave:
Do you have any intellectual property or secret sauce or strategy if you will to how you identify?
kevin bupp:
Yeah, that’s a great question. You know, we, you know, mobile home parks, for example, when we, when we came across that asset class, it was, it was one that it was under the radar. It really wasn’t, it wasn’t popular at all by the majority, you know, institutional capital wasn’t there yet, very different landscape today, but you know, what I found is that there, there was significant barriers to entry to not only get into the space. but even bring new product to the market. And so I saw that as an opportunity. Number one, banks didn’t really understand the asset class. It was very challenging to get financing. Again, landscapes changed quite a bit. A lot of lenders, Fannie Freddie, a number of CNBS lenders are in the space. Tons of local regional banks understand the asset class now, but that wasn’t the case a decade ago. And so I saw that as an opportunity. That was one barrier to entry. The other barrier to entry is that municipalities really didn’t like mobile home parks. And so it was very difficult. for any new supply to ever come into a marketplace. In fact, at that point in time, and I think it’s still true today, it basically had a year by year had a diminishing supply. And so there was more mobile home parks getting shut down or redeveloped than there were new inventory coming onto the marketplace. So again, another major barrier to enter to where if I buy a mobile home park in a great market, I don’t necessarily have to worry about that market becoming saturated with that particular type of asset. That was huge to me. And so, Parking became similar. You know, we’re always keeping our eyes open for other opportunities that, that might have similar barriers to entry that, that might be more of contrarian investment where the, the herd isn’t necessarily heading that way yet, which means less competition as well. Again, that that existed with mobile home parks 10 years ago, lots of competition out there today. Um, just very different landscape, but parking came across my, my radar about five years ago. You know, I do a show just like you, I do a podcast and I interview a lot of really interesting folks and I’m always looking for those unique niches, maybe that I don’t know anything about. And I bring folks in the show and just try to dive into and explore it. And one of those individuals I brought on was a parking lot broker and investor out of Texas. And I knew nothing about that space, but very quickly within that one hour, you know, with that one hour show that we had, I was, it piqued my interest enough to where I dove a little deeper and I realized there was a lot of similarities of parking, fragmented ownership base, lots of mama pop owners. massive barrier to entry that municipalities and CBDs, they don’t want new parking lots being built. They don’t want that at all. In fact, a lot of cities across the country have completely removed parking minimum requirements from new developments. They just don’t they don’t want it. They’re ugly, they’re unsightly, whether it be a garage or a surface lot. And so there’s a moratorium in most cities across a lot of cities across the country that don’t allow new parking to be built. And so just again, a lot of similarities that create many different levels of barriers to entry that we saw as an opportunity. And so, um, it took us a couple of years of research and taking deep dives into that space before we finally pulled the trigger and bought an asset. And, um, you know, fast forward today, we’ve got about $50 million of, of, of parking in our portfolio, another about $25 million in their contract. And, and again, we found, we found, we find the space to have a lot less competition than that of pretty much any other asset class. And we find that there’s an opportunity to get in and consolidate the space given the fragmented nature of ownership. You know, 90% of the of the parking assets across the country, with the exception of municipalities, are owned by mom and pops that own maybe one, potentially two, a lot or a garage. And so very, very fractional ownership, which again, offers a lot of opportunity for a more professional group or institutional group to come in and and start consolidating that space.
Dave:
Great, can you walk us through like an example of the business model and how that works in parking? Because yeah, I’m sure many of the listeners aren’t familiar with this asset class.
kevin bupp:
Sure. Yeah. And it’s got a lot of similarities to that of just, uh, you know, think of like a value add, uh, multifamily property. Um, you know, some of the things that you’re looking for or management inefficiencies, um, you know, maybe, you know, uh, deferred maintenance that, you know, or, or, you know, some hasn’t, hasn’t been updated or renovated for, you know, a couple of decades. And so you haven’t been able to achieve full market rents on the property or maybe the the owner that’s had it for the last 10, 15 years just literally hasn’t raised rents or met they have they’ve done it once every five years, they haven’t kept up with market. So there’s a big delta from where they’re currently at to where the market is. A lot of those same opportunities exist in the parking sector, especially when you start talking about mom and pops that have owned these for a long time. Lots of assets we see their own free and clear. And so, you know, probably doesn’t change their you know, their lifestyle too much if they raised the parking from $5 an hour to $7 an hour. but that opportunity exists in a big way in the parking space. So I’ll give you an example of a garage that we purchased recently. And it’s in our neck of the woods. It’s in Clearwater Beach, right in our backyard. And this was a, it’s a large parking deck. There’s 700 spaces, it’s seven stories. And this was built only seven years ago by a local developer. The local developer owned a couple of floors, and then the city of Clearwater partnered with them and they owned the other piece of the real estate. So they basically had it split. you know, between the two different ownership parties. Well, municipalities really like to keep parking inexpensive for all the residents, for the businesses. And they kept it so cheap that it was literally half of what the remainder of Clearwater Beach charged, whether it be for just normal hourly rates or special events, what have you. And so the city was literally losing money from what they invested into this property. They were losing money year after year because they literally weren’t charging enough money. you know, for the for the parking, nor did they have any dynamic pricing in place that fluctuated given the supply demand factors depending on whether it’s a busy holiday weekend or a special event, something along those lines. For example, the beach there in Clearwater goes from, you know, when they own that lot, you know, they were charging $2 an hour. But if you look at it on any busy holiday weekend, most of the time, you’re going to find parking lots, or service lots of garages that are charging $30 $35 flat fee, and they might turn those spaces, you know, two or three times in one given day. So we simply went in and we raised the rates to market, which is $6 an hour for normal hourly parking. So when we bought the garage, it actually was at $3 an hour. They did raise it $1. So we basically doubled the parking rate from three to $6 an hour, which brought it in alignment with every other lot and street parking in the area. And then during the busy season, or whether it be busy weekends, holiday weekends, spring break. There’s a number of different events that happened down there that basically where that parking garage fills to the brim, we institute a dynamic pricing model that basically, you know, either charges a flat rate or increases the hourly charge, but we adjust it according to supply demand. And that’s allowed us to basically double that revenue. We literally stepped in there and nearly doubled that revenue within a period of three months. Other than that, it was a stabilized asset. You know, it was only seven years old. It just it was run. it was run inefficiently, which is very, very common with municipalities. The developer that owned the other half of it, they you know, they were happy to get out, they had a really low basis in it, because they’re the ones that built it. The city needed the money for a different project that they’re doing down in the waterfront area of downtown Clearwater. And so both parties were happy to get out. We were happy to get in because we saw the existing economics that were in place. And we knew that we could do just a number of items again, just like we do in the, you know, the multifamily space to improve the value by increasing the overall top line revenues. So that was a fairly straightforward business model. Again, lots of similarities to that of when we go look at any type of value add property. How can we go in and fix the current management, increase the top line revenues, reduce expenses, and drive our profits? And that’s exactly what we did.
Dave:
Yeah, it makes perfect sense. And then how about on the back end? Do you guys look to maybe bundle up these properties and sell to a larger buyer like a PE fund or something like that? Or is there some kind of exit in the business plan?
kevin bupp:
That’s a great question. We always like to think of ourselves as long term holders of assets. Typically, we always end up right with a seven to 10 year horizon or potentially thereafter that. But with that being said, there are assets that you get into that for XYZ reasons, you might intend to hold it for long term. But three years in, you might find yourself looking to dispose of that asset. Maybe it’s a market that you wanted to expand in, but just couldn’t get traction. you know, every asset’s got its own skeletons, maybe you’ve realized that, hey, just this isn’t a good fit for our model for x, y, z reasons. And so let’s just move on from it and dispose of it. And so that’s typically what we do, we like to identify, once we’ve got an opportunity to run properties for a period of time, identify the not necessarily winners or losers, but the ones this property seven years old, how it’s running right now, my guess is that it’s going to be one that we try to keep for the long term against fairly new property, new infrastructure. there’s a moratorium on on any additional parking being built on Clearwater Beach, all the surface lots literally there’s like six cranes in the air right now down there. So surface lots are actually being developed right now, which means that the existing parking supply is going away. It’s literally they’re losing like 500 spaces right now as we talk. That tells me that this is going to be continued increased demand. And so that one more than likely as I as we talked today, we’ll probably one that we hold for the long term. Whereas other assets in our fund we might exit out of to, you know, look to return investor capital and, um, and then pick one or two or three assets in our current fund that will hold for the very longterm, get all of our capital back to our investors, put some longterm debt in place and each of those assets we intend to hold for the longterm. And then, you know, hopefully right off into the sunset, whether that be 10 years, 15 years, 20 years, what have you. But I know that you can’t build more parking, Clearwater beach. Same thing kind of goes with mobile home parks. When we have assets that we absolutely love. I know that. there is a very slim chance that another mobile home park will ever be built anywhere in the local vicinity. And so if I like this asset, and it’s performing well, and it’s providing great returns for our investors, if I sell that, it’s going to be incredibly difficult for us to replace that asset with one of equal quality or equal returns. And so that’s kind of how we look at both those spaces. Again, no new parks are really being built, not much new parking is being built across the country. And so when we got a great asset, we know that it’s just going to be increasingly more difficult to ever think about replacing that with a similar quality asset in the future. So we like to hold long term.
Dave:
And from a tax perspective, are you still able to leverage bonus depreciation on parking lots or how does that work?
kevin bupp:
We do it well with with your parking garage is it’s not as attractive as what it might be with, you know, like mobile home parks are incredibly tax efficient. You know, we do call seg studies, you know, we’ll get anywhere from you know, 70 to 80% give or take of the purchase price paid, be able to take that in year one, I know that they just it just went down to, you know, I guess 80% it’s starting to kind of trail away now. But,
Dave:
That’s
kevin bupp:
you
Dave:
it,
kevin bupp:
know,
Dave:
yeah.
kevin bupp:
parking garages aren’t as tax efficient. We just did a call seg study on We just did a cost-ex study on one and I think we ended up, you know, roughly 35 cents for, for every dollar. Um, so much less than that of what it would be with a mobile home park, but you still, still get a tax benefit from it. It just might not be as significant of that of, of a mobile home park. Um, same goes with the surface parking lot. You know, there’s, there’s still infrastructure there. There’s asphalt, there’s curbs. Um, there’s lighting, things of that nature that, that can all be accelerated. But surface parking lots were probably somewhere in like the 50 to 55 cents per every dollar. as far as the tax benefit and depreciation.
Dave:
Sure. Yeah. Kevin, if you had just one piece of advice that you could share with the audience in terms of how could they accelerate their own wealth trajectories, what would it be?
kevin bupp:
Yeah, that’s a great question. You know, everyone’s always, you know, everyone’s in a different camp that’s listening here. They’re in different stages of their journey, but I would say that, and it depends, as far as your listener base, are most of them passive investors or are they active? You know, what camp are they coming from, Dave?
Dave:
Pat, mostly passive.
kevin bupp:
Yeah. Yeah. You know, it’s been very difficult to sort through a lot of the noise. I think over the five years, lots of opportunities, smacking people in the face, lots of pretty marketing, OMS and just it’s, and it’s never about the deal. You know, the deal is important, but it’s more about the sponsor. And so I think it’s all about picking the right jockey. And so I would say that fear passive investor, it’s really about making the right investment decisions and and really betting on the right horse or the right jockey. And spending your time focused on learning how to vet different sponsors and find you know, find the one or two or three however many you need to diversify your portfolio, but find the ones that you you believe in you blot you believe in their investment philosophy. Forget how pretty their marketing is what you believe in the business plan you believe in their investment philosophy, but also more importantly that Their business plan and their overall investment objectives are in alignment with yours, whatever they might be, whether yours are more short term, short term, maybe you’ve got 20, 25, 30 years to kind of build your fortune. Just make sure that, that there’s a direct alignment between the two. But again, back to the original point of like, spend as much time as necessary. Don’t just look, look to deploy your capital as fast as possible. Maybe you’re trying to do it quickly to, you know, to, to get a tax advantage, but I would say that I would rather pay some tax dollars than rush into an investment. And so take your time, research the different players in the marketplace, get with someone that’s got a track record, get with someone that’s transparent, communicates well, spend time with them and just ensure that there’s an absolute alignment of interest there. That’d be the best advice I could give.
Dave:
Yeah, solid insights, Kevin, really appreciate that. In your time today coming on to the snow. I know you’ve got a ton of things going on. Certainly an interesting time of year that we’re in for sure so much uncertainty out there. So really appreciate you sharing your wisdom with everyone and learning about some new asset classes as well. If people want to reach out to you and learn more about what you’re doing connect. What’s the best place?
kevin bupp:
Yeah, sure thing. You know, the best place to learn what we’re doing, you’ll connect with me, learn more about the company is to go to invest with sunrise.com. Again, that’s invest with sunrise.com there you can learn about the different offerings that we have a little bit more about our spaces that we’re in with your mobile home parks and parking lots and then go to the contact us page as well. And that that message will find its way to me if you’d like to reach out to me.
Dave:
Awesome, really appreciate it, Kevin.
kevin bupp:
Dave, thanks for having me. It’s been a lot of fun being here.
Dave:
Thanks.
Hey everyone, welcome to today’s show on well strategy secrets. We’ve got another awesome show for you guys today. Today we’re joined by Bikran Sandhu. Bikran is the COO, CFO and co-founder of Rise 48 Equity and Rise 48 communities. Bikran’s main responsibilities include overseeing underwriting, asset management, accounting, finance and treasury at Rise 48. Prior to Rise 48, Bickron worked at PwC and CNM in audit and assurance services where he audited Fortune 100 companies as well as pre-IPO companies. He also has a professional background in management consulting services related to Sarbanes-Oxley Compliance, Risk Advisory, and Transactional Accounting Advisory Services for Fortune 500s. Bickron holds his BS in economics from UC Irvine, and he resides in Scottsdale, Arizona with his wife, Alice. Bikrun, welcome to the show.
Bikran Sandhu:
Yeah, no, thanks, Dave. Thanks for having me. I really appreciate being on here.
Dave:
Yeah, you bet. Been looking forward to this discussion. I think the audience is really going to enjoy the perspective that you bring to things. And really reminds me back to my consulting days, because I was doing business consulting, technology consulting as well. So I understand the importance of compliance for top fortune firms and how that works. And when I kind of translate that you know, personal finance, right? To me, it just seems like this whole world of financial engineering, right?
Bikran Sandhu:
Yeah.
Dave:
It’s how you can really understand, you know, these basic concepts and tenets, and then put them to work in a strategy that really, you know, maximizes those things for the best, you know, type of outcome. And I think a lot of people really miss that, right? Because, you know, we’re kind of trained by Wall Street to just say, hey, You’re not smart enough to manage your own funds, leave it to the professionals. And so they’re just kind of doing that work for you.
Bikran Sandhu:
Exactly.
Dave:
So
Bikran Sandhu:
Yeah.
Dave:
why don’t we get started and tell the folks a little bit about your background, how you got into that space, and what really ultimately led you into real estate investing at Rise as well.
Bikran Sandhu:
Yeah, no, definitely. And thanks for the intro there as well. I think that covered a lot of the basic points there. But I graduated back in 2012 in California, University of California Irvine, and moved directly into auditing. So I started at Grand Thornton, spent about a year there, and then went to PwC, spent about 3 and 1 1 half years there, and really got an understanding of how companies operate and how their financial statements are represented to the point. data to the entire world essentially. So as we’re going through audits and looking at different companies, you start understanding the risk factors of the various companies, what to really hone in on, what type of systems are in place to make sure you don’t have fraud occurring or you don’t have misstatements occurring. So for the first 4 and 1 1 half years, really got into the business of understanding different companies and medical field. technology field and real estate fields and understanding what the key metrics are that they look at and what their investors look at to make sure those companies are still doing well. So I didn’t have any financial background before then. In college, I had an economics degree. I’m not a financial analyst by any means going into this industry. But as you kind of go into audit, you really kind of understand. from point A to point Z essentially for the company and how it takes its raw materials and turns it into profitable goods and how it returns equity to investors. So that was very helpful. And I think the biggest thing that I really learned was really Excel skills. Coming in, I hardly knew how to use Excel. Colleges don’t teach you the day-to-day what you need to do to be successful in life. So it’s starting with the… PwC and Grand Thorne really kind of helped me understand my Excel skills, how to manipulate data, how to understand data from a different perspective and not spend years trying to figure out how to do it. It was really helpful. And then after PwC, I really kind of got the bug of kind of wanted to do a little bit of management consulting. I wanted to, instead of looking at financials after everything happened, I wanted to start looking at financials while they were being created. So… going in, helping companies buy other companies, sell divisions, or reorganize or restructure themselves to be more profitable, that was very helpful. So I really wanted, I got a couple clients at PwC where they were going through a restructure, kind of learning about how they were reorganizing their workforce, and I had some good ideas, but obviously as an auditor, you’re a third party, you can’t really do any management consulting. So when I left PwC, that was where I wanted to go, was a little bit more on the consulting side. So that’s where I joined CNM. I spent about four years there. And our first client, it was a Fortune 100 company that was buying one of their competitors. And we were in there helping them understand how to value that client. They’ve already paid the purchase price for it, but now they need to allocate it to all the assets that they got. How much is going to go to Goodwill? How much is going to go to like… the accounts receivable and what they’re going to collect or not collect. Instead of looking at it as an auditor, once everything was done, I’m looking at it and helping the company decide how to allocate the different values. So that was super helpful. And throughout my career at CNM, really helped companies also implement processes to make sure that there wasn’t any holes in their financial process, which could lead to a… financial misstatement, kind of helped companies design those processes, test those processes to make sure they weren’t breaking, and then also helping companies value the businesses that were going to go by. And that’s really where my financial background really kind of kicked off was I was reviewing these foreign INA valuation reports where I helped companies kind of decide how to kind of value the different assets they were looking at and what they had acquired and how to allocate it all. And at that time I had a couple of realistic clients as well. So it kind of piqued my interest, how these companies kind of worked. And at the time I was also with my then girlfriend, now my wife Alice, we were looking at how long we would have to essentially work and be in the W-2 position for our entire lives, essentially to live the life we wanted to and decided that, hey, why not start supplementing some of this income with passive income? So… In 2017, 2018, after being at PwC or CNM for about a couple of years, two, three years, we started looking at passive income opportunities, you know, like multifamily, single family, flips, rentals, house hacking, short-term rentals. And you know, living in California at the time, it was a very difficult time. It’s not very friendly to like multifamily investments. And it’s not very friendly to like single family residential. You’re not gonna do a BRRRR method in California, especially in like SoCal, like LA area. So really the primary passive income quote unquote, strategy that we had was fix and flips. So, and you can imagine Dave, it’s not that is not passive in itself. Like we’re looking at deals that you have to buy for cash for 300,000, spend $80,000. flipping it and then selling it for 450, 460,000. After you take out all the closing costs and the broker fees, you’re making maybe 10, 15K on that flip and the entire time, you have to be on site managing the contractors, making sure they’re doing their work. So it’s really active income. And instead of supplementing our W2 income, it was gonna be essentially replacing it because I couldn’t go to work from nine to five and also watch contractors. Slowly, my wife and I started looking at single-family rentals outside of California because it was non-existent there. And as we’re kind of modeling out the finances, we’re realizing that having a property management company run these single-family homes was essentially eating our profits. So we’d have to essentially buy around 20, 30 single-family homes for it to kind of make sense for us to actually go out and buy these homes. And at that point I was like, well, why don’t we just do multifamily? We’re already there, you know, in terms of when it’s going to become profitable. Why spend five, 10 years like buying these single family homes, getting it to a point. And then all of a sudden realizing, oh, just do multifamily straight away. And that’s how we got into multifamily. We at the end of 2018, beginning of 2019, we really started looking at passive income opportunities from multifamily syndicators. We invested in a couple. And as we’re kind of looking through the entire process of going from identifying a deal all the way to selling it after executing your business plan, I realized I had a very strong advantage in financial modeling and I needed someone to kind of help me with the, supplement my skill set with the broker relationships and capital relationships. But as long as I find that person. I can go in and do the financial modeling, asset management, run the company, and add my value from that perspective. So February 2019 was our first deal that we bought. It was called Silver Oaks 36 units. And I bought that with Zach Haptestall and Robert Shefchick. They were our principal partners there. And Zach was building out those broker relationships with investors, with the investment sales teams, I’m sorry. And then he’s also building out his capital relationships with… with investors and Robert was, you know, he had a construction background so he was helping out making sure our business plan was designed appropriately. So we went, you know, all in just our money. The first deal that we bought was 36 units. I invested $150,000 of my own cash that I had saved up from my years of working at PwC and at CNM and that was really all my life savings honestly. I didn’t have a lot left after that. I was really kind of living paycheck to paycheck. And then as we started executing our business plan on Silver Oaks, the property, we realized, hey, this isn’t rocket science. We can take what we’re doing here and kind of replicate it on other assets. And then we started buying other properties. So that’s really how it kind of kicked off, my background and how it kind of melded into multifamily.
Dave:
Yeah, that’s such a great story, Bikran. I know the listeners are going to really kind of connect the dots there. But that’s really just such a great trajectory, right? As an entrepreneur, where you really identified, you know, your skills in the audit business and process and everything. And, and I also kind of came from that space as well, like I said, so it’s fascinating to me, because I really think about, I mean, not only building a business, you have, you’ve got to have the process, but, but the process of wealth building. is actually a process in and of itself, right? So you started to kind of go through that journey, right? And take that to the next level by then partnering with others, right? With their unique ability, exactly where they fit into their lane and then just kind of scaling that up. Was there any, you know, light bulb moment that you had in terms of getting into, you know, it seems like there was two big, you know, points for you. One was getting in a passive income in the first place. And then the second would have been, for you to just go for multifamily because that was a big bet that you made.
Bikran Sandhu:
Yeah, yeah, no, definitely. I think when we looked into getting into, you know, real estate investing, like even now, like my wife and I, we didn’t have kids back then. And we were essentially telling ourselves like, look, if we’re going to take a leap of faith, now is the time. Like we don’t have dependents, you know, we don’t have someone relying on our income. So if we go out there, try to do this and crash and fail, it’s all right. I’m a CPA. I’ll get a job. There’s a shortage right now. If something happened tomorrow, I can easily find a job out there. My wife has an HR background. She can find a job in HR. It’s not a big deal if we were to kind of jump into this right now and try it out. But what we don’t want to happen is, when we’re 60, 70 years old, kind of built up everything. And now we’re looking back and saying, oh gosh, we could have done something different and could have arrived at a different point. So taking that leap of faith of, hey, We want to get into this and really kind of be the general partner was the first lightbulb moment where we decided we wanted to get into this and we wanted to make sure we could build something out. So changing our mindset from let’s just kind of dabble in it and see what happens to OK, we’re going to do this. We’re going to make sure we’re going to be successful. And if worst case scenario, we go back out, we go back to our day jobs. That’s the worst case scenario. We were able to do that. And then the second lightbulb moment was. as you kind of mentioned, you know, like we, I had identified my competitive advantage in the industry and I wanted to have somebody come in and supplement that advantage. So, you know, Zach and Robert, they were perfect supplements where I don’t have the construction background and I don’t have the relationship background that Zach has, and, but I have the financial modeling skillset, so they don’t have those skillsets so we’re not stepping on each other’s toes, but I can go out. run a business from a back office perspective, and they don’t have to worry about those aspects. They can go out and make sure properties perform from a physical and from a relationship perspective. That was really critical.
Dave:
Yeah, that’s absolutely key for entrepreneurs, right? Scaling businesses, it’s staying on your lane, having the right focus with that, and then you can really get exponential results. Do you have a particular wealth strategy that you’re following today, Bikron, in terms of what you’re doing? I mean, in addition to the business, but what you’re doing personally?
Bikran Sandhu:
Yeah, so mostly, most of our wealth is kind of tied up into our company because we’re running it day to day. We know where the trajectory is at and we want to make sure that our investors know as well that we’re not just running this as a side gig. Back when, in 2019, we had acquired a few properties, in 2020, we had acquired a couple more. Rise 48 was really kind of a side gig for us. We had a W-2 jobs. We were kind of starting to build up this business, but it wasn’t really our main bread and butter. In 2021, my wife and I essentially quit our day jobs and moved to Phoenix and started building our Rise 48 to the plan that we wanted it to be built out at. And throughout that process, it involves a significant amount of cash and flow into the company to build it out. And you’ve probably heard this, Dave, like, you know, the first couple of years of being an entrepreneur. you’re really not going to make a lot of money because you’re putting all that money into your business. And that’s what we did. We lived off our life savings and for the past three, four years, we’ve been investing money into building out this company. So even when we go out to, as we’re buying new deals, we don’t buy those deals and give it to a third party to go out and manage those. We manage everything in-house. In order to build out that management company, we’ve invested north of seven figures. into that company to make sure it’s stable, it has the infrastructure it needs to be operating, and we’re also building out our construction side and making sure that anything that we’re representing to our investors in terms of our business plan and operations, we’re able to control those aspects as opposed to handing it off to a third party and losing investor confidence or losing any sort of wealth that we’ve generated because we’re not performing on our property. So, you know, from our wealth generations, side of view, our investments into our company and into our real estate has been really critical because that’s been able to help us really exponentially grow that wealth because where we believe in the product that we sell, so we invest our own money in there and we invest the money into the company.
Dave:
Yeah, absolutely. I think people are always thinking about it from an investment standpoint, like what other investment vehicle can I get into? But it is interesting to look at your own business as the investment itself. How can you drive valuation in that? And what type of return? I mean, typically businesses will yield a higher return. They come with a little bit more risk and you’re definitely all in. But just to give listeners a sense of the gravity of what you guys have accomplished is really impressive. And tell folks in terms of your current footprint, assets under management, markets, your current expansion right now.
Bikran Sandhu:
Yeah, so to date we’ve acquired about 42 deals across Phoenix and Dallas. We started off in Phoenix. We acquired around 30, I want to say 39 properties out there before we started expanding out to Dallas and looking at deals out in Dallas. And the reason was, you know, we wanted to make sure we had the blueprint for success established in a market before we take that blueprint and replicate it in a different market. So that’s our strategy in terms of expansion. But to date, we required about 42 assets. We’ve sold 11. So we have around 31 under management. And most of those properties, again, are in Phoenix. And we’re starting our footprint growth in Dallas. And our goal over the next couple, at least for the next couple of quarters, will be keep doing more and more Dallas deals, build out the infrastructure, and sustain the infrastructure out there. Our goal is to continue buying. least a deal a month for the foreseeable future. And last year and the year before, 2021 we bought about half a billion dollars in assets. Last year we bought about $800 million in assets. So as of right now, under managed total transactions that we’ve done were around 1.8 billion. And we have around, I wanna say 1.4 billion under management in our portfolio. And we’re continuing to grow that.
Dave:
Yeah, that’s such an awesome scale in such a short amount of time too. So kudos to you guys. It’s really, really impressive in terms of that as well. Um, like, you know, can you speak from a competitive differentiation standpoint, because I know some of the markets you operate in, um, there’s some big players, right? Including some institutional players, right? In those markets, and you guys pretty much kind of almost came out of nowhere, right? And are going really toe to toe with them. So, you know, what would you say is that key differentiation for you guys?
Bikran Sandhu:
Yeah, yeah. And just kind of give a perspective of Phoenix. Majority of our competitors, as you mentioned, Dave, they are institutional players. We’re competing with the likes of Blackstone, Tides Equities, Western Wealth Capital. Most of them get equity from joint ventures. They’re not really syndicators. Western Wealth, for instance, started about 10 years ago, I want to say, 15 years ago. They started off as syndications, but now they’re partnering with joint ventures such as KKR. which is a huge player in real estate, to buy deals. So a lot of times when we’re going after marketed deals, we’re having to compete with them on best in finals to get to the best price. And certainty of execution has always been very important for us. We’re coming in as a brand new player, we’re buying deals from sometimes institutional players and they wanna know that when we get a deal in a contract that we’re gonna close it. We have never gotten a deal in a contract that we have not closed to date. And we have no intention of going after deals that we cannot close or going after deals where our equity is not lined up. So we always make sure that if we’re going to go after a deal, that we’re going to close that deal within 60 to 90 days, which is typically what the PSAs require. So the very first deal that we bought through, actually it was through Western Wealth Capital, was a stellar. You know, we got grilled a lot, honestly, with the questions on, hey, are you sure you’re going to be able to close this deal? The total check size for your equity is around $6 million. You guys have never really raised money before. You know, and we had to go hard on earnest money, which wasn’t really normal at the time. We had to, you know, go about $300,000 hard, earnest money day one without even doing any inspections. So that was a lot of risk for us that we were taking. But we believed in the deal. At that time, we were using third party property management. But we had our property manager go out to tour the deal with us. We were talking to vendors asking about, hey, have you any history with the roofs at this property or any plumbing history at the property? Let us know what you guys think. We’ll go ahead and model it all in. So we were going in prepared. But it was still some sleepless nights, making sure that we’ve got the deal in the contract and now we have to perform. So. raising money for that first deal was very, it was difficult, you know, it was the first time we were doing a deal, but we were slowly kind of building up that track record, which now when we go out to the market and bid on a deal, we have this entire record of, hey, we’ve closed 42 of the 42 deals we’ve gotten under contract. We have no intention of retrading the buyer, retrading the seller, excuse me, on the deal itself, because we don’t retrade. will budget very heavily on CapEx or capital expenditures on our side so that when we do our due diligence and when we do our loan calculations, we know that we have levers we can pull if something comes in higher or lower because we’ve kind of over-capitalized the deal on the front end. And we’ve never had to go back to the buyer and say, or the seller and say like, hey, look, your plumbing came in really bad so we need a credit for $500,000 or something. never had to do that because we have always kind of built it in on the front end. And it makes the deals a little bit more juicier, to be honest with you, when we get it to the investor, because now we’ve cut back on CapEx, we’ve gotten more loan proceeds than we needed or that we modeled on the front end. So it makes the returns a little bit better for investors. And we’ll still show a conservative estimate to the investors. We will never show the plan A, which is really to kind of… get out of a deal within three to four years, we’ll always show a plan B, which is, hey, the market’s gonna stay in a recession for the next four or five years. We’re not gonna experience any significant rental growth, and it’s gonna take us five years to effect our business plan and get the returns that we showcase in our investment decks. So that’s the expectation we set for investors, but the 11 deals that we’ve sold is taking us around 18 months to achieve. the business plan that we expected to achieve in five years. So that’s part of the market, but part of us actually doing what we said we’re gonna do in the business plan.
Dave:
So given some of the market conditions, right? 2023, such a rapid rise in interest rates we saw last year, not really sure what’s gonna happen with that. We’ve got all these geopolitical events going on and a lot of people in commercial real estate, especially multifamily, some people are sitting on the sidelines waiting for opportunities to strike. Other people are having challenge with the capital markets in terms of getting the capital required for deals or things just not necessarily papering right. So how are you guys really positioning yourselves to have such deal flow in this market? So, I think that’s a great question. I think that’s a great question.
Bikran Sandhu:
Yeah, that’s a great question. This is a volume game. CRE and multifamily is completely a volume game when it comes to finding the right deals. We, in Dallas at least, we started looking at deals in about November, December of last year. To date, we’ve underwritten over 120 deals in Dallas. And of the 120, I can tell you 95% our bid ask has been just so. so significantly different where the seller wants, you know, X and we can get to X minus 20, 25%. And that’s, that’s very critical and, and, and knowing where the market’s at today, because seller expectations have still not come down. Buyer expectations have not come up because of the volatility you see in the CRE industry. And the 5% of the deals that do work, we try to pursue them as, as, as, as best as possible. But we’re not going to win every deal that we go after. Or if we’re going after a deal, it might be too late because someone else already snatched it up. So of the deals that we’ve underwritten, three or four have really kind of penciled. And we’ve aggressively pursued all those. And we’ve gotten those under contract. Because as you mentioned, Dave, a lot of the people are sitting on the sidelines. They don’t know where the interest rates are going to go tomorrow. They don’t know what’s going to happen to the debt market. They don’t know what’s going to happen to the economy. But our thinking is that we’re going every deal out there, there’s a good, if there’s a good story behind it, we’re going to go after it. So the deals we’ve bought in Dallas so far have been primarily distressed deals where the sellers had either a balloon payment come up or, you know, they’re running out of cash reserves and their interest rates have shot up and their interest rate cap is expiring soon. So they either have to shell out money for the cap or they’re going to have to start asking for capital from investors. So we’re either going after very motivated sellers or very highly distressed sellers. Any deals which are, you know, the buyer bought it in say 2021, 2022, they have a three year, four or five year loan, they’re not distressed. Those sellers typically are not working out based on our model because their expectations are a little too high. But you know, the deals that do pencil are the ones that are distressed or we have motivated sellers that just want to get out of the deal because they don’t want to do those deals. And we’re taking a cautious approach on our end as well. We know, I personally believe interest rates have kind of hit the peak on where they’re supposed to be. And that’s based off of what the Fed is saying, where they want to get the interest rates higher than the inflation rate. And as inflation starts coming down, you should theoretically see the interest rates also come down over time. But I don’t think interest rates are gonna expand to like say six, seven, eight, nine percent. I think five percent is where it’s gonna cap out at. Nonetheless, though, we’re essentially buying interest rate caps across our deals to make sure that our interest rates do not go up in the future. So even if the Fed increases rates by, say, 100 basis points at the next Fed meeting, our interest rate is going to stay static. And because we’re buying a cap exactly where the sofa is at or below where sofa is at. So we’re paying for that upfront. We’re paying a prepaid interest on those deals upfront. But what’s essentially happening is we cannot offer a high enough purchase price because we’re taking proceeds from the purchase price and allocating it to the interest rate purchase. So instead of offering, say, $50 million for a deal, we can only offer $48 million because $2 million is going to go towards buying a cap for that specific project. So we’re being cautious in our investment strategy and we’re making sure we’re not taking… 80% leverage or 85% leverage, we’re capping it around 65% maximum to make sure we’re not over levered on any deal.
Dave:
Yeah, good point. So maybe you can explain to the audience a little bit on this interest rate cap, right? Because a lot of people are in deals right now. And all of a sudden, they’re seeing, you know, margins being squeezed by the increase in interest rates. But yet some people have the interest rate cap. So can you can you help educate everyone a little bit on the cost of an interest rate cap and how that actually works?
Bikran Sandhu:
Yeah, of course. So the way interest rates are calculated for debt funds is they’ll take what’s called the index, which is the Secured Overnight Financing Rate, or SOFR, and they’ll add a spread to that index so that you have a total all-in interest rate. So if SOFR, for example, is 1% and the spread is 2%, your total interest rate is 3% on a deal. Typically, a lot of the debt funds, our variable rate, meaning that they float over SOFR. So when SOFR starts going up, your interest rate starts going up as well. So when you’re buying a deal, let’s say you don’t buy any interest rate caps at all, and SOFR was at say 0.05% and your spread is at 3%, your interest rate when you bought the deal is at 3.05%, which is 3% spread plus the 0.05% SOFR. Well, over 2022, SOFR went from 0.05% to around 4.25% by the end of 2022. So you can imagine your interest rate, which was, if it wasn’t capped, went from 3.05% to 7.3% in just one year. A lot of the deals, when you have leverage up to like 70, 80, 85%, that interest rate increase is not calculated on the front end and the underwriting, and it cannot be supported by the… property, essentially, because there’s just way too much interest rate expense coming on in way short of a time. So your interest rates essentially more than double in that time frame, but your cash flow hasn’t doubled. So if the property is making, say, $50,000 in NOI and paying $40,000 in interest expense, your cash flow is $10,000. But by the end of 2022, if your cash flow has not, if your NOI hasn’t increased and stays at $50,000, your interest expense went from $50,000 a month, or yeah, $40,000 a month to now $80,000 a month. Now you’re losing $30,000 every single month in cash flow because interest rates went up so high. So what most syndicators do or should be doing is they buy interest rate caps. So if SOFR, which is the index, goes above a certain number, then the interest rate cap comes in and pays the interest. So if you have, for example, let’s say you have a cap at 2%, and SOFR goes from 0.05% to 4%, the cap provider is paying the interest above 2%. You’re still paying the interest up to two, but everything above 2% is being paid by the cap provider. So that helps pay the interest down a little bit from the cap provider, but not a lot of people are buying caps in the money. They’re buying the caps. essentially where SOFR is at currently or where SOFR is expected to be in the future just to get the cost down. But we typically buy caps right now at or below SOFR. So what happens is if SOFR right now is at 4.25%, we’ll buy a cap at 2%. So even if SOFR goes to 6, 7, 8, 9%, our cap provider is paying that interest. We’re not paying that interest from our cash flow from the property. Our cash flow is static as long as income stays static.
Dave:
Yeah, that was a great explanation. So you feel confident then over a three to five year hold period that once you have that, that, that cap in place, uh, you’re going to be good in terms of your underwriting and projections.
Bikran Sandhu:
That’s correct. Yeah. So our
Dave:
Yeah.
Bikran Sandhu:
earliest deal that we have under management, we bought that in June of 2021. Again, we bought three year interest rate caps on every single deal. So in, in June of 2024 is when that first deals interest rate cap will expire. Well, the deals that we’re buying, you know, they’re value add deals. We’re not just buying a deal and hoping the market takes it to the next level. We’re going to go in, spend money, increase the NOI, increase the value of that property. So The deals, one of the aspects of our business plan is doing interior renovations. And as we do interior renovations, we’re slowly increasing the NOI. So across the portfolio, what we’re doing is, hey, we used to renovate around 10% to 20% of the asset in the first year. Now we’re saying, OK, we’re going to renovate 60%, 70% of the asset in the first year, because we don’t want to take the risk of essentially being renovated at 50%, 60% by the time the the debt is essentially, the term is over, we wanna be able to refinance out of the deal. So we’re gonna renovate everything that we own to 100% by the time the debt term is up, so that when the debt term is up, we can either sell the deal as a fully renovated turnkey product to the next buyer, or we’re going to refinance the deal, hold it for a year or two, and then sell it when the market comes back. So we don’t wanna get caught in a pinch where, We want to sell a value add deal, quote unquote, to the next buyer who might not be there. We want to renovate it 100% so that if the next buyer is not there, we can get out of the deal and get out of the debt product and move to a more stabilized debt product after the initial term has ended.
Dave:
And where do you think people are really having issues? Is this operators maybe inexperienced operators that got into a product maybe three years ago and it’s coming due now and they didn’t do the underwriting for it? Or what would you
Bikran Sandhu:
I think,
Dave:
say?
Bikran Sandhu:
yeah, I mean, based on, so I’m on a lot of lists for, you know, different sponsors that are going out and doing deals. And a lot of the deals that were being marketed in 2021 and 22 were value add deals where the sponsor was going to spend, you know, $5,000 a unit and doing renovations and increasing in OI pretty substantially. Well, based on our construction management that we do, we’ve renovated over a thousand units as of the end of last year. across our portfolio. And right now, we’re renovating between 200 to 300 units a month across the entire portfolio. Renovating units is not an easy process, where you just put one company in there and they just renovate everything. You have to have oversight. You have to buy materials to make sure they’re not gyping you on materials. And you have to make sure that all the timelines are being met and that the budget’s being met. So having that oversight is very critical to the operations. And When you’re, you know, we know what the price is for the materials because we’re buying them all wholesale internally. And, you know, we’re typically budgeting between 15 to $17,000 a unit in the renovation expense. So when, you know, I saw in 2021 and 22, a lot of these renovation expenses were going to be around $5,000 a door and they were renovating 100% of the asset. I essentially looked at it and kind of. was a little taken aback thinking, okay, well, how are we spending $15,000 and they’re spending 5,000 and they’re getting the same rent bumps. So there’s a couple aspects here. One I think is a lot of people kind of underestimated how much the cost would be to renovate these units. And they were taking old metrics to turn a unit, maybe add new stainless steel appliances and that’s all you had to do. Well, when you buy 80s value add, a lot of these deals are essentially trashed. So you have to rip out the flooring, put in brand new flooring. new quartz countertops, new shaker doors, because the old doors for cabinets wouldn’t fit on the old cabinet boxes. So your expense is slowly increasing. And if you don’t have any infrastructure to kind of oversee the construction side, your subcontractors are not going to spend as much time as they should be in renovating your products. So a lot of the… distress that we’re seeing and one of the deals that we bought in February, the primary distress was they had marketed that they were going to renovate the property completely and they hadn’t touched any of the units. They had maybe turned them and just kept the cash flowing, but the moment that rents weren’t going up 10, 15% a year, their strategy fell apart because they hadn’t renovated anything. Their balloon payment was coming up in March of 2023. and they couldn’t get they couldn’t renovate 300 plus units and and just you know six months. So that’s where you see the distress hit. And I think you’re going to see more and more of that over the next couple of six, I would say couple quarters, three to six months is you there’s deals that were bought in 21 and 22, where it was all value at play, and nothing has been done at the property level. And now the sponsor or the operator is in trouble because they can’t refinance. and they can’t sell for a high value, so they need to get out of the deal or they get foreclosed on because they haven’t done anything at the asset level.
Dave:
Yeah, really great insights, Bikran. Um, if you could give investors just one piece of advice about how they could really accelerate their own wealth journeys, what would it be?
Bikran Sandhu:
Yeah, I think whether you’re investing in stocks or whether you’re investing in real estate or any alternative investments, what you wanna vet is not the company itself, you wanna vet the management team. I think that’s like one lesson I’ve kind of learned. I used to buy options and trade options at, my first options trades that I ever did was Tesla options back when they were releasing their financials on a quarterly basis. The- I think I invested like $800 on my first option trade. And I was betting that Tesla would go profitable in their first quarter and they did. And I made about $15,000 and I thought I was really smart. So I started investing in like Google, Apple, Facebook, et cetera, and lost $14,000 because I didn’t know what I was doing. So as an investor, what you want to vet is a management company. If you trust in say, the management at Apple or at Tesla, that is the company you want to invest in. And real estate is nothing different. You’re investing in the company, or the management company that you believe in. So the value add that we have is that we’re finding deals that we think are going to be home runs for our investors. So if you trust us to do our job, you’ll know that we have a box that we have to fit our deal into. And if that deal does not fit into that box, we’re not going to present it to you to invest in. So every deal that we do, you know, we get, we get flack because a lot of the deals we do, the returns are very similar. And the reason is because we have to hit that box for our investors. Like it’s not like we’re going after every single deal and we’re changing our underwriting to make the, you know, the returns more favorable to investors. We take a deal, put it into our box. If it doesn’t fit, we give it back to the broker and say, hey, we can’t go after this. So as long as you trust your underwriters or trust the team that you’re working with, they’ll present you good opportunities. You can underwrite every single deal yourself, obviously, and as transparent as the management team is, that gives you more faith in that team. But you wanna make sure you ask the questions on like, hey, what’s more important to me as an investor? Is it knowing the financials on the background? Is it knowing the people in the background? To me, I think personally, knowing your operators and how they do on their track record. is way more important than any individual deal itself.
Dave:
Excellent. Bikron really appreciate you coming on the show today and providing so much value to everyone. I know I could continue to drill you with questions. It’s been really an insightful discussion. But if people would like to learn more about you or what you guys are doing at Rise 48 or Connect, what’s the best place?
Bikran Sandhu:
Yeah, I think if you guys are going to visit our website at rise48equity.com, which is the word rise, numbers 48, equity.com. And then we have a link there for setting up a call with us. Go in there, select my name, and then jump on a call with us. And we can talk about my background more specifically. And if you want to invest with us, you can invest with us once we get you on our investor list. But you’ll never see our deals marketed anywhere. We only go through… our section, Regulation D, 506B Offering, so we don’t market anything. You have to be on our list to be able to get our deals. And if you want to connect with me on LinkedIn, you can find me there. Search my name. It’s very unique. You’re not going to miss it. It’s Bikron Sandhu, and you’ll essentially find me. But yeah, send me an email, bikron at rise40idequity.com. Set up a call online, and you can find me. We’ll try to be as available as possible.
Dave:
Awesome. Thanks so much, Bikron.
Bikran Sandhu:
Yeah, of course. No, thanks, Dave. We appreciate you having me on your show.
Dave:
You bet.
Dave:
Hey, everyone. Welcome to today’s show on Well Strategy Secrets. We’ve got another awesome show for you guys today. Today, we are joined by August Benias. August is the co founder and COO of CPI Capital. CPI Capital is a real estate private equity firm with a mandate to acquire multifamily, build to rent and single family rental assets while partnering with passive investors as limited partners. August was instrumental in the closing of over 208 million of multifamily assets since inception. August educates real estate investors through webinars, YouTube shows, weekly newsletter, and one-on-one coaching. He’s also the host of the Real Estate Investing Demystified podcast. August, my friend, good to see you. Welcome.
August Biniaz:
Great to see you as always, Dave.
Dave:
Yeah, absolutely have been looking forward to this conversation for quite a while. There’s so much going on in the marketplace. Seems like on a monthly basis right now, just so many different changes and everything. So curious to get your insights on how you’re reacting, what you’re looking at. But why don’t we start the interview off with telling listeners who don’t know about you. Tell us a little bit about your background and how you got into this space. And I know you have a unique perspective from that, you know, coming from that developer background as well.
August Biniaz:
Absolutely, absolutely. Yeah, I’m really a real estate guy. I started out as a real estate agent close to 17 years ago. And I wasn’t really good at being a real estate agent, but I was good at seeking deals and finding deals. So I started doing small fix and flips, eventually started my own general contracting company, moved on to building single family homes, both spec and custom spec homes are homes you build and put on the market to sell custom homes are homes you build for a client. So I was doing both of those, always wanted to scale. And, you know, a project came across my desk was five single family homes, it was what we call here in West Coast of Canada land assembly, and you could build 20 townhomes on there. So I don’t have the equity needed to close on that deal. It was an $8.7 million acquisition price. And I took the deal to a few friends, business associates, and I was able to raise over $5 million on that project. And the deal I had with my partners at that time, I didn’t know syndication, real estate private equity. I didn’t understand a GPLP structure. This was all alien to me. So we just created a company. We could shareholder agreements in place. And I was to get a portion of the profits, you know, relative to the performance of the project. And I fell in love with that model, with that idea, with this concept of finding the deal, finding the investors, bringing on all the professionals needed. And I couldn’t develop that project either as a general contractor because I was focused on single family. I brought on a architect or brought on the GC and the project went really well. And that was kind of my start into the private equity space. So I started educating myself lots on how to raise capital. This whole concept of, you know, structuring deal in the syndication format. But most of the content was coming from the US. I’m based here in Vancouver. And I realized this new asset class, which is multifamily and the business model of value add. And that was kind of my start. I partnered up with a couple of partners and we co-founded CPI Capital, which was initially a Canadian private equity firm focused on partnering with Canadians to allow them to have exposure to US multifamily. But then we saw that a lot of US investors are. reaching out to us and actually those numbers are growing faster than our Canadian investor numbers and that’s where we are today.
Dave:
Wow, that’s awesome. Super interesting background. And so how, I mean, it’s a really interesting topic. And I know we do have some international listeners out there. So maybe let’s go into that for a second is, you know, what does the structure look like if you’re an investor in Canada or another country and you want to invest into the US? Is that something that’s easy to do? Or how can you help investors facilitate that?
August Biniaz:
Absolutely. I mean, US most countries make the process of foreign investors investing in their country, you know, as simple as possible, because you want that for investment, particularly US and then its relationship with Canada. So there’s a treaty between Canada and the US that allows, you know, Canadians to invest into the US and also be relieved from double taxation or any of those concert concerns. Now, when it comes to the the private equity side of things when it comes to raising capital and bringing on LPs passive investors That’s what makes it a bit more complex Usually these structures need Canadians to have to file the US Taxes deal with the IRS have to you know get an I 10 number if they’re investing it as an individual An EIN number if they’re investing as a corporation, so it makes it a bit more complex And but yeah, there’s definitely ways around it A quick advice that I can give is really using LLCs to structure deals in the US has become very sexy in recent times and a lot of people use LLCs. Limited partnerships are actually a better structure to use to put deals together. For example, here in Canada, we have corporations like you have in the US, like a C Corp, and we have limited partnerships. this kind of a quasi entity in the middle, which is LLC. We don’t even have LLCs here in Canada. So one of the ways to structure deals in the US to make it more efficient for foreign investors is utilizing a limited partnership, which is looked at as a flow through entity, whereas a LLC is not a flow through entity. So any type of returns received from LLC are seen by CRA, Canadian Revenue Agency, as dividends. and then they’re taxed on both side of the border. So, utilizing limited partnership makes the process a lot easier.
Dave:
Great. August, tell us about your journey into real estate and building wealth. As you know, we like to talk about wealth strategy, right? And, you know, different tactics and tips and insights as to, you know, how people have accelerated their journey, some of those learning lessons and things. And obviously, you got into real estate at an early age, you saw some of the benefits of that, and then you’ve scaled, you know, quite well. So can you tell us a little bit about that journey and some insights from there?
August Biniaz:
Yeah, no, absolutely. As a real estate investor, as a real estate professional, I’ve been involved in many different aspects of real estate, but I’ve also been involved in other businesses. When I was introduced to real estate private equity, I felt that I had found the holy grail of wealth building because when you look at this business, how it’s very focused on investors and for the investor’s success. And a lot of time, the general partner is really being compensated relative to the performance of the project, both in the private equity space or the real estate private equity space is really, I fell in love with that concept because as a builder, as a real estate agent, we’re just conduits. We’re getting a fee no matter what happens with a project. But as a general partner, the majority of the profits are made on the backend and it’s a portion of the total profit that a deal makes. So if the deal goes belly up, the general partner doesn’t really make any profits. If you’re a real estate agent or a home builder, you have that margin of error where some of your projects might not make money or some of your investors might, your clients might lose money. But as a general partner, if you lose investor money, that stigma sticks with you for rest of your career. So I really love that part of the business. But then again, on the general partner, and that’s kind of the investor security side of things. But on the general partner side, I really see this as infinite returns is one of the only businesses in the world that it creates infinite returns because a general partner can source a deal. Obviously, there’s opportunity costs and costs that goes into sourcing deals and having the infrastructure in place to service investors. But if you look at it this way, a general partner goes out there, finds a deal, finds their investors and then receives a portion of the profits by, in some cases, not needing to put any amount of actual capital in. So I see it really as infinite returns for a general partner that kind of puts the deal together and brings everybody together. So that was what really excited me about this business. And also this other part of it was scalability. As a single family home builder, I saw my peers who, they were multi-generational. They’re people that their grandfathers were in the business and now… their grandchild were able to build larger projects. It took a long time to scale. Whereas real estate private equity, as long as you’re great at sourcing deals, as long as you’re great at executing the business plan and you’re great at partnering with investors, the ceiling is just so high. It’s limitless really. And you can see that with companies like Blackstone, over $2 trillion of assets under management, BlackRock. over $10 trillion of assets under management. So the scalability, that was another thing that really excited me about this business.
Dave:
Yeah, absolutely. And I love the performance driven model, you know, because I think so many people, again, their exposure has been to wall street and, you know, working with financial planners that are making fees, whether the market goes up or down, right. But in this case, right. And I mean, this is, this is the true definition of entrepreneurs, right? It’s risk reward. So you’re taking on that additional risk as a GP. You’re going to get rewarded for that risk if it goes well. And if it doesn’t go well, you’re not gonna make anything. But as you pointed out, I think it’s critical that keeping investors whole in the process and building out that reputation and credibility is paramount.
August Biniaz:
Absolutely.
Dave:
Any other, so I know you do a lot of coaching, you know, you have multiple shows and such. Are there any key insights that you’re constantly, you know, giving, you know, some of the people that you talk to in this whole, you know, space of, of investing and growing their wealth?
August Biniaz:
I’ll go a step above that and I’ll talk about that advice I keep giving myself on daily basis
Dave:
Ha ha.
August Biniaz:
and that’s really focus. It’s focus is
Dave:
Yeah.
August Biniaz:
mastering your craft, is being a specialist and you can see that in many different very successful sectors. You can see that within the medical space, you can see that within the construction development, people building high rises. There’s always specialties. There’s not this, I was reading O’Toole Gwande’s. a book and how he got the checklist manifesto and how he actually formatted his checklist from a lot of these high rise and these big project developers. And initially, back in the day, it was a master builder that basically oversaw all the aspects of developing a project. But then the process got much more specialized and all these different contractors and trades came in and that was their mastery. and they would all join together to build a great project. So, you see that in the medical field as well. You go to your GP and you get sent to a specialist because that’s what they specialize on. So I would really say, having that focus and being great at what you do and then scaling from there, really, right? You can always grow from there. You can always scale from there. If you have mastered a niche within the real estate space, for example, the real estate ecosystem is so large. lot of different business models. There’s short-term rentals, fix and flips, ground up developments. There’s syndication, be it multifamily or other business models is mastering, you know, one aspect and then growing from there. And for younger people, if somebody’s younger listening to this and they haven’t really finished college yet, I would say the same thing is going through college, getting a degree and then going from there. I know so many lawyers, attorneys that don’t even practice law. They’re doing other businesses, a lot of sports agents who come from the law background. So mastering something initially and scaling from there would be my advice, quick and simple.
Dave:
100%. That is one of the top 10 traits of billionaires is staying focused and only, you know, one to three areas. It’s amazing. And the further up you go in terms of net worth, it’s just less and less things that they actually do. Like a lot of the top billionaires, they’re just focusing literally on one thing. That’s all they do and getting kind of deeper there. And it’s interesting because I think there’s also a little bit of a push pull there. Because if you’re wired as an entrepreneur, you get excited about shiny little objects and things that could be great here or there. So it definitely takes some work to become focused.
August Biniaz:
Absolutely, absolutely.
Dave:
What are your thoughts, August, in terms of if some folks out there are interested in getting into this space as an active investor versus passive investor? And I think it’s a really important distinction. Because sometimes people get excited or they might start as an LP and then they might think about kind of expanding into the space because they’ve had some success and everything. So what are your thoughts on the dichotomy between those two?
August Biniaz:
No, for sure. You know, the success that real estate has had over the last, you know, 10, 12 years, there’s been a lot of LPs that have seen so much significant returns on their investments and they’re like, what is it? How is this even possible? And that was really the impetus for them to want to kind of explore, explore this space and get into this space. We can see that with many physicians who’ve come over and have left their practices as cardiologists or. neurosurgeons to be syndicators and it’s really mind-boggling to me because my mom always wanted me to be a physician and these days I’m telling my mom, hey mom look all these doctors are coming into my space, the real estate space. You know so, so no for sure there’s a lot of people who started as LPs and saw the potential and who are coming into the space. There’s all a lot of people, also a lot of people who are seeing a lot of content online about the growth of real estate, wanting to be involved in real estate. in some capacity. That advice really, if you wanna kind of start, building actual real estate business, if it’s a syndication business, if you’re syndicating these larger deals, if it’s a, you’re looking to join venture and put a business together, is of course to get a mentor and a coach. This business gets complex, you’re dealing with a lot of money, you’re dealing with institutions for debt and other items. So it’s very important to have coaches and also immersing yourself in the space, podcasts, just as this one here, YouTube shows books, immersing yourself in the space and understanding that this is not a kind of a side gig or a side hustle. This is a full-time business and you’re competing with people who have dedicated their lives to this business. And, you know, it’s there, you know, and there’s a bit of survival fallacy as well. A lot of times people come into this space and they see that random person, a chiropractor who came and has a billion dollars of assets under management, then they see that survival fallacy, but they also don’t see a lot of people who came into the active side and didn’t make it. Give a quick story when I was building single family homes, at some point, a lot of my focus was being as a… custom home builder. So I wanted to be the best custom home builder. Anybody who built homes in our city here in Richmond, I wanted me to be the top builder. And I was getting a lot of contracts. All my time was more focused on building custom homes rather than spec homes as a developer. I was seeing my clients making millions of dollars over those few years. And me as a GC making my I could have easily done way better, you know, not having to build for others and just, you know, partner with a few partners and build, you know, spec homes. So in some cases, the LPs long term actually make more than, you know, a failed GP or a GP who makes, you know, nominal amounts. So assess it, come into the space, learn about it, see if it really makes sense. But at times being an LP. You can cherry pick the best GPs to work with. You can cherry pick the best business models. You can partner with somebody working on industrial. You can partner with someone working on multifamily or BTRSFR. The world is at your fingertips really as an LP. So that’s kind of my long way of answering that question.
Dave:
Yeah, interesting story. I think there’s one aspect of that that people really underestimate. And it’s the fact that, you know, you are your greatest asset, right? And it’s understanding that. So you have to figure in the opportunity cost. So if you’re a great surgeon, right. And you do that really well, you get compensated well for that. So if you start now dabbling in some. single-family rentals because you think it’s a good idea for tax reasons and such like that. Now it’s pulling away from your time at what you do really well. You’re not being as efficient with your time and you’re really not respecting your time. Right? So, I think that’s a good point. I think that’s a good point. You know, in this space, there’s a great opportunity to collaborate, right, with partners and getting people, just as you said, people who’ve dedicated their entire lifetime and their career, like just into acquisitions in a certain market and a certain asset type. They’ve been doing it, you know, forever. They have all the relationships and then you’re going to go try to compete with them. Well, if you can collaborate, right. And then leverage, you know, leverage other people’s time and relationships. and be as efficient as possible about your time, I think you can see more exponential growth there.
August Biniaz:
100%.
Dave:
So August, tell us a little bit about the market right now. So it’s April, 2023, the time of this recording, lots going on this year for sure that really can’t be underestimated. So what’s your view of the market in terms of multifamily? Where are you seeing opportunities? Where are you seeing risks? How are you advising your clients?
August Biniaz:
Yeah, no, I just say that the market is choppy is really an understatement. The capital markets are in turmoil. You know, the Fed has this elephant in the room, which is inflation that they have to defeat and one of the main levers they have to pull to fight inflation is increasing interest rates. And, you know, we all saw the Fed increasing interest rates. That was all on all of our feeds and we saw it cute. Oh, they raised it and we’re all trying to guess 75 basis points. Okay. 25 basis points, kind of the guessing game, but the cracks in the infrastructure that increased interest rates are creating is truly scary, and you can see that with failure of banks. When banks in the richest country in the world start failing, those are scary times, right? And then you also seeing the ripple effect now happening on to commercial real estate. You’re having a lot of syndicators who didn’t account for… their rates going up this fast or they were not stood enough to purchase interest rate caps which is an insurance policy on your interest rates failing and investors losing capital. You have institutions like Blackstone walking away from some of their office space deals. But obviously there’s always opportunities in this when there’s blood on the streets. There’s always opportunities as well. At the same time, the Blackstone is losing investors capital. They also raised the largest fund, a real estate fund ever in history, which was a, which is a $30 billion fund. And they’re just sitting on the sideline ready to, you know, come back into the market and be opportunistic. Um, overall, um, I feel bullish about us real estate, the rent to value ratios that are in the U S are unseen anywhere else in the world. I see it happening here in Canada being very, uh, having my fingers on the being somewhat of a, you know, looking at the history of real estate here in Canada, the cap rates compressing significantly over the last 20 years and people still buying deals at two, you know, a 2 cap, a 2% cap, where in most cases that’s negative cash flow. If you put down 70%, if you put down 30% borrow 70% from the bank, you’re in, you know, you’re in negative cash flow. So you have to put up more money every month to just service your debt. deals. Institutional like REITs are still buying deals here in Canada. So I feel that the margins are still there in the US real estate, still the richest country in the world. There’s an interest in migration happening in the US, something you don’t really see in other countries. Like for example, in Canada, you don’t see half a million people moving here, half a million people moving there. I think unfortunately, eventually long term, the US will turn into Canada. Like it has in California and New York cap rates will be compressed so much that you know smaller groups can no longer buy institutional asset. Institutional assets will actually be reserved for institutions as they have been historically because only REITs can come in by a $50 million apartment community and add it to cap, right? And that only makes sense because they’re playing the appreciation game. So I think we’re still in this Goldilocks period where we could still syndicate deals and have those types of margins. But yeah, overall, bullish about the market. I feel that the Fed is probably going to do another 25 basis point interest rate increase and the Fed’s funds rate increase rather, it will affect the interest rates differently. And I think they will plateau there and they will see what’s going to happen, what’s happening with the inflation. And I think at some point in Q1 or Q2 2024, they might actually start decreasing interest rates because I feel that the majority of the CPI, consumer price index, which gives us where our inflation numbers are at is lagging because the majority of that number is on rents and those rents are still haven’t come into the numbers yet. So I think we’re gonna see a big drop in the inflation numbers. hoping to come to that 2.5% mark over the next couple of quarters. So I think overall, again, very bullish about US real estate. I’m actually making the move to the US. All our investments are in the US. So overall, two thumbs up for the real estate market long-term.
Dave:
Yeah, I would agree with that. I think people underestimate the fundamentals about the entire sector and what’s going on. It’s easy to react to certain noise or certain things going on in the media, the interest rates. There’s one kind of effect. But yeah, if you look at those bullish things that are going on, just look at, for instance, the immigrant demographic coming into the US. I mean, it’s as big as it’s ever been and it’s getting bigger. And if you’re an immigrant coming into the country, you’re not going to be buying a single family house for your first time, right? You’re going to be renting. And then we’re in states as you know, and Florida is now the fourth biggest in terms of GDP in the entire country. And they have a massive budget surplus,
August Biniaz:
has
Dave:
right?
August Biniaz:
a bigger
Dave:
So you
August Biniaz:
GDP.
Dave:
drive around Florida.
August Biniaz:
Florida has a
Dave:
Yeah.
August Biniaz:
bigger GDP than the whole country of Canada. So it just,
Dave:
Yeah, yeah.
August Biniaz:
we’re part of one of the G G seven countries, one of the, you know, wealthiest countries in the world. And the state of Florida alone has a larger economy than the whole country of Canada. It has
Dave:
Hahaha
August Biniaz:
more, it has more international airports than the whole country of Canada.
Dave:
Yeah, I mean, it’s really staggering. But when you think about those, right, from an investment standpoint, right, and you know, you’re investing in these markets, right, that have high job growth, high population growth, you know, I think you get a little bit more, you know, recession resistance, right, in some of these markets, because you have the fundamentals, you know, on your side.
August Biniaz:
Absolutely.
Dave:
And what do you think from the build to rent perspective? I know that’s a new asset class, a lot of investors might not necessarily be familiar with. So what are your thoughts there?
August Biniaz:
Absolutely. Yeah. Built to rent. You know, it’s a very interesting asset class. I got to give a quick, quick story about where BTRSFR came from. BTRSFR built to rent single family rental. These are basically portfolios or communities of single family homes that are built and managed for the purpose of renting. And they just perform and behave just like multifamily. They’re basically horizontal multifamily projects. And the start for this asset class was, post GFC when there was a lot of, you know, foreclosed homes, Wall Street got involved and start buying, you know, tens of thousands of single family homes, both scattered sites and portfolios or communities of these homes. And the plan was really just to sell these homes when the market turned around, because we all know real estate is cyclical. So they were buying in a down market, pennies on a dollar, and the plan was to resell them when the market came back up. and Blackstone was involved in these projects as well. But what they did is while they were holding these assets, they started managing them. They started renting them out, and they realized that single-family homes in a portfolio, in a community, they behave just like multifamily, and their NOIs were very high, and they basically was a start for this new asset class that was created. And then when the interest rates… And when the economy came back up and the price of single family came back to where the market was, and they could no longer buy these things pennies on a dollar, Wall Street actually started building single family, these SFR communities, these BTR communities, and from the ground up. So they partnered with developers to build these things. So that’s kind of the start of BTR, SFR. You see a lot of them being built in, again, the Sun Belt because the business model makes sense. So we are very bullish on this asset class because if you have an option to live in an apartment where you have tenants, neighbors next to you, above you, below you, or you live in a community of single family homes, obviously the choice is there. And then also since it’s not like you’re going into a neighborhood and you’re renting a single family home and people around you, most people own their homes. In a community of single family homes, everybody rents. So on this kind of the comfort level of renters that feel great as well. And some of these communities have amenities as well. But as far as syndicating these deals, we looked at a project where we got involved with where it wasn’t built yet. And it’s pretty difficult to get investors to come on board for something that’s not there, something that can feel enticed, something that’s not stabilized. So the business model that we’re looking at within the BTRSFR space is stabilized already performing assets. that are at least 50 single-family homes as a community, up to 100 because that’s the sweet spot for this asset class. But yeah, it’s a new and up and coming asset class. I’m sure if you’re listening or watching this show over the next little while, you hear more and more about it. So watch out for that asset class and to have some exposure to it would be great as well.
Dave:
Yeah, very interesting asset class. And then definitely going into those markets that we talked about, right, where everyone is moving and really in the sunbelt, you know, southeast and southwest, you’re seeing just more and more of those. So it’ll be it’ll be really interesting to see how that expands. August, as a top performer yourself, what would be the single biggest insight you could provide to our listeners around, you know, your personal personal performance that’s yielded the biggest results.
August Biniaz:
Personal performance that yielded the biggest results, frankly, is just gonna be something my grandfather always used to say is a healthy mind and a healthy body. And I’m learning more about my body, I’m learning more about my brain, and I’ve always been a clever guy, I’ve always made money, I’ve always been smart in business. But when my brain performs better, when I’m in a better mood, when I feel healthier, I always perform better. So I think that’s a very important part of it. It’s not this, I can’t give you this advice or read this book or read that book or get this coach is really investing in yourself, investing in your health, realizing what types of foods make you perform better, surrounding yourself by positive people. There’s joke on social media is good vibes only. So good vibes only kind of mentality, longevity, this idea that the way that our parents used to live that, you know, they smoked a pack of cigarettes You know that they would just be beat down. That’s not the case anymore You’re seeing the pictures and videos of billionaires that are they’re looking literally younger as as you we see them on on Social media and we see them online Focusing yourself focus on your health focusing on your mind working the you know It’s best way possible through great diet through relationships that you have with friends and I would say that’s that’s probably the best advice I can give for you know being that being a high performer.
Dave:
love it. Speak in my language.
August Biniaz:
Yeah.
Dave:
And from a you know, wealth perspective, what would be the single most, you know, powerful insight you could provide to listeners in terms of how they could accelerate their own wealth journey?
August Biniaz:
It would really be diversification. What I saw over the years with a lot of people in real estate, they get hyper focused in their own space. A lot of developers actually go bankrupt because they’re so focused into their next project and rolling their, their, their wins into their next deal. They never diversify. So diversification would probably be the best advice when it comes to, uh, you know, building generational wealth. Uh, but again, focus is very important. Focusing on what you do or great at. you know, a portion of your surplus needs to be diversified into different asset classes and not to be emotional. You know, you look at, you know, look at the S&P 500, a lot of these investments have done great over the years, but because of their liquidity, people, you know, get emotional and they exit something. And that’s a great thing about the GPLP structures and LP because of this liquidity, people can’t get emotional with what’s happening in the market and try to exit it. The general partner. makes that decision on behalf of the LPs. So diversification, partnering with the right people, and good friends, good partners are very difficult to find. So when you do find the right partner is to cherish that partnership really.
Dave:
Awesome. August, thanks so much for coming on the show today. If people want to learn more about you or connect with CPI, what’s the best place?
August Biniaz:
Yeah, best way to connect with me is on LinkedIn August Benias. Just search me on on LinkedIn, send me a message. I’d love to book a call and chat more. CPI capital.ca is our website. A lot of information. Our blog is on there. You know, our podcast, real estate investing demystified, but yeah, reach out to me, send me a message. Love to book a call and have a chat.
Dave:
Awesome. Thanks so much for coming on the show today, providing so much value to the listeners. Really appreciate it.
August Biniaz:
Absolute honor and pleasure to be here.
Dave:
Hey, everyone,
Zach Lemaster – CEO RTR:
Hey everyone,
Dave:
welcome
Zach Lemaster – CEO RTR:
welcome
Dave:
to today’s
Zach Lemaster – CEO RTR:
to today’s…
Dave:
episode on wealth strategy secrets. Today we’re joined by Zach LaMaster. Zach is the founder and CEO of Rent to Retirement, the largest turnkey real estate provider in the world. He is a seasoned real estate
Zach Lemaster – CEO RTR:
Thank
Dave:
investor who has
Zach Lemaster – CEO RTR:
you.
Dave:
accumulated a large portfolio of rental properties across
Zach Lemaster – CEO RTR:
across
Dave:
multiple
Zach Lemaster – CEO RTR:
multiple
Dave:
markets,
Zach Lemaster – CEO RTR:
markets
Dave:
including
Zach Lemaster – CEO RTR:
including
Dave:
single
Zach Lemaster – CEO RTR:
single
Dave:
family,
Zach Lemaster – CEO RTR:
family,
Dave:
multifamily,
Zach Lemaster – CEO RTR:
multi family.
Dave:
commercial and new construction. Zach
Zach Lemaster – CEO RTR:
Zach is a licensed optometrist who
Dave:
is a licensed optometrist who practices
Zach Lemaster – CEO RTR:
practices on a professional basis.
Dave:
on a volunteer basis.
Zach Lemaster – CEO RTR:
Zach started investing in real estate while working as a
Dave:
started investing in real estate while working as an optometrist
Zach Lemaster – CEO RTR:
..
Dave:
and captain for the US Air Force. This eventually
Zach Lemaster – CEO RTR:
and
Dave:
allowed
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eventually
Dave:
him
Zach Lemaster – CEO RTR:
allowed
Dave:
to
Zach Lemaster – CEO RTR:
him
Dave:
retire
Zach Lemaster – CEO RTR:
to retire
Dave:
early from
Zach Lemaster – CEO RTR:
early
Dave:
his
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from
Dave:
career
Zach Lemaster – CEO RTR:
his career
Dave:
in medicine
Zach Lemaster – CEO RTR:
in medicine
Dave:
to be a professional investor by strategically investing in markets that maximize cashflow, appreciation, and equity. Zach, welcome to the show and thank you for your service, brother.
Zach Lemaster – CEO RTR:
Hey, likewise, Dave, coming from a previous Marine. So yeah, excited to be here. Thanks for having me.
Dave:
Yeah, absolutely. And we’ll do the audience a favor and we’ll keep the inter-service jokes at a minimum today. But no, definitely appreciate your service. And that’s a huge cause for me and our community is trying to support those veterans. So, love what you’re doing and everything. And why don’t we kick off and tell the audience a little bit more about into the real estate space.
Zach Lemaster – CEO RTR:
Absolutely. Uh, and I’ll try to give the Cliff Notes version, um, to not give, you know, spend too much time on this, but essentially Dave, our background is, as you mentioned in the intro is in, in healthcare, uh, my wife and I, that is we, we met in optometry school, uh, in Portland, Oregon, I was on scholarship with, with the air force, uh, to pay for professional school. And so I went into the air force immediately after school as a captain. I practiced optometry in the air force for seven years. That’s where we started investing in real estate. Rich dad poor dad and that’s as many people have you know kind of got the bug I’ve always been interested in real estate, but even my first year in the Air Force I use my VA loan to buy a duplex house hacked it lived in half rented out the other half and Really just you know saw the benefits of real estate and that was that was the starting point and since and this is probably about 15 years ago at this point, but every year since that year we’ve bought more and more real estate So you know that first year duplex and then next year we bought some single family and some more small multi-family to ultimately replace our, my wife and I as active income as, as doctors to be full-time real estate investors. And that didn’t happen overnight, but it did happen over the course of many years, staying committed to continually investing and kind of the, the crux was where we, you know, learn to invest strategically out of state and, and diversify across multiple markets where we saw better opportunity that wasn’t just in our local market and that allowed us to really scale our portfolio quickly. And, you know, that wasn’t an easy process either. It took many years to develop our teams and systems to replicate across multiple markets, but ultimately we’re able to retire from our career path early in life, um, and replace our income, which I think a lot of people are looking to do. And so that caught a lot of attention from our friends and family and colleagues. They’re saying, Hey, we’re seeing this success. We’re having in real estate. We want to invest with you, you know, or, but we don’t have the time, the energy, the experience, like, can we just like, give you money or can we invest with you? You know, or can you teach us how to. in real estate strategically, specifically, you know, across different markets, say if their local market’s too expensive or just to find better return on investment. And that was the birthplace of our company, Rent to Retirement, where we help investors actually buy physical properties and build their own personal portfolio. And then fast forward to about, you know, 10 years later where we’re at today, we’re working across 11 different markets, mainly in the Midwest and Southeast. We sell turnkey products, which I’m sure we’ll talk about, but it’s really an easy Own real estate to scale and diversify across multiple markets where we basically do everything for them, but they get all the financial benefits of. Property ownership last year we did about a thousand doors across those eleven markets and. If you don’t continue to grow our team and now this this is our passion so.
Dave:
Yeah, that’s really awesome, Zach. And I find that there’s just such a gap in the marketplace around, you know, financial education. And even, you know, 20 years ago when, you know, I took the purple pill as well. And, you know, we read Kiyosaki. It was really great conceptually, but, you know, how, how do you make it work? Right. And, um, you know, I’ve been trying to kind of figure that out over the past 20 years, but it’s great that, you know, you were able to apply a lot of those lessons that you learned actually take action. and start that even in your active duty career. I try not to have any regrets in life, but if there was one area that I wish I had doubled down on back then that was financial education and getting smarter rather than giving my resources to a financial advisor at the time.
Zach Lemaster – CEO RTR:
Yeah. And that’s, I mean, that’s a common thing. We interview a lot of very successful people as you do in business and real estate in general. And, you know, the common consensus is, or when we ask them, like, what would you do differently? It’s usually the answer is I wish I would have started sooner or been more aggressive early on. I mean, all of us can say that though, right.
Dave:
Yeah.
Zach Lemaster – CEO RTR:
The important thing to know is that real estate is a lifelong journey. And just because you, you know, you maybe didn’t invest previously or you’re looking to take your business to the next level. Like, you know, there’s no, there’s no wrong time to get started. Real estate is a beautiful thing where it compounds over time, just owning real estate and having a strategic business plan, but it’s never late to get started and you learn and progress over time. And I think that’s a beautiful thing about real estate.
Dave:
Yeah. Zach, do you have an overarching wealth strategy that you and your wife follow?
Zach Lemaster – CEO RTR:
So we are, you know, disclaimer, we’re very biased towards real estate. That’s what we,
Dave:
Mm-hmm.
Zach Lemaster – CEO RTR:
you know, eat, breathe and sleep. And that’s what we know. I think it was Warren Buffett who said invest in what you know and nothing more. Um, but we don’t do any investing outside of real estate. I don’t have a 401k. We don’t invest in stocks or mutual funds or commodities. Um, and we are well diversified across real estate, both an asset class and location, but we only invest in real estate and we, we kind of, we’ve evolved our strategy over time where it’s, you know, in the, beginning it was like, okay, let’s just continue to grow our portfolio and cover our expenses. And that allowed for some level of financial independence. And then from there it was continually scaling and investing out of state to be more strategic to the point where, okay, we can replace our active income and then eventually scale to it’s like, okay, well, we can actually increase our lifestyle and continue to, you know, increase our income and our net worth through real estate, be a little bit more intentional on our investing to create generational wealth. income just from our portfolio outside of business or anything else, which is something I never would have dreamed of, you know, 15 years ago, but it’s just staying that consistent path. Specifically speaking, though, a lot of what we do right now is investing in real estate for tax purposes. And that’s something that we’ve really learned over the years of like how beneficial the tax benefits are because we’re active real estate professionals in the real estate business. Our goal every single year is to buy enough real estate to completely offset our active income taxes are the biggest expense we’re all going to pay in life. Um, and if you can, you know, defer that or delay it, or ultimately not have to pay that money to uncle Sam and then reinvest it to actually have a return, a compounding return on over time, that has also allowed us to excel our portfolio. So a lot of what we buy just personally right now is like commercial retail centers, they’re low cap rates, but they’re very long-term buy and hold stuff where we can, you know, get, take max tax benefits, um, available today and then reinvest that money. And then also that, you know, in addition being strategic about the locations we try to invest in. And that ties into our turnkey business of just identifying where the best opportunity is and building teams in those locations.
Dave:
Yeah, such great insights, Zach. You know, I think it’s it’s really interesting to this like trajectory of growth, right? Because a lot of us who get into this game, we kind of see this, you know, pot at the end of the rainbow, right, which is okay, I’m going to achieve financial independence where my income is exceeding my expenses. But it’s interesting, because once you start to get closer to that, you don’t want to be actually trapped by your goals. And I have a term for this I call abundant complacency. You know, is like, okay, once you reach that level, okay, now you’re stuck, but then you stop growing, you stop doing things, right? So you have to continually really make growth as like a capability, right? And a process that you’re always going. So, you know, today, I mean, that’s amazing. You guys are at seven figures in passive income, but you know, what is that gonna be like in the next, you know, five to 10 years, and you’re still, you know, expanding, you know, your entire footprint. So that’s awesome.
Zach Lemaster – CEO RTR:
Yeah, I think, you know, it’s, uh, I think a lot of people come into this with the idea, especially early on in their investing career of like, you know, when you think about retirement, um, or, you know, whether you dislike your current, uh, job, or you just want to spend more time with, with family and on the important things. Um, that’s really kind of, I think the mindset a lot of people come into is like, okay, well, let’s, let me get out of this job, right. And it is easy to buy yourself another job in real estate, make no mistake about it. And there’s, But we’ve gone through just like an emotional and kind of mental evolution over time where, yes, okay, we were able to cover our expenses and then our active income. But also, as we’ve become more experienced and savvy investors, we’ve also maybe, I don’t want to say lazy investors, but we’ve been able to be a little bit more strategic where, hey, we did buy our time back and we can still progress every single year, but not in just, to be able to help us support that. And that’s key. When you’re investing in real estate, you’re building a business and you need the right people in place. But I think it’s our goal now is yes, to still continue to expand, but also just make the portfolio in business self-sustainable where we don’t have to be in the day-to-day, but we’re still actively growing. And again, real estate’s a lifelong journey. And I think you’re always learning, but certainly over time, as you become a more experienced investor, you can be a little bit more strategic while you’re, we call it horizontal income where, you know, you’re, you’re laying down and sleeping and you’re still earning income on it. And that’s, I think a great thing that real estate allows, but this is our passion and, you know, we love helping other people accomplish the same thing. That’s the reward now. That’s where we’re at now. It’s same thing with optometry instead of actively practicing. It’s not because we didn’t like optometry. I love to help people see that’s a passion of ours, but we’ve been able to do that on a volunteer basis. We run our business helping people also accomplish passive income. And that’s like the active reward for us. And that’s what kind of keeps us going in it.
Dave:
Yeah, that’s really great. And I think there’s a really important distinction, a lot of people who are kind of navigating this space as well. There’s a distinction between active income and passive income, right? And, you know, just like you said, you know, you can buy a job, right? So sometimes the allure of getting into real estate investing or turn over assets or passive income kind of thesis, you know, can be so exciting to people that like, hey, this is is all I want to want to do. Right. But I think the first consideration you really need to make, you know, as an individual is, you know, does it align to my purpose? Right? What is really my purpose that I want to have? Because that’s what gives you freedom when you wake up every day, and you’re completely excited. Now, folks like yourself and me, like I live and breathe this, I you know, I love this. It’s, it’s, it’s a puzzle. So I really enjoy it. But also if you’re really good, like say you are an optometrist and you’re great at it and you absolutely love it, right? Then
Zach Lemaster – CEO RTR:
you know,
Dave:
passive
Zach Lemaster – CEO RTR:
passive
Dave:
investing
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makes
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sense
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sense
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for you
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of the
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active route where you just kind of replace
Zach Lemaster – CEO RTR:
Thanks.
Dave:
the job, right? And that’s what I think
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right? Cause you have to take into consideration that
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moment.
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cost.
Zach Lemaster – CEO RTR:
hundred percent. And you know, while you and I, Dave, or you know, we’re all in right on real estate, it doesn’t that doesn’t mean that that’s the only way to go. I mean, there’s so many different ways to invest in real estate. And we know there’s and there’s a lot of gurus out there that will teach you, you know, flipping and wholesaling and ways but those are, yeah, those are other jobs, you know, you’re replacing one job and often, maybe even a job that doesn’t pay as well as just your current job, there is nothing wrong with staying in your profession. We of investors that are engineers, doctors, attorneys, accountants, and, you know, or just, you know, you know, blue collar workers that are just, Hey, they just want an easy way to invest in real estate because they see, you know, whether it’s a diversification thing for them or they see the ability to really take a little bit more control over their finances. That’s, that’s huge with a physical asset like real estate is taking control over it. You’re not relying on the government to like send a 401k telling you when and how you can take your money. You can kind of engineer that. fact that real estate through all the different ways we refer to it as the ideal investment. And that’s an acronym, all the ways that you earn income through I being income D being depreciation tax benefits, E is equity buildup as the tenant pays your loan down, A is appreciation and L is leverage. So using all those things combined, like you really can excel your investing in your return on investment much quicker and have more control over it than investing in stocks or something like this. So yeah, there’s nothing wrong with continuing to work your normal refreshing, but still investing in real estate. And they realize like, hey, I don’t want to be a house flipper. That is a tough job or a wholesaler, but they still want to have the financial benefits of owning rental real estate. And, you know, that’s where our business comes in to help them do that strategically with a team that’s established in each one of these areas.
Dave:
Yeah, so that’s a great segue, Zach. Let’s, I mean, let’s talk about your business model because I think a lot of people might not necessarily be familiar with how.
Zach Lemaster – CEO RTR:
Sure. So turnkey is one of these buzzwords that we hear about all the time, you know, and it’s, it’s kind of ill-defined. And so we always want to talk about what, what we mean when we say turnkey. So when we talk about turnkey, Dave, what we refer to as a property that’s either been fully renovated or newly built, leased and professionally managed by our teams in markets that we’ve identified to be successful investment markets areas that have things like landlord friendly legislation, low taxes, population, and economic growth, rent ranges and demand that allows for positive cashflow. big one, right? I mean, that’s the most people want positive cash flow and in the rental portfolio. But we’ve all done all that research and built those teams in those markets where, you know, we have this this buttoned up product for someone where they can own the physical real estate. And that is a little bit more active. Still, it’s still passive. But I want to remind people in this scenario, you’re buying the property, right? You’re not investing in, say, a fund or doing profit sharing, like you’re owning the property in with the idea that is going And it’s in an area that you will likely have appreciation and rental growth where we handle everything for you. So you don’t have to be actively engaged in the management and the day to day, but you still get all the financial benefits of real estate ownership over time. And we help you scale and grow your portfolio. So that’s really what what turnkey is. We mainly focus on single family and small multifamily. As you mentioned, we also have the build to rent products, which I think are especially right now in today’s marketing, an exceptional opportunity where you can come into a brand and 10-year warranties on structure and things like this, that will have strong appreciation and have rental demand. And you likely have immediate equity coming into it as well that you can refinance later or sell it again. But the goal is to really offer those products to match it with the goals of the investor. We always want to get on a call with every single person to talk about your goals and experience your timeline, your resources, and help map out a strategic investing plan for you based on your criteria. to invest in what type of asset classes and then offer a comprehensive approach to assisting our clients in building a business. Because again, you’re building a business in real estate, you need to have the right accountants and CPAs. So you can take those exceptional tax benefits in real estate. You need to obviously have good property management, the right insurance, the right lenders in place. And so we try to build long-term relationships with people and offer this kind of comprehensive approach to helping them build their passive income portfolio.
Dave:
Yeah, that’s great. And let me ask you this question, right? If someone wanted, let’s say someone built up a little portfolio, maybe three, four, five units with you in this turnkey model, could that potentially qualify them as a professional real estate investor?
Zach Lemaster – CEO RTR:
So not being an attorney or CPA as a disclaimer,
Dave:
Yes,
Zach Lemaster – CEO RTR:
it
Dave:
of
Zach Lemaster – CEO RTR:
would
Dave:
course.
Zach Lemaster – CEO RTR:
always be good to consult with them. But there’s a lot of different scenarios that would be a goal, I think, for a lot of people, especially if you’re in the scenario, say you’re still working your W-2 or your profession and you want to continue doing that, but you have a spouse say that’s not working full time or that can potentially jump into that business. their active position. We have people that have qualified with, with no problem, but you just need to meet certain thresholds, right? You need to
Dave:
Sure,
Zach Lemaster – CEO RTR:
have like
Dave:
yeah.
Zach Lemaster – CEO RTR:
750 hours dedicated to investing related activities. You need to have material participation on your portfolio of 500 hours a year and certain things like this. And usually, yeah, once you have a portfolio of multiple rentals, maybe even diversified across a couple of different locations, even having a property manager, there’s a, you know, maybe a likely scenario where you could qualify as, as a real estate professional. have a spouse, you know, that could qualify for that. And that opens up the door to significant tax benefits, just like we’re doing in real estate. You could potentially, I mean, the goal of doing that would be able to offset your active income with your real estate losses, take accelerated depreciation on those. And there is a likely scenario that even if you’re, you know, working in say healthcare or whatever, you can offset all of your active income. And you’re taking accelerated depreciation losses against your active income. Just like with our goal, our goal is to reduce our taxable liability significantly or to zero every single year, just by buying enough real estate. And that’s huge, right? Cause that could be, that could be another 40% of our income, uh, that is applied to actually investing in earning a return. And that really accelerates stuff. So that was a very long answer to say, yes, it’s possible. Dave.
Dave:
Yeah, no, I mean, you know, reducing your taxes is massive, right? It could actually be a higher yield than the investment itself.
Zach Lemaster – CEO RTR:
Absolutely.
Dave:
You know, when you look at the whole thing, which is why we like to talk about really having a comprehensive wealth strategy when you’re understanding things from an end to end perspective, you know, and how can you impact something, you know, downstream when you make a change here? But it’s a really interesting strategy, Zach. I mean, we I know we have several investors in our the mastermind community that have have done that right there, their spouses have qualified as a real estate professional. But I was just thinking right, one of the I think one of the things that holds people back about being a real estate professional is, you know, it’s this whole concept, again, of the active versus passive is like, Okay, well, which market are we going to select? You know, so people typically go to the markets that they live in, or they can drive one hour or two, so they miss exposure to, you know, strong, strong of markets is one thing. There’s so much competition in the space. So if I was to go out and buy a property on my own, I’m competing against someone like you who’s got an entire professional team. You’ve been doing it for the past 15 years, and you know all the assumptions, you know the growth rates and things like that. So it could be really interesting, right? A little bit of this like hybrid model, right? To leverage you guys, right? It’s kind of that who, not how principle, right? can actually identify the property, you’re doing all the turnkey items that nobody wants to deal with tenants, termites, and toilets. So you manage all of that. But then if you have a bit of a portfolio to that, there’s still some overall management that needs to take place
Zach Lemaster – CEO RTR:
take place.
Dave:
that I’m not
Zach Lemaster – CEO RTR:
I’m
Dave:
a CPA
Zach Lemaster – CEO RTR:
not a CDA
Dave:
either,
Zach Lemaster – CEO RTR:
either.
Dave:
but it would be something worth exploring with your tax advisor if it could be a good strategy.
Zach Lemaster – CEO RTR:
One thing that we’ve found, and I love that everything you just mentioned, Dave, I think we’ll, we’ll still the term of tenants termites and toilets is a three T’s from you. Um, but, uh, yeah, I think that, uh, you know, looking back over the, the past 15 years of, of our investing career, really what’s allowed us to get to the point that we are today is not, not doing anything complicated or out of the ordinary or creative. We’ve done a lot of different creative, you know, financing, And like I said, flips and holds out, we’ve done it all, but really it boils down to ultimately just building a portfolio, right? And owning real estate over time and letting time do what it does with appreciation and debt reduction and leverage, especially in a high inflationary environment, you know, and using your investing strategy appropriately in real estate and just owning real estate over time. And it’s crazy, we always talk about how real estate investing, it’s not a linear graph of progression, initial graph where yes, it’s maybe in the early years, it’s slow because you got to save up your down payment and buy another property and save up another down payment, maybe bring in a partner or use a HELOC or something like this to expedite this. Like these are all things, strategies we work with our investors on, but there is a point where, you know, you build up and this is a common path. A lot of our investors follow where they just own real estate for five or six years or whatever the case is. They let the tenant pay the loan down, let the appreciation and the rental increases on these properties happen. have equity in the property after a few years of ownership where they could potentially 1031 exchange and grow their portfolio two or three times without having to inject any more capital. Uh, and it is a cool point where you see this exponential growth where your real estate is buying real estate and you get this compounding effect. And it’s, that’s just a really cool thing to see over time, but that doesn’t mean, you know, just owning, just investing and consistently doing that year after year is really where you’re going to, I think, Excel, but it doesn’t happen immediately. doesn’t happen overnight. You know, he’s got to stay the course.
Dave:
Yeah, I think the slow and steady approach always wins, right? And that is what the top 1% are doing, right? Buying assets, buying cash flowing assets that are tax advantaged, and you just keep rinse and repeat, and it continues to exponentially compound. So Zach, can you walk us through an example, right? And also talk about the financing. You know, at what level do you guys kind of get involved in that? But just walk us through a typical example.
Zach Lemaster – CEO RTR:
Sure, absolutely. So what we’re focusing on is your B and A class type of assets, mainly single family or small multifamily. So two to four units. When we talk about B or A class areas, these are areas that are kind of median home prices. You have the most tenant, you know, the, the largest tenant pool to choose from of people that are market rate tenants where they, you know, have sustainable income and things like this. That’s just a really predictable way to keep your house rented, which is Um, and, and have high rental demand, but also balance being able to cashflow well on the property. Uh, generally speaking, these home prices, I mean, in the Midwest, average home price, 150,000 for B class asset. And you know, a lot of people, depending on where you live may say, well, that’s a down payment on a house in my market, you know, but we do have a lot of people that invest, uh, you know, that are say on one of the coastal areas where, you know, they don’t have the tax advantages and the tenant laws. But in addition to that real estate is just so expensive. amount of capital to buy one property that may not even be positive cashflow. Whereas they could take that money and buy a whole portfolio using leverage in some of these areas. But generally it’s a $150,000 house in the Midwest. If we’re looking at new construction like built to rent stuff, maybe more in the Southeast where we focus on like Florida is one of our best markets for new construction. That’s maybe like a $300,000 house that’s probably worth 350,000. So you have a little bit of immediate equity. You’re putting 20% down on it. assuming a conventional loan is, you know, maybe you’re a 10 to 15% cash on cash return between, you know, one of those locations. So yeah, 150 to $300,000 price point, maybe an average of a 10% cash on cash return. We’re say that $150,000 house may cash flow you $300 a month after all expenses and debt services paid. When we’re talking about financing, you know, it’s really, it doesn’t matter to us what type of loans you use. We just want give you the tools you need based on your scenario. If you can qualify for conventional loans, you can have 10 under your name at any given point in time. This is your Fannie Mae Freddie Mac loans where we put 20% down on single family or 25% down on multifamily on a 30 year fixed loan. Fantastic, that’s what most people do. And we have lenders that are licensed in all these states so we can make available to you if you’re someone that’s self-employed or you don’t wanna go the conventional route. You know, we have non-conventional or portfolio or non-QM money available DSCR loans that are, you know, it’s looking at the property itself and underwriting the property. We have people that are investing through their self-directed IRA or solo 401k, where they use a non-recourse loan. We have international investors where there’s financing available to them. So I would say most people go conventional, but our goal is to provide you with as many lending resources as we can based on your scenario.
Dave:
Got it. Okay, so you facilitate the discussion with the lender. So you could create an asset-based loan, right, which is based upon the value of the asset, the cash flow that’s going on, so it doesn’t affect your own credit score. You could put it into an entity, right, and run it that way, right?
Zach Lemaster – CEO RTR:
Yeah, absolutely. And that’s, I mean, that’s a good discussion too, just as we were talking about helping people build a comprehensive business plan. You know, we, we have real estate specific attorneys and CPAs that help you to decide on what the legal structure is that’s most appropriate, um, to, to hold the asset in. And then of course, making sure that you have a CPA that’s familiar with owning a rental portfolio that’s out of state potentially, or diversified across a few different States, making sure that you’re taking the depreciation appropriately and, you know, all the other tax benefits that come alongside with real So our goal is to provide our clients with all the resources they need to be successful in addition to having a property that’s, you know, fully rehabbed or newly built and managed by our teams in these areas.
Dave:
Yeah, for sure. And can you tell us a little bit about the market right now from your perspective, right? So obviously, rise in interest rates, inflation is going on right now. So has it changed any of the dynamics in your model or the markets that you go after or the underwriting?
Zach Lemaster – CEO RTR:
We could probably spend a whole day talking about this with all these different aspects, but
Dave:
Yeah.
Zach Lemaster – CEO RTR:
the market is always dynamic. I’ll start with that, that I mean, the market is always changing. There’s, we, over the past few years, a lot of people have gotten too comfortable with these historic low interest rates that we likely will never see again, and using that as a norm, but we should understand that that is not the norm. And, you know, so really, our investing criteria does not change. We look at the fundamentals of real estate, being an area in the path of progress There’s people coming in, new jobs created, diversity of industries where you’re seeing rental growth and still appreciation. And the market right now, it’s an interesting time because, you know, just because of supply and demand, we have a lot of people, you know, so many people that either bought properties or refinanced into these low interest rates, they’re not selling those houses, right? Likely, unless they have to, so they’re holding on to those loans. So the inventory, just you don’t see this ton of new inventory on the market. So buyer activity has slowed, but there’s still an extreme demand. the markets we try to focus on are areas that are consistently growing in population. For example, Florida that we mentioned with the new construction stuff, Florida had the highest percentage growth last year out of any state. Texas beat them on numbers a little bit. We also invest in Texas, but Florida seems to be a little bit of a better location for cash flow because taxes are lower. But we’re looking at areas that are still in the path of progress. Yes, interest rates are higher, and that’s just something you have to factor in. But say, you know, okay, you’re looking at $300 cash flow and now with a higher interest rate, if you’re using a loan, it’s 250. Like that’s okay. And just know that you’re going into an area that you know, may have 10 or 12% rental increase year after year. So even if your first year is a little slim, you know, year after year, rental increase should dramatically increase but your loan payment stays the same, right? And so you’re and also that house is appreciating appreciating you’re taking the tax benefits on it. And then if the if the do drop to the point where it makes sense to refinance. You could do that and increase your cash flow. But the market is still strong. We’ve seen stuff slow down in terms of inventory availability. We’ve seen investor activity slow down a little bit. But again, where we’re at just with the 2017 tax act now with the cost studies, the tax benefits are still dramatically important and we still see a lot of buyer activity. People still have capital to invest of progress, there’s still extreme demand. Like yes, the market slowed a little bit, but it’s still, you know, there’s still a lot happening. There’s still high demand for rents and resale. And so, I think just being ultra strategic and intentional on where you’re investing, especially in like today’s market is really important. We’re seeing this kind of mass exodus of the West Coast for a lot of different reasons, you know, cost of living, maybe politics, maybe, you know, because of what’s happening in the market shift right now is extremely important. But going back to the fundamentals of investing where you have positive cash flow and your underwriting makes sense to be in an area where you will see increased demand over time. And I think you can’t go wrong.
Dave:
Definitely. And Zach, I mean, you’ve accomplished so much, including your Air Force background, becoming an optometrist and now be living a real estate, you know, empire, really, what would you say has really contributed the most from really a personal development perspective that that fuels, you know, fuels your your results?
Zach Lemaster – CEO RTR:
We’ve always just, and I said this earlier, Dave, but we’ve always just stayed consistent. Um, we’re, and it’s, it’s not always easy to do like every single year since that first duplex that, that we’ve bought our goal is to buy more and more real estate, whether it’s a number of doors or overall portfolio size, uh, every single year. And so far we’ve stayed true to that. Um, and, and even this year we’ll, we’ll continue to do that. Um, but we’ve just really stayed consistent and that’s been, that’s been a battle, right? I mean, there’s all sorts of challenges with growing a portfolio. it by no means do you, if anyone’s looking to invest in real estate, do you, do you have to continue to make this a full-time thing? Like, you know, you could, maybe your goal is 10 or 20 houses. Maybe it’s five, maybe it’s, you know, $3,000 a passive income. Maybe it’s 10, you know, you that that’s all dynamic process. And there’s always obstacles that come up throughout. But I think one thing that’s really allowed us to be successful as being creative problem solvers, certainly when you’re owning a real estate, physical real estate, even if you’re buying turnkey, like you still will have tenant Granted, you’ll have management to help you take care of those, but you need to understand like there will be tenant issues at some point in time and you try not to lose sleep on those things but problems come up and it’s just being able to focus on the end goal. I think for us, what’s really kept us in this game is the simple fact that we’re passionate about real estate, but we’re also passionate about helping people accomplish their goals. I think that comes from maybe a little bit of bedside manner in the healthcare setting where that’s just important to us. keeps us going because we don’t, we don’t have to work in this business, but we enjoy doing it. Uh, because, you know, we like to see results. We have a lot of people where they buy turnkey and, you know, I think one thing I’d like to mention just as a side caveat here is like, who is, who is turnkey right for? Um, and what we found is there’s a broad spectrum. We have newer investors that simply need some handholding to invest for the first time or their first time investor out of state. And they want to tap into an immediate network there. They don’t know where to start or, you know, they don’t want to take the time and energy a lot of people that are full time, you know, in their profession and they just, they just want to buy real estate and that’s great. And they’ll continue to buy with us. We also have people that are active real estate investors that are doing flips and have these large businesses, but they also need to, for tax purposes, maybe they need to tap into an area where they can just buy more. They can simply just buy more real estate and hold onto it for the long term. And so it really depends on you and your goals, but allowing people to accomplish their goals and seeing, you know, the results that they’re, they’re working on. That’s really what’s been rewarding and re-motivating for us to stay in this business. We have a lot of people that maybe started out buying turnkey real estate. They kind of learned the ropes. They took some tools that we were able to show them on, you know, how to evaluate markets and build a team and proper management. And then they go on to do their own thing and build a large portfolio. And that’s cool to see them come back 10 years later and say, hey, you know, you guys gave me the framework to do this. And that’s just been, that’s just been really cool to see over time and re-motivating for us.
Dave:
Yeah, definitely. I think there’s such a gap, right? People being interested in trying to get into the asset class, but there’s so many things kind of holding them back. They have got limited time, raising families, have a W-2 job or something, but how do I get into the asset class? And like I said, I mean, you’re facing so much competition, you’re kind of limited to some of the market, and you don’t want to spend your time doing tenants, termites, and toilets, right? So, having, leveraging your model, and I like your acronym as well, early on, trying to get leverage. And it’s not only leverage of getting bank debt in real estate, it’s also leverage of people. So, if you can work with Zach and his team, you’re completely getting that leverage from all the years of experience they’ve had and how to do everything turnkey.
Zach Lemaster – CEO RTR:
Absolutely, I couldn’t agree more.
Dave:
Yeah. So Zach, if you could give listeners just one piece of advice about how they could really accelerate their wealth trajectory, what would it be?
Zach Lemaster – CEO RTR:
If you’re a newer investor and you haven’t taken action yet, and you’re reading all these books, listening to podcasts like this and educating yourself, that is fantastic, but you can only do that for so long. The best knowledge comes from firsthand experience. That doesn’t, again, mean you need to be in their changing toilets and be a property manager. Your time is better spent on your business than in your business and building it. that is, and just staying consistent to that, that again, that’s been the number one thing that’s allowed us to success. We’ve lost a lot of money in real estate doing a lot of different things, but the simple fact that we’ve been able to invest and consistently take what we’ve learned and continue to apply that and grow. I think for a newer investor, it’s taking action, set yourself a timeline. If you haven’t bought your first property yet, next 90 days, set a goal. If you have, if you have the financial capability, there should be nothing stopping you build out a criteria, but understand goals and criteria change But just buy something and get in and learn it. If you’re an investor that’s maybe, you know, has a portfolio or has in the past, or you’re looking for different ways to grow and you’re finding local challenges, like look at other markets, you know, look at other locations. It’s very unlikely that your local backyard is the best strategic market to invest in. And so be open to other locations and learn about those locations. And if you need an opportunity to tap into a team or to help you help guide you on market data and things like that, we’re here to assist. purpose and mission of our business. But, you know, diversification is key. And I understand that it can be daunting to invest out of state, but if you’re tapping into a team that’s already established, diversification and investing outside of your local market is probably the sole thing that allowed us to excel at the rate we did is not just being narrow minded in our local backyard.
Dave:
Yeah. Awesome. Zach, really appreciate your time today, giving so many insights to the audience. I think this has been super valuable. So really appreciate it. And if people want to learn a little bit more about you and what’s going on at Rent to Retirement, what’s the best place they can reach out?
Zach Lemaster – CEO RTR:
We’ll probably start with our website. That’s renttoretirement.com. Renttoretirement.com. They’re welcome to call the 800 number. That’s 800-311-6781. But I would certainly start on the website. We’ve got a lot of market data on there to show you kind of what’s happening on a global spectrum, but also individually in the markets that we focus on. We put out a lot of educational content in terms of blogs and podcasts and YouTube videos. We’re here to educate people really on all things real estate, regardless of if you’re investing with us not, because we’re passionate about real estate and we love it. So our website has all our social media links, has a ton of education. If you’re interested to schedule an appointment with our team and we don’t, we don’t charge anything to, to work with our team. We make our money through the sale of the property and, you know, rehab and, or build in the properties. So, I mean, there’s, we don’t charge the client anything to, to work with us. We always want to start with an introductory call with an investment strategist to just talk about the markets, you know, even if you’re just interested to talk about where the markets today, we’re happy to spend the time with you. find all that information at rentsretirement.com.
Dave:
Awesome. Thanks again, Zach. Really appreciate it.
Zach Lemaster – CEO RTR:
Dave, it’s been a pleasure. Thanks so much.
Dave:
Yeah, you bet. Until next time.
dave:
Hey everyone, welcome to another episode of Well Strategy Secrets. Today we’re joined by Peter Powers. Peter has been with MPI Family Office since its inception. He is a second generation member of the MPI Family Office and is a principal member as well as the head of real estate. His primary focus involves underwriting and vetting of investment opportunities. Before Peter joined MPI full time, he was a senior analyst for MACC Venture Partners, research and underwrote multifamily assets. He helped lead over a hundred million in multifamily acquisitions and raised over 20 million in equity in less than 20 years. Less than two years. He also worked alongside the marketing team for Capstone multifamily group. Peter holds BS degrees in entrepreneurship and real estate from Florida State. And besides his passion for real estate, Peter is a club race car driver and an avid outdoorsman. Peter, welcome to the show.
peter_powers:
Dave, I appreciate you having me. Great to get connected again.
dave:
Yeah, 100% Peter. Always enjoy the discussions with you and seeing what MPI is doing in the marketplace. I think you guys are doing a phenomenal job in terms of leadership and being active in the marketplace and really appreciate that perspective. So before we jump into getting into some specifics around real estate, investing and everything, why don’t you tell people who familiar with you, tell them a little bit about your background and how has the journey progressed for you.
peter_powers:
Yeah, yeah, that’s a great question. So our experiences, our background is what really shapes us. So when it comes to every decision you make every day, it’s just all those experiences and all those things you’ve gone through really shapes those. So my background, I grew up in Florida originally from Pennsylvania, grew up in really a great family, I’m close-knit family, huge extended family, so family is always number one. As I was going through school, I progressed well through school. I did all my schooling in Florida, Tampa Bay, and then I went up to Florida State, and that’s where I went to college. Great school, did the real estate program there. I was going down the path of becoming a surgeon like my father. I was going to go down that road, and my family kind of pushed me away from there, the the future isn’t as bright as it used to be for To become a surgeon so they they thought there’d be more opportunity for me if I decided to Kind of pursue a new venture that my family was starting to really dive into which was building up our family office and our real estate platforms so before I Fully made that decision. I did a whole series of internships across the country unpaid internships My family would tell these groups, prominent groups in Arizona, some prominent groups in Florida, prominent groups in North Carolina. I would have to spend several months with each of them to not pay me. I was there to learn and they wanted me to work hard, really put my nose on the grindstone and better understand what I wanna do. So I started in property management with a group out of Arizona, management, doing some of the maintenance, understanding what consists of leasing and the whole sales component to getting people to rent at these apartment communities. Now, the apartment community I was working at was newly built, so I kind of did a job for itself, but it was still a great experience. And then I was also in college at the time, so I would spend my starting the school year, I’d be doing my studies and doing some research on the side, So I had a group locally based out of Tallahassee. I had another group based out of Florida that I spent several months with. And then I really kicked it into gear with this group out of North Carolina, which I spent, it’s actually a full year with before I graduated college, started underwriting the deals. I was really, I was ready to rock and roll by the time I joined that firm. And then I just kind of progressed up the ranks where I’d find, and underwrite deals, understand the acquisition side of it, and then at the same time I was bringing my family’s capital into these investments. So that really helps me understand, you know, I understood the property management side, I was understanding the acquisitions, and once we acquire those properties, understanding kind of the asset management side, really carrying out your strategies, making sure that everything that we underwrote for, you do my best to make sure it was carried out correctly. And listen, you’re gonna deal with issues, there’s gonna be things that you did not those really strengthened my underwriting and helped me, you know, kind of sharpen my pencil and get a little bit more realistic with some of the assumptions I was making. They were very close, but there were some areas like if you’re bumping rents up by 25% a few hundred bucks, you might have to re-tend the property. So your occupants might dip down, things of that sort. So I really got some firsthand experience, which at the end of the day, you know, that’s what crafts your decisions and that’s why I was able to, you know, go from there. and started to lead their real estate platforms. So now we’re involved in multi-family, senior housing, storage, hotels, buying hotels to convert to apartments, buying hotels just hold on to. I’m in the process of my dream hotel right now. We’ll see what we do with it, but if it makes sense as a normal hotel and there’s potential upside to convert to apartments, then it’s kind of a cherry on top. So we’ve been very active in the markets. We’ve slowed down recently, markets. We’re at a point where some of the opportunities that we were requiring a few years ago, like these hotels out of distress, a lot of other groups have started to get into that space, so it’s gotten more competitive and it’s really slowed down our acquisitions, but it’s given us a chance to strengthen our asset management side, which is what we’re currently doing.
dave:
Yeah, that’s great. It’s great. You’ve really took an approach to see a lot of different things in the industry and then hone in on what your superpower is and where you can apply the most value. I think it takes some people a long time, sometimes many careers to get to that point where you really identify your unique ability, your sweet spot, where you create value, where you’re with us also a little bit about the history of MPI and how that’s evolved and how has that impacted you and your role in there today.
peter_powers:
Yeah, so to kind of back up a little bit. So I was lucky to grow up in a family that got to do a lot of beautiful things, but we weren’t always a family office. So when I was growing up, my father was just starting his practice opening these ophthalmology diabetic care facilities on the west coast of Florida. So him and my uncle and my family, they were building those up. So he was very, very successful. business. But when he was building those up, he wasn’t putting money into building up more of those, improving the current care facilities. He was out there and investing the money in the public markets. So 2008 comes around, as you can imagine, we lost a significant portion of our wealth. And at the same time, it was the onset of the Affordable Care Act. So it was a one-two punch we were lucky to have some other families that we were connected with that had something called a family office where we understood that a lot of them don’t, that they don’t rely on the public markets, they don’t rely on these big money managers that make their money even up and down markets with the fees they charge. We learned that they kind of had their own financial team. They took them a while to put those teams together, but those teams helped them for their actual best interests, come up with custom strategies. all is there was an opportunity for us to do that, you know, take our money out of the public markets with these money managers to formulate our own family office. A lot of our advisors are in-house and we have a tax team in-house. The acquisitions and the investment platforms are in-house, but we have some outside outsourced advisors like our insurance advisor, we have another tax advisor that’s outsourced and a few others. We really formulated that. of multiple millions of dollars really perfecting that. And, you know, fast forward to 2014, 2015. So a few years after, you know, we decided to formulate a family office, we started making extensive investments into real estate. The beauty for us was we were getting into an asset class that got beat up, you know, pretty hard by the last downturn. So it was a good starting point for us to start investing. huge, one of the big incentives of real states, the tax benefits that paired up with our operating businesses, which we still own, primarily the diabetic care facilities really helped us propel our wealth back to and beyond where we were in 2008. So fast forward to now, we own several thousand apartments across the country. We own a few, probably almost two dozen hotels. Some of them are converted into apartments. hospitality assets, another dozen living facilities, and a number of other real estate assets across the country. So, you know, we’ve really started to take a more active approach in our real estate over the last five years, where we’re doing straight joint ventures and we’re co-asset managing these deals with our operating partners. That’s primarily how we go about doing our investments, is through strategic joint ventures with groups that show record and experience and given geographical areas with given strategies. So we partner up with them, sometimes provide the majority of the equity, sometimes it’s just a piece of the GP side, we call it our COO GP model. So it really does depend, the beauty of being a family office is we’re flexible. So we’re able to go in there, structure the deal how we want, some deals are more long term, some deals are short term, that’s kind of where we are now. before we got on this was our consortium of Wellside, where we’re a little bit different. My parents really came from nothing and were able to propel it to something very impressive over the course of 40, 50 years. We’ve opened our doors to our family office to share our strategies, share our advisors with other families, other family offices, other entrepreneurs with fast-growing businesses where they don’t necessarily have to work those long hours in order to keep up with their lifestyle. They’re able to put money aside and other investments that make money for them so they can enjoy their lives. And a lot of them love what they do. So it just takes that pressure off of them. They can go to the office if they want, they don’t have to go if they don’t want to. It just gives them more flexibility, lets them live out what we call the ideal dream lifestyle. So I think it’s very important for a lot of people and if you ask me, that’s what the American Dream is. It’s different for everyone, but what is your ideal dream lifestyle and figure out a way to structure your life and your investments so you can live that lifestyle?
dave:
Yeah, I really love that, Peter. I know it’s really interesting that a lot of people just fail to spend enough time kind of creating their own vision statement and what is that lifestyle they want to do. And I guess it is challenging, right? In today’s world, we live in such a reactive world with, you know, different, you know, whether it’s the news or the media, or just being inundated by information and activities. So we’re always in the state of But I think when you can do some deep thinking and really understand what that ideal lifestyle is, that vision is, you know, it
peter_powers:
Mm-hmm.
dave:
really then becomes, you know, your guiding North Star into the life you want to live, right? And also gives you
peter_powers:
Yeah.
dave:
the inspiration to be able to get there. What would you say in terms of, you know, MPI, do you guys have a kind of particular wealth perspective as you look at the world.
peter_powers:
great question. We have probably two dozen fundamental strategies that we abide by that have really helped us propel our wealth and helped us. My father’s 54, able to retire because he has investments in all different types of businesses, including real estate, and he’s able to live his ideal dream lifestyle, which for him is to travel with my mother and raise cars. That’s what he does with money. is unique given what a specific family wants. So some people, they live more modestly. They just wanna be around their children, their grandchildren, and they don’t have to be traveling all the time. They just wanna maybe just relax. So really it’s customized, really depending on the family, but for us, we see a lot of opportunity real estate platforms just because we look at them as operating businesses. We believe operating businesses is being able to learn and formulate a team that really understands a business and can add value to that business. Buying those businesses, building them up, sometimes selling them off, sometimes holding onto them. It’s gonna allow you to do whatever you wanna do, live that ideal dream lifestyle. So I would say our real estate investments have helped us do that. that everything else kind of revolves around in some manner or is connected to. It is our investment strategies, which is kind of our workforce, affordable housing, private-based senior living in our hotel conversions. That’s what has allowed us to get to our ideal dream lifestyle.
dave:
Yeah, it makes perfect sense. So maybe we can then jump into your buy box, a little bit more specifically on the acquisition side. Do you have a particular buy box or strike zone that you guys are looking at to really filter opportunities? I’m sure you’re seeing opportunities all the time, especially
peter_powers:
Yeah.
dave:
in this market, right? There’s gonna be some fire sales potentially kind of looking at opportunities, are all those down, how do you decide what you focus in on?
peter_powers:
Yeah, so we’re unique in the sense of when you buy, whether it be real estate or some other business, it comes down to who’s the team. So how we look at all investments, and I touched on this a little bit, is we do all of our stuff through joint vent, most of it, 99% of it is through joint ventures. So number one, we get sent a lot of deals. I get sent deals organically all the time from brokers, from owners, multiple, you name it, we’ve received a lot of different deals different sources. We have pretty healthy deal flow, but we also get a tremendous amount of deal flow from our owner operator partners. But right now we have, I had a dozen that we actually invest with. We have another like five dozen that, you know, we’re in some process of getting to know them, but that’s out of the thousands and thousands of operators that we’ve looked to work with. So what we have a process of when we’re, criteria, we call it a non-negotiable criteria for operating partners. So one, touching on this a little bit is our experience. We want to be able to see that they have a track record, not just the investments that they’re doing, but also in debt cycles. Understanding the debt leverage can be a beautiful thing, but can also, you know, bite you if you don’t structure it correctly. So being able to understand that, get then gets into, you know, how transparent are they? You know, we do joint ventures, you want to be able to follow the money, you want to be able to different systems and softwares that we need access to, then it’s going to go to, are they actually aligned? Are we swimming in the same direction? Are they investing skin in the game? That’s very important to us. And then getting to know their team, how the team works. Usually every team is like a machine. How does that machine work? And then are they willing to do the joint venture structure? So that’s what we look at first. We do different interviews, getting to know them, meet them in person, understand maybe deals, you know, we’ll have some discussions with some of the references, and then once they check up all those boxes, we’ll start looking at opportunities with those groups. So what we’re looking for in opportunities are three main buckets right now are affordable workforce housing. That has primarily been through our acquisition of LIH Tech properties, low-income housing tax credit properties, as well as our hotels that we’re converting to apartments, and then some of the little affordable, they’re not restricted, but just the renter profile and the rents, you know, make them more affordable, workforce housing. Then we have our private-pace senior living facilities. So that’s everything from independent living to assisted to memory care. We’re not investing in nursing care. That’s a pretty strenuous and regulated business. We stay away from that. And then we have another platform. Some smaller platforms are storage, are just conventional we’re buying hotels at distress prices, like we just acquired one in January, required it at 6.25 million, and it started kicking off $5 million revenue. It was appraised at $37 million, bought out for a closure. So we look at opportunities like that. So we’re very opportunistic, but we really like housing through a affordable workforce as well as the private based senior. So we look for opportunities that fit those boxes, and then we’re looking for to get into investments cash flowing in some manner. So we look to get into those investments that we can already service the debt and we look for ourselves and for our operating partners to infuse value. Maybe that’s through operations, maybe it’s through actual renovations, it just depends, but we wanna make sure that we’re buying this asset right, it already can kind of service itself, it’s already operational and then we wanna make sure there is a component where we can add value, not just buying something at a good basis also have an opportunity for us to increase the value of it. And then we decide from there if we want to hold on to it or if we want to liquefy it in some manner, maybe sell it off or maybe refinance it or we recapitalize it with some other capital.
dave:
Yeah. Can you speak to the fact about timing in terms of the investment horizon? Because I think that we’re all kind of inundated with Wall Street and the particular products and offerings that come out of there. And I think
peter_powers:
Yeah.
dave:
what it does is it actually arbitrarily forces people into this and now is that contagion gonna spread into the banking system? And so people get very reactive, right? And they might wanna think, oh, I’ve got to dump stocks in this sector, I’ve got to make a move, and kind of almost more points you towards that trading kind of mentality and changing all the time.
peter_powers:
Yeah.
dave:
But what I found unique about family offices, ultra high net worth individuals, and having that strategic kind of philosophy. So can you share your thoughts on how you guys are implementing that?
peter_powers:
Yeah, so I think at first it starts with systems. So with anything, you can get emotional, but if you put a system in place, and regardless of its good times or its bad times, because you can be emotional on the upside, emotional on the downside, you can get too excited about something or too nervous and you’ll make decisions, you need to build a system out where if you come across some decision or opportunity, you run it through that system and the system gives you the answer. you look at it, focus on the main points that you put together previously and not just make some rash decision, makes you go through the systems. That’s number one. Then number two is when you’re actually making that decision, make sure you structure it the right way. If it’s an investment that you’re making, you want to make sure that if you’re looking at long term, which we like to look at, you know, everything needs to have some type of long term focus, right? We need to structure it that way. And I think you’re seeing with a lot of people is maybe they bought great investments, but if you structured it with short term debt, you might be able to force to, you might be forced to sell that asset before you can actually realize the value that you initially saw when you underwrote it. That’s a problem. You never want to be forced your hand. So we focus on that as well as how flexible are we? You want to keep that flexibility. You want to have an idea, a business plan in mind, but you want to be able to have that flexibility if you need to pivot, you got to pivot. Some areas it’s better than others in terms of cities, but long term it’s probably not the most attractive place to be in but A lot of these groups are being forced to you know have to hand over the keys because their debts expiring They’re not it. They weren’t as flexible So I think that’s the issue there is if maybe they had another three to five more years They would be able to see you might be a little bit more clear to them what their opportunity what opportunities are stolen at table for them to hand over the keys, maybe they convert it to apartments, which is very hard to do. It’s not that easy. If you’d like to think it would be easy, but it’s pretty hard to do. Or maybe they come up with some other concept. I don’t have a crystal ball, but flexibility time allows you to make better decisions. You won’t be forced into a corner to just make a decision. So building those systems out and then structuring it in a way, can pivot after doing the due diligence on the decision you’re making.
dave:
Yeah, really great insights, Peter. And then what do you think in terms of, you know, at the time of this recording, we’re in March, mid-March 2023, where are you seeing opportunities this year and what areas are you also staying away from?
peter_powers:
We are focusing on what we know. We’re staying away from areas we don’t know. I see a lot of people, a lot of bright people that are starting to invest or putting more effort towards grocery anchored retail, for example. That’s a pretty interesting business. I don’t know it well enough. I need to learn about it, but I don’t think this is the right time for me to get involved in it. I’m not gonna try something new. is staying focused on what we know. Because one, we’re gonna come across issues, problems on the stuff we already own, we’ve already invested in. If I understand that business, I have the right partners, I’ll be able to make a good decision on what to do. I’ll have more potential solutions. If I’m in something that I have no experience with, we’re going into a tough time, I’m not gonna be able to make the best decision. So I wanna focus on what I know, both in new opportunities as well as the existing stuff we own. So that’s number one, that’s what we’re looking to do, is focusing on what we know we’re staying liquid. So I think that’s very important. Liquidity is we’re seeing with these banks, you gotta be liquid, make sure your portfolio is structured in a way where there’s opportunities, you can pounce on them. And if there’s some problem childs, So that’s something else we’re focusing on is stainless.
dave:
Yeah, good point. And what would you say in terms of a liquidity strategy? Because this is actually a pretty interesting topic, especially again, as we’re in the midst of, you know, this fallout with SVB Bank, right, you would think that, you know, the banks got the most liquidity. you know, kind of how you’re managing them.
peter_powers:
I think number one is having a cash cow operating business. So we still have our diabetic care facilities, you know, across the West Coast of Florida. That’s kicking off cash. I don’t care if we’re an upcycle, downcycle, people still need to go there. You know, diabetes is number one cause of blindness. So that will most likely always be there in some extent, you know, eyesight tends to deteriorate with age. So that is still kicking us a lot of cash flow on, keep our operations going and be ready for more opportunities. That’s number one is having a cash slowing business. Number two, I would say is having a team. So having a team that is best in class, that comes to your tax team. So if you could save a tremendous amount of money in income taxes, maybe you’re paying a lot of money in property taxes like we do with the real estate holdings we have, the money there, you can then go reinvest that money or hold onto it for a rainy day. Then there’s other advisors. Protecting yourself, we have a few families we know that are eight, nine plus figure families that are going through some challenges where they might lose a quarter to half their assets. you might be liquid today, but if you, you know, maybe it’s some business problem, maybe some marital problem where you lose half your assets, I mean, it’s gonna affect your current position. So structuring yourself correctly there with, you know, the right asset protection strategies is important too. Maybe you have a bad deal and maybe you, that bad deal is the one that has the recourse financing. You know, we stay away from recourse, but you know, a number of groups that may have one or two deals of recourse financing, you know, that could affect you as well. where, you know, we’re in a tough time. Maybe these banks that maybe you have non-recourse debt with, but you still have to keep some type of liquidity. If you have something else eating away your liquidity, that could trigger some other issues in other places. So being cognizant of that, being cognizant of we’re in a few funds, we have some limited partner investments, then we have some other investments where it’s straight to inventures, but what if there’s capital calls in these investments? Where are, what’s that language read like It’s important to understand that. So really, buttoning down the hatches of worst case, what liquidity needs to be put aside and what could potentially happen. Having those uncomfortable conversations with maybe the group you’re involved in needs to happen. And so those are some of the things we’re doing. We’re having those conversations, figuring out, where are we? Or how are our cash flows look? to put some more money into this investment. So being is being able to have those conversations and ask the right questions, I think is important as well. So that’s why team is also I would say the second most important item.
dave:
Yeah, it’s really solid. I love the proactive approach as well. You know, really thinking about this ahead of time, right? Before you’re in that situation, like, you know, that you have to react or like you talked about earlier, right? We’re making, you’re making that decision. Um, and you’re kind of forced up against a wall. So it’s going to be a bad decision, right? Because it’s short term, but being proactive in nature with these things, uh, really
peter_powers:
Yeah.
dave:
helps mitigate, you know, some of the risks and put you in an opportunity to win.
peter_powers:
Yeah, yeah.
dave:
So Peter, if you could give just one piece of advice to our listeners about how they could accelerate their wealth trajectory, what would it be?
peter_powers:
One piece of advice, one piece of advice to excel in your wealth journey would be education. So education is very important to my family, to myself. I’m always reading, I’m always working out. Even during the day, I’ll just find myself an hour and a half going through some financials and something, always just educating myself. What is this? Why has this happened? What could this lead to? reason why part of our consortium wealth were building up an education platform, not just for building wealth, but also preserving it because it really does start with or it can continue with the upcoming generations. So helping them understand what is money? What is the value of money? You know, the velocity of money, some of these concepts that you might not learn in traditional schooling, helping them understand that it’s a lot easier to start about this maybe even a little bit earlier about some of these concepts then after they’ve gone through their formal high school and in University Teachings because at that point they probably have a lot of stuff ingrained in their mind and have a lot of these other opinions Which again, it’s great to have some of these opinions, but it’s just harder to penetrate their their Ideas of certain concepts, you know coming in, you know 20 years into their lives So starting an early age educating, helping you understand the value of money, how to make money, how to run businesses, experience hard work, those items are very important as well. So I always believe education is number one, but it’s very important to understand where that education is coming from. It needs to come from all different areas. You need to understand, you know, this perspective, you also need to understand that perspective. And it’s not just reading it and then going and doing it. You’ve got to make your, you’ve got to come up through on ideas. You take all that, and you make your own opinion on it. And that’s where experience comes in. You carry out that opinion. It’s kind of like a hypothesis. You come up with
dave:
him.
peter_powers:
it, you then test it, and see how it works. You might fail at it, but failure is the ultimate teacher. So that’s what allows you to ultimately make better decisions. So going out there, making big decisions, failing, getting back up, and making another decision, That’s what education is all about. That’s what I tell people. Just keep educating, keep reading, keep meeting people. Relationships are important as well.
dave:
Yeah, 100%. That’s a key phase in our overall wealth strategy is really trying to increase your financial IQ, your mindset IQ, your relationship IQ, and also your health IQ is part of that’s really key to to accelerate that. Peter, since you’re into race car driving, it was interesting. And speaking of reading, I was doing some one of the publications I like, about today. He’s done some simulation, F1 simulation
peter_powers:
Yeah.
dave:
he’s been doing for a while. And then he made a correlation to the way the Fed has been reacting to things, right?
peter_powers:
Yeah.
dave:
And it’s kind of like, you know, they’re basically putting on the brakes or accelerating, you know, past
peter_powers:
Yeah.
dave:
the fact, right, too much later.
peter_powers:
Yeah.
dave:
So I thought that was kind of an interesting you know, the opportunity to do a couple of experiences myself and race.
peter_powers:
Yeah.
dave:
You know, super intense, super fun type of experience, but has anything, have you learned anything from that experience that you’ve taken into, you know, your investing philosophy?
peter_powers:
Yeah, I think the number one thing from the racing is the relationships. So I’ve gotten to meet some very prominent business executives, some large, large real estate players from my just going to track renting out the tracks. That’s number one. But obviously, you’ll get the education component of it. What you see, it’s funny is you’ll see guys go out there and some of these lower powered cars and they’re very successful you know, high horsepower or crazy, you know, mobiles not go out there and they’re not, they’re going slower. Well, why is they go out there? They’re just too aggressive. They don’t, you know, a lot, sometimes you’ll see it with some of these guys, these very expensive, half a million dollar cars that they’re just, their egos get involved. So learning from that, you know, seeing what egos can do. And then you’ll see some of these guys that are very successful, Yeah, they are very successful in this fear of their life. When they’re coming to this, and it’s a little bit newer, they don’t have that much experience with it. They’re opening to learning. And they progress, you know, they progress a lot faster than some of those other people that might be successful in this fear. And I think that it translates over to a different field, which is it’s a risky thing to do. You know, you wreck it 100 miles an hour, 200 miles an hour. die from it. So seeing some of that from people, understanding that that, you know, they’re very successful yet they’re very, they’re very, they hold themselves back and they want to learn and then they, you know, take some of that knowledge, a lot faster. That’s a great path, you know, being able to humble yourself in something you might not fully understand, learn and then take action, I think is very commendable. So I’ve seen that that’s something I’ve learned. Obviously, those are as well as staying humble because there’s always a lot more you can learn and just because you’re good at doing this doesn’t mean it translates over to that.
dave:
Yeah, excellent insights, Peter. If folks want to get more in touch with you, they want to learn more about what you guys are doing at MPI, what’s the best place, Peter?
peter_powers:
best place by LinkedIn. You look at my name, a pretty unique name, Peter Powers. So hook me up on LinkedIn. You’ll see me on there. Reach out to me. I’m pretty, I’m on there at least once a day, you know, reviewing different articles and connecting with people. So I think that would be the best way and we can share contact information over, over LinkedIn.
dave:
Awesome. Really appreciate your time today, Peter. I know you’ve created a phenomenal amount of value for listeners. They’re definitely gonna love this episode. So encourage you guys to reach out with Peter, follow and connect with him and look forward to the next time. Thanks again.
peter_powers:
Dave, I appreciate your time. Thank you.
dave:
Hey, everyone, welcome to today. show on well, strategy secrets. We’ve got another awesome show for you today today we are joined by Richard Wilson, Richard is a third generation Eagle scout loves investing in fun adventures and health, and is a husband and father of three living in Scottsdale, Arizona. Richard owns Billionaires Dot Com, where he is interviewing one hundred millionaires and he is the C, O and founder of the family Office club with four thousand registered ultra wealthy families and fifteen li The events a year. his short term rental property fund Investor Residences Dot Com has equity in eighty three properties, and his division focused on investing profitable medical practices, has equity in twenty three practices, with over forty five million a year in revenue. Richard has also helped create and formalized well over two hundred family offices for ultra wealthy families, including billionaires and a shark from Shark Tank. Over sixteen years since starting his investor club, Richard has Stayed a hundred and ninety live events, spoken at over six hundred live events, Been interviewed over three hundred times, recorded three thousand plus videos, and has written thirteen books. Richard has an undergraduate degree in business, an M B A, and has studied post Masters psychology at Harvard, Richard, my friend, welcome to the show.
richard_wilson:
Thanks for having me here, Dave. Good, see you again.
dave:
Yeah, it’s always such a pleasure, Richard, and you know, just reading through your bio. Just you know so much there. such a treasure trove of knowledge I know that you can impart to listeners and they’re really going to enjoy this show today, so why don’t we you know, just kick things off a little bit and tell us a little bit more about your background. And how did you get into this whole, you know, family office space and building wealth. Alternatively, how did it all start for you?
richard_wilson:
Yeah, sure, so I actually grew up around my dad, raising capital from investors for hospitals and non profits. He’s raised over a billion dollars for them, so I go to meetings where he would ask a downer to endow, you know, hospital wing or a university professorship or something like that. When I got out of college, I started raising capital, and while doing that I found a very channel engine to raise capital from high net worth individuals or normal wealth advisors because their clients weren’t a credit Investors. And so it’s like No, we can’t invest in your hedge phone product or whatever it was. And so I figured out the fastest way to raise capital for hedge fun would be to focus on the wealth advisors who only serve the ultra wealthy who are all accredited, and they were called multi family offices. When I heard that term, I said Well, I should just only be calling them and not wasting my time working with other types of wealth advisors. So when I tried to do that, I found there was no trail guid. There was virtually not even a single book on the industry to help me, And so I just started a blog and started writing about what I was learning, and I started getting a thousand, three thousand, five thousand hits a day on the blog, And then we bought family offices, Dot Com, and I got a book deal with Wily and spoke several hundred times, And you know twenty or thirty countries over time that built up, and it all just kind of evolved over the last sixteen years into what is now the family office club.
dave:
Yeah, that’s really fantastic and talk to us a little bit. I mean, what’s been so great in? you know, getting to know you over the past couple of years, You know through the club and just communications, and even how the chance to meet your wife recently has been awesome. Um, you know, talk to us a little bit about. you know your value system, and how you kind of see you know family office and values, because I know we really share the same ethos there as well.
richard_wilson:
Yeah, for sure, So while everybody seems to have values for their company and it’s very kind of common sense and boring to say, Oh yeah, your company should have values. what’s not common is to have values for your family and have those define and have those, for example, above your kitchen table, so that if you are going to make a critical decision, you’re not sure you know. should he move to Hawa, moved to Florida, she would do this, or that you can make them based on your values, And it doesn’t cost anything yet. every family should have their family values spelled out even more. so. if you have kids, you’re trying to bring up the right way because you can lose your wealth. But if you have the right values, you’ll make back your wealth and you’ll protect the wealth and you won’t have the wealth sacrificed. Um, Well, at the same time sacrificing relationships between family members. And so my ten year old has our family values memorized and can recite them, And she has on stage at several investment conferences where I brought her And I think that’s really critical, and then I really feel like when it comes to values that the value of health gets lost with a lot of my ultra wealthy clients. They often times will spend a hundred thousand a year on plain tickets. Even if they don’t have a private jet, they’ll have multiple homes. They’ll spend two hundred thousand a year on their wealth advisor, But I’ve been in rooms with. literally. it’s filled with doctors. They can navigate the health care system in they’re spending. In this case, it was thirty to fifty thousand a year And a wealth management club and there are a hundred and thirty of them in the room, And I said, who spends more than spent more than thirty thousand last year on improving and maintaining their health, and one hand went up out of a hundred and thirty eight people who work in the health care industry. And so what’s interesting is that that’s basically communicating that you value your money more than your own body in your own. You know, health, and your body is required. If you want to keep on making more money right, You’d rather be alive than slightly wealthier. But everyone has that backward and they’re investing in a whole bunch of things, but not themselves and not through own health, So I always try to course correct clients on that as much as I can
dave:
Yeah, I’ve always found it fascinating and also, I did not realize that you actually have some training in psychology as weal. and when I kind of you know, through my years and my journey around wealth building, Part of it that really unfolded for me that became really holistic. Was this whole notion of like you know, what does really wealth mean to you anyway? Right, And I like the term
richard_wilson:
Right
dave:
wealth rather than being rich. Right. Because anyone can make
richard_wilson:
Right,
dave:
a lot of money or buy an expensive Are right, But it’s it’s having wealth right and that means different things to different people, but having that kind of a wholistic look at that I think is critical, and you know, as you say, I mean talking about health. I mean, How much would Steve Jobs have paid right to be able to solve his health challenge right and still be around. You know, and I look at like la, Bron, James literally spends over a million a year on his health right, So You know that’s that’s really fascinating as part of that. And and and also you know not only the value of your health, but it’s like how much that can actually drive you towards your goals. In your vision, you know so much more and I know you’re really athletic and you’re doing. You know, even in your bio, that’s really cool. You’re talking about doing adventurous things in the family and everything. So so how else has that really helped you? in terms of you know, health and having kind of a wholistic vision. To what?
richard_wilson:
I move very quickly and I feel like if I had bad health, I would not have the energy I have and I would not be able to keep up with all the exciting things going on every time. Now there’s so much going on in our business. I have to fly. You have to, but like, I feel like I have to fly first class because I need to get hundred things done in every flight and I can’t be cramped like this or have some one’s seat. you know, Make it so I can’t really get work done and I bring that up because when I’m flying first class, I guess everyone else Is much more relaxed and we have so many exciting things going on. I’m usually the only person working in first class. Everyone else is watching their hole or taking a nap, which is great. You need sleep to be healthy. That’s the whole point of our message here, but I think that if you want to really excell than you need to be high energy and have that ability to focus. And so that’s one thing. the other thing is that I find that clients realize how miss balance their life is. They’re just not sure how to course correct it or what actions to take, And so I’m doing thirty different experiments with myself like I did a full body, M. R. I. That took an hour and I just paid for it out of pocket to look at over three hundred different things that could be wrong with me and then investigate the one or two or three things that they find to de risk those. because if you catch cancer early, then could save your life. And so I’m only recommending to my clients things that I’ve spent money on and done Self and found them to be valuable, like getting bio markers and identify thirty different things your body might be off on like quartizalllevels, or different types of be, itemons, et cetera, And so that’s one thing I’ve found has been really surprisingly useful for my clients. They often say that that’s actually more important than me helping them with their investments. Um, and they’ve been looking for help with that, And so right now I’m just selfish ally doing it for myself. But as we get deeper and deeper into that, it’s going to be a Part of what we offer to our clients is like, Hey, we can help you setting up your family office or your direct investment strategy, and then within our company we focus on profitable medical practices and short term rental properties. Is our two investment platforms that we’re growing. But I think the health part will be part of that core of like you know, Even if you have your family office set up, you have your health management set up for an ultra wealthy person, because if you’re worth a hundred thousand dollars, you can’t spend twenty thousand a year on your health, but if you’re It twenty million or a hundred million, you should be spending at least twenty thousand a year on your health, if not much more right. So it’s been surprising to me how popular that is. I bring it up to people and almost everybody whose ultra wealthy leans forward and says, Oh, I want that or do you need investors for that? and like, No, not raising capital for it is just omething. I’m doing for myself that over
dave:
Right
richard_wilson:
time where you want to share it with others you know
dave:
Right? Well, that’s so great and what I find that’s been so amazing for myself. because I have my markers checked as well. I have a functional doctor. But this study around health and human performance, you know, mental and physical. it’s really astonishing to me. and where technology is going and following, you know, folks like Peter Diamonds, and some other folks in the in the realm of laungetivity and vitality, And where some of the technology is going, some of my
richard_wilson:
Right,
dave:
recent protocols have been pulsed electro magnetic frequency, so, grounding, oxygen training and red light therapy. And it’s been just like astounding the results with some of that right. And you know who would have thought you know ten years ago,
richard_wilson:
Right,
dave:
right, you know, you wouldn’t have had all these things, so so I agree that
richard_wilson:
Right,
dave:
you know, just having kind of a focus, you know, tour Your health, because you know the health is really the foundation for everything that you have. you know. Regardless of you know what your net worth is
richard_wilson:
Yeah, For sure. if anyone wants to try check out inside Tracker, That’s what I used to measure. like my. The nurse come to your house and theyll measure your blood, and like thirty to fifty different viol markers and I found that to be pretty helpful. Also Dave Asprey has a program called A Fast this way, and it’s a video book combination training program on Intermitute fasting, which is really practical to do. and if you follow his hacks for Intermitute fast, Makes it way more practical to pull off. And then there’s a book called Why we sleep, which is an amazing book. And if you have not read it out of all the books I’ve read about sleep, that one was the best and I would definitely recommend checking that out on on Audible if you haven’t already.
dave:
A very cool. There’s also a new one. I heard of wild health, And what they’re doing
richard_wilson:
Okay.
dave:
there is. they’re taking like you know, sixty bio markers, checking all of your bio markers, but they’re also taking all of this data. They’re actually using like a I, and big data to collect
richard_wilson:
Okay,
dave:
all of your different markers, and they’re checking you know all these other types of samplings and things that you can do on a regular basis, And then they’re
richard_wilson:
Okay,
dave:
putting it all together to make decisions on like how do Something you know? Like Hey, my, A one C changed to overhear, But was that impacted because of something upstream? Or how is that going to impact
richard_wilson:
Right,
dave:
something downstream? So it’s really amazing. you know. Encourage people to you know, Kind of look into this more. because there’s Yu know so many new opportunities evolving.
richard_wilson:
Yeah, yeah, For sure, we’ve also found ways to incorporate health with doing fun things. So like we took one of our investors down in the Grand Canyon for a couple of days recently. we’re going to Everest base camp in April with one of our investors and we’re going to believe later this year to meet with one of our investors, And so, whether it’s going back packing, or on a two or somewhere, et cetera, if you can combine some of those fun adventure Trips, at least for myself with an investor you could build a relationship with and it’s kind of you know a good way to really get to know some one. Well,
dave:
Yeah, awesome. so I would love to talk all day about health, but
richard_wilson:
Yeah,
dave:
let’s let’s some jump into. You know the family office space a little bit, Richard, right, because I think
richard_wilson:
Sure,
dave:
a lot of people still don’t truly understand. You know what a family office is. Um, and
richard_wilson:
Right,
dave:
I know you know you encountered that as well. So you know. let’s just provide a little bit of context in terms of you know what is a family office. Who is it? For you know what is the value of it?
richard_wilson:
Yeah, I’m sure. so a family office is a balance sheet management solution for families that are very wealthy if you’re worth a hundred thousand dollars and you make a mistake, and you follow your tax is wrong, or forget to file quarterly payment or miss a deadline. You may be penalized and have to pay a hundred dollar fee, five hundred dollar fee. If you’re worth ten million dollars, a mistake might cost you a hundred thousand dollars or ten thousand dollars or five thousand dollars On. You’re worth a hundred million dollars. One mistake might cost you a million dollars or several hundred thousand dollars. And so the point is that not only our mistakes more expensive, they’re much more likely to happen. I have over twenty five different Ces. Some of my clients have a hundred and fifty plus l. l. s. and missing a filing, or not getting to K one in or out on time, or selling a transaction too early too late, could result in something so expensive that you basically need a full time team to Help you with managing what your capital is going into. How your capital is coming back to you. Is the capital coming back to like It Should be. What’s the collateral behind a deal, Um, investment ad men work tax prepwork, pro, active tax planning, work, Um, and designing a unique strategy Because when you go beyond having just a wealth advisor and maybe one or two rental properties, then people start making investments into operating businesses. They start making investments as a passive l p into a g P Fund or a direct investment into a real estate transaction. At that level things start getting more and more complex, and so at that level you need some type of virtual family office or family office solution, Typically because you’re more likely to make mistakes and each mistake could cost you what would have cost to have a full time employ to play defense, For you manage everything. And maybe I take some of those annoying things off your plate, Regulatory paper work or whatever that. They could just kind of streamline for you a bit.
dave:
Yeah, makes sense, and let’s talk a little bit about portfolio allocation right because I think everyone is trying to learn from the habits of the Rock of fellers, right to the ultra wealthy
richard_wilson:
Right.
dave:
and things like that. So are there any trends or traits that you know you typically see with your ultra wealthy clients?
richard_wilson:
Yeah, most importantly, is that any solution you put in place for yourself should be based on your goals, objectives and values, and not like a temple. But if we do want to go like broad strokes, it’s really the three compartments of where they put their capital is probably most important to talk about, rather than an exact percentage. So the first compartment would be your public market investments. That’s where you’re playing pretty much pure defense. You’re just trying not to lose that capital. You diversified to an extreme. You might tell your wealth advisor that you like Casco and Tesla and Amazon, but otherwise there diversifying you an a whole bunch of different areas. right. You don’t have a ton of insight or involvement and they just do it for you and it’s almost pure defense. Then their second area would be real. estate. Most families do eighty percent plus cash fill, and real estate may be some development that might have a little bit higher risk in this area. You typically do not want to trust your whole real estate Location with one brain in the wealth management area. It might be one to three wealth advisors, Usually just one that you really like in real estate. You might want to find your favorite two people and each real estate food group, or may be really like one person for some food group, and you diversify into two each within a couple other real estate food groups, But in that area you are choosing, typically the geography, the geographical area, the food group of the real estate meeting, like self storage, industrial, multi family, now, short term rentals, Cetera, Um, and then you sometimes are choosing that the manager, but also the geography and their strategy and that food group until you’re a little bit more involved and you’re not usually walking the property and inspecting the roof for the foundation, but you are saying, Hey, I think that Florida and Arizona and Texas are going to grow, and I really like storage. I really like multi family, et cetera So you’re You’re little bit more involved at the strategy level, just not at the ground level. Usually the only times you get involved the ground level, And if you choose one itch of real estate and say hey, I don’t know a lot about this and made my money in manufacturing or high tech, whatever it is, but in this one area, if it’s right in my back yard, I want to build a muscle internally, so let me buy a fourplex or a tin plexolet. me, let me get a very small storage facility and see if this is a huge pain or if I actually enjoy it. Sometimes families do that, not not super often, but sometimes otherwise, even if they do that, they invest passively into other real estate groups. Nd. it’s a big portion of their wealth. Typically the second compartment, Real estate, mostly cash flowing, and then the third compartment would really be their direct investments. Unless they made their money in real estate, They have spent twenty thirty thousand hours in manufacturing or tact Christ, themselves or whatever it might be, And so they have an advantage in that area. They know how to get distribution. they have credibility. they have relationships with banks may be lines of credit. they can open doors. People will take mediums with them almost instantly, and so they can navigate the industry very quickly, and they can be high conviction on due Ligence valuation. They can help a company play offense and hire great co. and they know how to recognize talent in their niche, but they can also play defense and help shore things up and fix it if things start to go sideways, So the big mistake families make typically is investing in operating businesses all over the place, And it’s diversification. if you want diversification, go to your wealth advisor. If you want diversification further, you can go into real estate and choose different food groups and different brain trust, et cetera You do not diversify with direct investment Very much. Typically, you typically want to only invest in a profitable operating businesses already making a lot of money with great teams, If you can find those, invest directly into some of those, perhaps, and then only in the space where you made your money. Typically, so you made your money as a dentist. Maybe invest in dental practices, et cetera and then that way you can play offense and defense on their board around their cap table, or as a majority owner, so that that’s what we guide families through us. Like a really long answer to your question. But it’s like a different brain Probably be managing your wealth than is overseen your real estate applications versus designing your direct investment strategy and carrying that out. Usually the same brain is not skilled at doing those things, and that’s why the family office space is so fragmented and I still learn more every month doing this, and I’ve been doing this for sixteen years because it is so fragmented and it needs to be applied to the niche position of that family.
dave:
Yeah, makes perfect sense. And what would you say if you could describe three top attributes of ultra high net worth clients?
richard_wilson:
Usually work ethic, you know, probably forty nine out of fifty ultra wealthy clients I have have a real strong work ethic and there, usually passionate high energy engaged, almost always fast moving, Um, and and sometimes really good sales people all in one. So that’s one thing. I think that’d be one attribute. The other one is strategic. You don’t get to be ultra wealthy. Typically without being pretty good. Add either the corporate strategy of your business that you grew, or just very strategically creative on how you navigate deals. So they’re usually along the way of becoming worth thirty fifty million hundred million plus, have usually gotten pretty good at structuring deals. and if they’ve had their family office in place a long time, that’s usually a skill that they get very good at. The only exception is it somebody had one business, just simply grow organically and then sold. They might be at very low level of sophistication there, but typically Very strategic in how the structure deals and navigate the industry. And then the third thing is collaborative. I would say that a lot of the people who have grown to be ultra wealthy, either at some point took on private equity capital or did a joint venture or had a distribution partner. M. or they’re an import export. Nd became worth a hundred million plus by collaborating with others that could bring them their consistent clients or consistent deal flow, or goods such That’s be. That’s a big part of the success of a lot of our families as well.
dave:
Yeah, it makes perfect sense. And what would you say in terms of wealth strategy? You know we talk a lot about. you know. kind of creating this wholistic wealth strategy here. But do you have a particular one yourself that you’re practicing in your own family office for the Wilson family?
richard_wilson:
Yeah, so one thing is that the wealthiest family s really focus on one to two, may be at most three nitches, even if they’re worth billions of dollars, or if they’re just worth thirty fifty hundred million, The families who defend their wealth the best use those three compartments I talked about, but in the direct investment compartment they’re really focused on one to two areas and being really good at playing those games. And so we’ve been trying to emulate that ourselves, and not just provide that as advice Clients, but do it with our own balance sheet. And so we wanted to have a real estate Nitch area focus, and so we run a platform called Investor Residences Dot Com, which is our short term rental property platform. So we have equity in eighty four assets now within our fund at Investor Residences Dot Com, And I have over one million dollars of my own cash invested in those properties that are in the fund, And so right now I am one of the top two largest inves There’s in the fund. We then also have a focus on profitable multi location medical practices. We find the people that go to medical school for a decade and then do a residency and then start a practice. They’re very committed to their craft. They’re very unlikely to run away with your investor money to Vinnezela, And and you know, do something that’s just blatantly fraudulent, and to just walk away from the adventure. Um, so we really like that and then private equity groups buy medical practices that are very profitable and have eight, ten, twelve locatio, And for nine, ten twelve times bad. And so we like the fact you’re dealing with typically pretty committed steady people and they can get very high multiples. gives us kind of a sleep at night. Comfort will still having a high upside potentially. And so that’s called Medical clinic capital and we have equity in now twenty four practices, doing about forty five million a year in revenue on that side, and so with both, though to answer your question in a way that’s most helpful to other people. Besides the simple answer of focus Is that if you can be seen in your netchis, somebody who, because of the experts and strategic value of working with you, that somebody else would want to show you their investment deal flow first exclusively, or at a better valuation. Then you’re going to compound your wealth very quickly, so we have over two million followers of social media and four hundred thousand of those are in The Doctor in Dennis space. So we’re one of the top ten largest social media Groups are platforms in the doctor space, And because of that, we see a lot of medical practice deal flow, and when you see a lot, you sometimes get to see deals first and then lock up the deal or say Okay, we’ll take all the deal. Don’t raise capital for anyone else, and we make it exclusive to us, and then many times we can add value to the transaction and make it so that we’re getting evaluation that others would not be able to get, because they know that if we bring in one of my clients who sold their forty medical prac Ices to a private equity group or my billionaire client that owns thirty seven practices, that it’s going to change the trajectory of their company And it’s not just money right, Like money. Plus, he’s actually done what we’re looking to do if you have four locations and this guy sold his forty to private equity, and he’s bringing the same money that someone else would have brought. This guy is going O get better terms because he can really help make that happen like two years earlier, or help you get to forty instead of getting to ten right. So that’s really important If if investors listening here, you just take away one thing from this Whole conversation besides a ultra wealthy, I mean, ultra healthy part. it would be to see deals first exclusively, and that a better valuation and that will compound your wealth very quickly.
dave:
Yeah, it’s a real multiplier.
richard_wilson:
Yeah, yeah, for sure,
dave:
Interesting. Um, so Richard. I bet investors are also what’s weighing heavily on them. Right. This is early March. At the time of this recording. So much going on in the world? Go politically, you know. I mean, you name it Energy crisis, you know, verge of a recession. Potentially, However, you want to calculate it right,
richard_wilson:
Yeah,
dave:
and and a lot of people and again, I think a lot of this might stem from Wall Street, right, which is everything is drill Off of quarterly numbers. You know, there’s so much movement right. And and frankly this is how a lot of people lose at investing Is because of that the emotional factor. Um, you know, when they’re you know they’re not timing the market right. So
richard_wilson:
Right.
dave:
what are you seeing in terms of you know, your client base and the ultra and high net worth? And and how are they kind of protecting themselves with? You know all of this variability and uncertainty that’s going on in the Mar.
richard_wilson:
Yeah, great question. so I think that a lot of our clients are using less debt right in Annal. Some clients are in trouble if they didn’t have interest rate insurance or they invest in to deals where ere’s a bridge loan and a floating rate, So that’s caused some pain, but also some opportunities for clients to take over assets just by bridging that capital is needed or gaining more equity than they should be able to gain, because otherwise the investors get wiped out. The other thing is they’re looking for strategies that work. Regardless of the cycle. There’s so much value being appreciated that it makes it a good deal to do whether everyone else is a bit scared right now or not. So in our charge and rental platform, what we’re doing is buying property S all cash, sometimes with sell or financing about a twenty two per cent discount off the list price, and then we double their sleeping capacity so that we can get more revenue, so we’re basically buy and low all cash, and then trying to sell high by doubling the sleeping capacity in the medical practice world. It’s capitalizing and under capitalized medical practice platform and trying to stack up ten twelve clinics and then going to private equity. One of their example is we have some guys that we backed last year. They find really ugly motels that are just dumps and stores, and they fix them up into studio, multi family apartments, And that’s all they do. They lay here focused only on that and that arbitrages and asset. Nobody wants to an asset that everybody wants, which is work force housing. So there’s just Examples of moving things forward regardless of where the cycle is. But I’ve been reading a lot of books from billionaires, and I wanted to show you the cover of one book your audience co, potentially look it up. It’s called the most important thing by Howard Marks, He’s the founders, a billionaire founder of Oak Tree Capital, multi billion dollar, an a M. hedge, Fun and the book is really great and he talks so much about how when others see risk like right now in the market, Pital flows have slowed way down and investors are sitting on their hands, and he says, When others see risk and they stop taking action, there’s actually less risk because others see risk and stopped doing things. You can buy things at a discount. Now is the time where you should be putting money out. You should have been sitting on your hands when everyone was having a party at low interest rates for the last year and a half two years before, about before, About twelve, fourteen months ago. That’s when you should have been afraid. Is when everyone else is excited, you shouldn’t be afraid when others are afraid. And so he says, those things get really toxic and everyone thinks you’re a complete idiot to put money in because this thing’s going down down down. That’s when he gets the best deals of his life, he says, And so M. That’s not easy to do. You have to have some courage to do that, But those two answers are kind of combined with each other right. It’s not like he just want to invest in any random deal when the market is shaky and everyone is afraid. You want to find the best of the best deals and you want to find those deals that you got to see first exclusively at a better valuation, but also take actio, When other people are not taking action and you’ll be rewarded with better valuations on things.
dave:
Great insight. It’s so counter intuitive to do that right. It takes
richard_wilson:
Yeah,
dave:
so much courage to go against the grain. And and that’s what I find really fascinating about this space as well, you know, in private equity in the alternative wealth space is that you know so many people just feel that they’re going against the grain right because of
richard_wilson:
Right,
dave:
you know, the way they learn things originally from their peers, their employers, their parents, things like that. So
richard_wilson:
Right,
dave:
I think that that occur As a really brave step, but appreciate that insight
richard_wilson:
Yeah, it’s interesting that when you say like, Oh, well, when there’s blood on the streets, you should invest, And it’s like one of those statements that. like you’ve heard somebody
dave:
Buffet.
richard_wilson:
times, it’s
dave:
Yeah,
richard_wilson:
kind of like Say O. your company should have core values like you know, Just kind of tune it out instantly, but to actually act on it is the hard part right like it’s easy to like. Oh yeah, I’ve heard that, but everyone knows you should just eat clean protein and vegetables and nothing else and move your body around an hour a day and nobody does that either right, so
dave:
Right
richard_wilson:
it’s harder to actually do it
dave:
Right right now, and that’s how I’ve found. also, just having a strategy in place really helps guide you. Right during these, you know, peaks and troughs of different cycles and things where you might have that uncertainty because you’ve
richard_wilson:
Right
dave:
already you know at a level headed time and place, you’ve been able to kind of create your boundaries, create your by box. You know for these things that you’re looking for, and then you
richard_wilson:
Right
dave:
could stay within it and becomes A bit easier.
richard_wilson:
Right, Ight, Yeah, For sure, Hopefully as an investor or the people you trust your capital with, there’s a process where the machine takes something, adds value to it and then now it’s worth more and okay debts more expensive. So maybe we do more all cash and sell our financing. Or maybe it’s a different level of debt. Maybe it’s sixty percent debt instead of seventy five or fifty percent, l, t. V, or something. But a well oiled machine should be able to operate at most times. Maybe not all times. You need to be waiting until there’s an amazing deal sometimes, but I think that that’s something that you want to build as an investor within your own direct investment bucket. But then look for within your real estate applications. For people have built machines that can add value to assets and platforms over time.
dave:
Hundred percent, Richard. You’ve accomplished so much in such a short period of time. What would be the single biggest learning you’ve had if you could share with listeners? in terms of you know personal productivity. What’s been the single? You know, biggest, biggest, protocol or process or something that you could share with people about how you’ve been able to achieve these results.
richard_wilson:
Sure, well, it doesn’t seem super fast. From my perspective, there was one famous person I can remember who it is, I Michel Angelo or something, and he said, If you knew how hard I worked, it wouldn’t be impressive at all. And so it’s been sixteen years. I know, I still look pretty young for a family office world, but I started the business was in my mid twenties, so it doesn’t feel overnight to me at all, but when I started it, I wrote down affirmation. I was going to do a million a year in revenue. in our third year Business, We did a million a year in revenue. The thing that’s helped me the most though, has been a one page kind of cheat sheet for my life, and I have my my monthly, My quarterly, and my annual goals there and then, any time I read a great book like the Howard Marks book, or Um, You know, we bought Billionaires Dot Com recently and we’re interviewing a hundred millionaires there and learn something that I know I need to implement. Um, then I’ll put it at the bottom of that one page, So I’ve got about forty little Statements there that I read every morning. I read them this morning, and then I start with reading my monthly quarterly annual goals, and then all these forty little half liner statements that remind me of a book or a mentor’s advice, et cetera An inside I got myself, and so by reading that every morning, then I go out into my email, end box, or on an interview like this, and top of mind are my top clients and my top goals and our platforms were building, and what’s most important to me and Business in our family, et cetera, and by doing that that, I’m less swayed by random things that come up that are just a distraction, or or what I’ve noticed is, I’ll quickly remove people from our circle that just aren’t like positive energy are just not in line with where we’re trying to go. And it’s like there’s no time for stuff like that when you have a very clear define of where you’re trying to go
dave:
Yeah, I makes perfect sense. Totally agree with that. I think it is interesting. The more you focus on. It’s kind of like Dan Sullivan’s quote. Right, the ears hear and the eyes see what the brain is thinking. So
richard_wilson:
Right,
dave:
it’s
richard_wilson:
right,
dave:
it’s really. It’s really true.
richard_wilson:
Yeah, yeah, for you’re
dave:
Yeah,
richard_wilson:
agree more. So it’s the more that you keep those things top of mind is almost in your subconscious. Then, like Be looking for those things throughout your day. Right, Like your. Your. What’s it called? the Raticular activating system or something like that? I forget the technical word, but you’re basically saying Hey, brain, look out for all these things and don’t put up with these things. And it’s just kind of your operating system for the day every day,
dave:
Absolutely. and so, Richard. If you could give just one singular piece of advice to the audience about how they could really accelerate their wealth trajectory, What would it be?
richard_wilson:
The most important one is seeing the deals first exclusively, and that a better valuation get your position in the industry, so that people just are thinking of you top of mind to show you that medical clinic deal or the short term mental deal. You have to be the most powerful that the second one is that the more integrated your life is than the faster things go, and the faster people want to help you in those that are aligned with you will want to work with you that much faster. so aligning like, If I know, it’s important to be all Our healthy than aligning things in my life to be more healthy, but also having the right people on my team living in the right location. everything from the food you eat to the books you read and how you spend your time in the media. You consume all of that. If it’s integrated well, then you’re constantly growing and learning and enjoying yourself. If there’s a lot of friction, then you’re just dragging all these anchors behind you and others can’t even really see where you’re going or if you’re going to make it there. So then More integration and integrity you have across your whole life than I think. The faster things go, including with your investments. Right if you have certain goals and objectives for your family office have never been written down, and no one’s even asked you what those are, and your family and advisors don’t know what they are, And then some one shows you a deal, and you don’t know your family’s values or your own goals. How are you goin to evaluate whether you should do that deal or not? Just you might do the wrong deal. and maybe Yo should be doing any deals until you figure that out.
dave:
Great? Great insight? So Richard, if people would like to learn more about family offices, what you’re doing at family office residences? what’s what’s the best place to reach out? connect with you to learn more
richard_wilson:
Sure, well, our community runs fifteen live events a year. You be happy to have you come check out one of those on Us day. If you can come and see. I see it in person here again soon. But it’s called Family Office club, and if you are raising capital, have a fund or indicating deals, you can go to family offices Dot Com and see our next live event coming up cordially. We do a big investor summit, Then we have a dozen workshops a year. Typically, we’ve got a free book on family offices At family offices Dot Com, with a free book at capital raising Dot Com. If you are looking to raise capital from the ultra wealthy if you are an investor and you want to connect on Investor residences Dot Com or Medical Clinic Capital, the fastest way to do so is just go to Investor Club Dot Com when there’s a little thirty second form and then Laura Clay or I will pick up the phone and connect with you over email or phone and see how we could work together, so I think that those will be the The most clear ways, and hopefully I’ll be meeting some of your listeners in person at one of our events or come up and say hi If you see me speaking at an event you’re at and we can, we can connect that way as well.
dave:
For sure. Really appreciate your time today, Richard. Just really grateful for the opportunity for you to be able to share the wisdom and insights. I mean so many great nuggets. I know people are really going to enjoy this episode and hopefully start to you know. Create relationship. You know of learning right, because we’re all on this journey together, so thank you again for your time. Really appreciate it.
richard_wilson:
Yeah, I appreciate thanks for having me here.
dave:
Hey, everyone, welcome to today. show on well, strategy secrets. You’ve got another awesome show for you today today we’re joined by Scott Myers. Scott and his affiliated companies, focus on the acquisition, development and sindication of self storage facilities Nation wide. He currently owns and operates over two point four million square feet and over fourteen thousand units Nation wide. his education organization Self Storage Investing Dot Com provides courses tools, live events and mentor To help others launch their own self storage business To enjoy a life style, as he has coined free from tenants, toilets and trash, his various companies, fund and build four to six houses each year in Mexico by taking his family staff and clients on an all expense paid short term mission trip. Scott, my friend, welcome to the show.
scott_meyers:
Dave’s so good to see you again now. Thanks for having me.
dave:
You bet Scott. Now it’s always great to connect and always enjoy our discussions. Since we connected last year, And you know for the audience who isn’t familiar with you, or you know what some of your initiatives are. Tell us how it all started for you and really getting into the space.
scott_meyers:
Yeah, so I think like many people when you start actively investing in the real estate, it started usually with single family houses, And that was it. That was the first one. I watched the Carlton Sheets program on how to invest in real estate many many years ago, and bought his home study system, and and then purchased a single family house, and it was a. It was a fixer up. Er, of course, we assume the mortgage on the property and then we fixed it, We reaped it, renovated, it, rented it out And re financed it. And you know the bird method before it was called the bird method, And then we moved on to buy two more after that with the proceeds from that one and we were off to the races, and then we found ourselves my wife and I, as partners in the business, said that we didn’t really have the cash flow and the freedom free time that we wanted in that side of the business, And so we thought well, we just needed to work smarter and a little bit harder. And then economies as skill would fix this, And so we got to do. Multi Family began investing in multi family projects, and at that time all they did Is really just kind of increase our headaches. We had less free time and less cash. And so at this point we’re looking to make a pivot. Still love real estate. For all the reasons everybody loves real estate. Because we can leverage to buy it. You can’t do that with any other investment at Appreciate, if you do things right, and you can depreciate it for tax purposes, And so there’s really no other investment on the planet that works like. quite like real estate. We just didn’t like the tenants in the toilets. And so when we look around the landscape, you know that leads parking lots and sell storage, and I begin to look into self storage. The more I looked into it and research, the more I liked what I saw. If people don’t pay you well, then we lock them out and then we sell their stuff off because we don’t have. We don’t have to adhere to habitational laws of real estate. We are in the warehousing side and lean laws which protect us and then our turns when somebody moves out, or if we have to auction them off, what we get back is a metal box on a concrete slab. when we blow it out and move on to the next person waiting in line for our units, and when we look at the life cycle of self storage, It does extremely well. It actually does better during a recession than it does during inflationary periods or boom times. We get the hockey stick effect that goes up into the right, because when they kondomy turn sour, business is down size, and they put their additional warehousing and stock, and whether it be any type of cost of goods, in their their cost of operations, and including any office furniture that goes into storgnthig, until things turn back around again. Same for individuals, they move back in With each other. They move back home with our parents and they put their things in storage, and things turn back around again. And so we actually do better during a recessionary period, And so for all of that has the lowest loan default rate, lowest loan loss rate. And so we decided to make that pivot and sold off all our houses, all our apartments, and we do invest in nothing but self storage at this time, so since then, as you mentioned, we were actually have surpassed now four million square feet of self storage and over twenty five thousand units nation wide. We just had a Very massive year, and then just a massive couple of months here. that has increased our holdings, and so we, we syndicate projects along the way. As you mentioned, we, we can’t grow and nobody can grow to that to level without bringing on private equity. And we’re also seeking that not only here in the United States, but then I’ve been doing that to internationally as well. so that’s that’s the short or the long version of how we got to where we are now.
dave:
Yeah, that’s really awesome, Scott. and before we jump into, you know some of the specifics of that so we can kind of help investors kind of understand the asset class a little bit more. I, also, you know, really love the charitable work you’re doing, so tell us a little bit about your foundation as well.
scott_meyers:
So in the very beginning my wife and I, we, we got into real estate because we wanted to, wanted to have some free time to raise our kids to be able to do the things that our parents didn’t do and couldn’t do for us while we were growing up, and so as we started our business and launched it first of all, in the houses and apartments, and we never would have got to that place that we are in self storage That we. we have that freedom to be able to travel because we don’t have the tenants in the toilets to take all of our time away, and we had the cash load to be able to go and spend several months The year off the grid on the mission field and visiting various parts of the world. And then that led us to build building houses in Sonata Mexico, so we do two trips a year, One in the summer slash early spring when school gets out, and we take these family friendly mission trips or again, our staff, our family, friends, co workers partners, our students and we pay for them to go on these trips. The we pay for the entire trip, including the house, the house itself, and all the costs of Transportation. All they need to do is get to San Diego, and we’ve been doing this for several years now when we build roughly for house for three to four houses each time we go, And so we’re doing anywhere from six to seven houses per year, Now going on trips twice a year, and then looking to ultimately Dave. The goal is once Once we go through this next cycle, if you will, in terms of a ramp up and buying more storage facilities, and then perhaps of selling off or re financing, and for to five years, that may be our last go around. and then I planned to flip the script and spend about eighty percent of our time on the mission field, and twenty percent just running and managing the business.
dave:
Well, that’s excellent, Scott. So that was really going to be my next question for you. As you know, you know, we talk a lot about having a wealth strategy right,
scott_meyers:
Hm,
dave:
and and kind of doing that life style design you know for yourself, So it sounds like you guys have gotten some good clarity in terms of the vision and you know where you and your family want to head, But can you articulate anything more about your current vision and wealth strategy for yourself?
scott_meyers:
Absolutely, I think well, at least I would hope. Unfortunately, we do see that there are folks that they do fly a little more by the seat of their pants, and as entrepreneurs, I think by nature were kind of that way. we’re a little more optimistic and we don’t always have a plan, but we have since the day one, as soon as I say that we’ve taken some pivots along the way, and every time we come up with a plan or may be a long term, ten, fifteen, twenty year plan, God sends us in a different direction. And so we just followed that and been obedient to that. but the ultimate goal right now. Yeah, we planned this to be our, our last hara, if you will, and so call it five to seven year mark where we know we’ll go through another economic cycle to ramp up our acquisitions and developments and stabilize all those assets, and then either re finance and hold those, or sell those off, and each one we will look at systematically as to what the exit is. You know that is. ultimately, that’s the plan. When any time we head into one of our projects, whether we two million dollar project or a twenty illion dollar project or a hundred million dollar portfolio, we always enter it With the exit in mind, and so beyond that we do have a number if you will, and then we feel that we’re going a reach at at at the end of this next economic cycle, And then my kids are scattered all around the world. One in Amsterdam, right now, ones in Coast Arica, heading to Africa, and the other ones in Phoenix, which is where I am right now. We don’t know where she’s going to end up, but the plan is to have the ability have the resources, the time, the flexibility, and obviously the finances that it takes to be able to travel around to wherever our kids are, but then also to to get Tinue and D really upgrade and enhance our mission efforts that were were incurring right now,
dave:
Yeah, I really
scott_meyers:
M,
dave:
love it. you know, I think it’s like when you peel back the layer, Really of you
scott_meyers:
Hm,
dave:
know, building wealth and finance right, Everyone talks about. You know numbers and everything, but when you kind of really peel it back, you know it’s really means something deeper right. it’s It’s
scott_meyers:
Hm,
dave:
all about having freedom of money to do those things you want to do. Freedom of purpose. You know,
scott_meyers:
Hm,
dave:
you re arranging your purpose to support you know the mission. It’s also freedom of time.
scott_meyers:
Hm,
dave:
Freedom of location, to be where you want
scott_meyers:
M,
dave:
to be with And who you
scott_meyers:
Hm,
dave:
want to spend your time with, So sounds sounds like you’ve architected a really nice plan for that and I think that’s inspiring for folks.
scott_meyers:
Thanks, that’s the goal right now, and so well, we’ll see what the next five to seven years looks like.
dave:
Yeah, so so let’s jump into storage for a little bit. And and
scott_meyers:
Sure,
dave:
I think you know at the time of this recording right, it’s mid february. Um, you know, potentially an impending recession. However, you want to look at it, Whether we’re in one, we’re approaching one.
scott_meyers:
Hm,
dave:
And you know self storage has been traditionally has fared. You know very well, as you pointed out, during prior down turns in two thousand and eight prior, The cycles. So you know, why don’t we talk about some of the specifics around? You know. Why does this asset class perform better right than you know some of the other private equity assets during during tough times.
scott_meyers:
Yeah, so Dave, we’re you know, the thing in our industry is that we are in the trauma and transition business in the drama and transition industry and we service those that are in transition or the are experiencing trauma, death, divorce, bankruptcy, recessions, I mean, new name it, That usually necessitates a move, or in many cases it does, And so when people are getting ready to move, whether they plan to do so, and they’re uprating their house or moving from one part of the country to the next we, they’re going to stage their house, and theyre goin to put all the thing And storage to make it look like it has more room, and to get rid of all the clutter so that it looks and shows well before they move, and then when they get ready to move, they’re gonna use storage, usually to put some things in until they ultimately get to their final location. and ten, they’re typically use storage again until they get everything out of their. We also have we’ve seen. Over the years the baby boomers have done extremely well, and so long as they’ve done well that they are, also, they’re creating more demand by having homes in two different places. So what In the north, when in the south and then when it comes time for them to leave their home in the south and go back home, and they’re going to rent it out, they will put their stuff into storage, and then sometimes it just stays there a little bit longer as we head into a recession or ultimately Ef. They’re on ready to sell that house. Then they still have those two units that are in both locations. Know whether that’s be cause they have to, or because they want to. Either way we’ve got the industry covered or we’ve got the recession in the inflationary periods that covered. But ultimately what we see is that Yes, We fell in the hard times, and the pandemic was a perfect example that day. That it mimics exactly what happens during a recession, and I’ve Ben through two. Now this will be my third that I go through and we go through this phase where people you know immediately when Leman brothers fell in the last one, or when there was a lock down in the pandemic, Well, then you know immediately there was businesses that went out of business and they had to put their access inventory, furnishings, if you will, you know, office furniture into storage, while they either lost their least sub, sub, least some space, and so they put their access into self Storage, and then also when individuals again, when they fall on hard times that they move back home with their parents or move in with each other. A thy put the extra stuff into storage unto till things turn back around again at the same time. Then we have lenders that you know, Usually put their pencils down for a while. They’re going to step back. They’re not going O take on more risky or speculative projects like a self storage development or really development of any kind until they see how things shake out, and that’s that’s the place where we find ourselves right now in this inflationary High interest rate environment where many of the lenders aren’t looking at projects. and today’s interest rates. Some of these projects, we’ve hit the Pauls button, or they’ve just gone by the wayside and all the same time you know, we’re getting kind of this pen of demand for for self storage, and so occupancies are rising and the rental rates obviously arising as well. So we get, we get that perfect storm during a recession of an increased demand for all the things that are happening in the economy, and then the supply chain, which is being shut off, choked off at the At least up slowing. because some of these projects just don’t work any longer. you know, Add to that the fact that now we have, we’re a very transient society. You know, we learned during the pandemic That know, employers learn that their folks can be very productive and work well from home. And so now they’re sending them home, or they didn’t ask them to come back, and they’re reducing their office space, and now people are free to move and go to some of your states. That’s why folks are moving to Florida in droves, and Texas and the Sun Belt states, where Some cases just back home to be with a family. they moved away for a little while. they’re choosing to move wherever they want, and because they can do business from wherever they want, we also see during a recession that many folks will be forced to start a business, and when you start a business, the least expensive space. If youre gonna be selling anything, even if you’re in the Bay business or an Amazon drobshiper, you’re going to run your warehouse in a very small space, which is your garage or your basement, until you run out a room in the garage or your basement, and then those goods go into self storage. And so There’s a number of factors and a reason why self story jud does so well during a recession, and like clockwork it happens every time, and we’re starting to see it as we hit into this next one as we speak.
dave:
Yeah, interesting. Is there anything different around this time around? especially with respect to the current interest rate environment
scott_meyers:
So every recession is a ittle bit different in ninety nine and two thousand during the dot com crash. You know, employment wasn’t as high. The g. p o dip down quite a bit, but that was a pretty quick turn around, and that was really caused by the text sector. when the bubble burst at that time, However, to get the economy going again, the Community Reinvestment Act was put into place, which meant that loans were being made to folks to be able to spark ownership, and so they relaxed the lending requirements in order for people Get these government back loans to buy houses, and so for us, our tenants left our houses and our apartments and drove to buy a house, because they could for the first time n their lives, and who could blame them? And then you fast forward to two thousand Eight Well to make a long story short. If you’ve watched the Big Shorter, If you just paid attention, That’s what caused the community reinvestment, acted all those loans where people should have really had a loan for house, and even the shady projects that were that were undertaken. Well we defaulted, Leaving brothers fell and the economy fell into every And then there was a housing bubble that burst that time around, and then check on to that the events of September Eleventh and unemployment sky rocketed. At that point G, P went down even more and that was a longer, deeper recession. Well, this time around, it’s been a slow burn, but it’s been caused by just high inflation. We’ve still seen unemployment is is really very low right now, but we’re just seeing the Consumer price index is going up of things, and that is causing again a slow down in the economy, And I think once more numbers come out, and in terms of the Consumer Price index, and you know the results of Black Friday, even going back to November of twenty twenty two, they will see a slow down and the economy. And and of course we’re only one. You know. We got a war in Ukraine. We’ve got natural disasters and things occurring that cause the financial markets to get to skidisund. People pull out and we’re really really close to just one of those you know. really kind of taking us down, if you will, sending us down that path where consumer confidence goes to an old time low, and they pull back from the stock market And in droves, and then we hit into the next recession. So that’s my crystal ball. I guess, the way that I see it, and where we’re heading into right now, the differences that it’s just been more of a slow burn and interestraght the ones that are sparking that, and I think it’s the Consumer price index and confidence that it’s goin, draw us into this next one.
dave:
Makes sense, and so help listeners understand really,
scott_meyers:
Hm,
dave:
from you know an operational perspective, Two things. let’s let’s first talk about. you know, competition because it’s interesting. You know if if you’re driving around in any high growth
scott_meyers:
Hm,
dave:
market, you’re basically seeing self storage facilities pop up on every
scott_meyers:
Hm,
dave:
corner, some of them literally right next to each other,
scott_meyers:
Hm,
dave:
so so tell us, you know what is the logic that goes into? You know where you’re putting facilities, where they located what markets that you’re in and so on so forth.
scott_meyers:
Probably the most common question that people ask of me when when they learn what I’m doing, their curiosity and I’m so very valid. The, And it’s always interesting to me when I think I need to come up with like a better tang line when I’m either at a cocktail party or on the sidelines of a sucker game. Want somebody asked? Because it’s usually the first thing out of the mouth is really, So you mean, or it’s you mean you buy them and then you, you sell the contents like storage wars on T. v. No, No, we own the facilities. We. actually, you buy Facilities on, developed them all over the country. Well, I see him all over the place. S that went down the road. Yours and well, you, sometimes you sometimes know, but well gosh, there’s a lot of competition every time time on. Here’s one of the things going up. and you know, are you making any money at this? And well, we wouldn’t do it if we weren’t making money at it, And nobody ever says that when you see another Starbuck go up, or if you you know, you see another Macdonalds go up, or anything, else. For that matter, If somebody says they’re a doctor, Nobody asks if you’re making money at it, Then we have enough doctors in the world, and we look at some story just the same. I mean, We’ve seen a huge boom and has been the fastest growing sector of real estate. For the past thirty years, we develop more self storage facilities than any other form of comercial real estate. And so that being said, yeah, we see them go up all over the place, But that doesn’t mean that there’s developers out there that are taking on. you know, the loan risk, the construction risk, and then a lease up risk. If this project doesn’t work, if you didn’t have solid numbers behind it, and feasibility study with consultants and market data. That just everything that we do any time we buy or develop a facit. It is driven by solid, a solid feasibility study and a market study, as well as a plan to move forward based upon historical track record of ours. the market, existing facilities, and a lot of hand ringing that goes into this and an underwriting, and then performing very conservatively to make sure that these these projects were, and so to that point, yeah, we’re not doing it for fun or building it and hoping they will come like they used to do back in the seventies or eighties when the industry was young right now, Really too much at risk. And then an appraiser would kill a project or feasibility study, consultant or a lender would, if the numbers didn’t work, and then we would pull out as well if we saw anything, And so the reason why we’re building so many. You see so many days, and anybody else out there is because there’s a demand for it and we’re filling them. Seven square foot per capita is roughly an equalibrium in a market, and in a market is roughly a five mile radius. So you pop me down anywhere in the country, and I can do a market study within about an hour or two, and then tell you if it’s worth At least pursuing to move forward, and in some cases we know it’s It’s immediately yes, and it’s a go forward if we can find a plot of land that makes sense and get it built for the amount of money that it would take in order to make it profitable.
dave:
Yeah, in Scott, are there any particular markets that you know you’re favorable to
scott_meyers:
So you know we’re fairly market agnostic. What we tried to do. However, is once we have developed a facility to, once we buy one in a particular area, then we try to blanket that area and get that economies of scale. Because that it goes across our marketing efforts for the market, we can then spread it across our direct management staff that is overseeing not just one facility in a market, but then they can oversee the three property managers and property management companies that are in that market. And so you know, as we can Ntinue to build upon that, then the overall costs at the operational level goes down for us. And so that has always been our approach to a market Outside of that, You know, there’s there’s certain market factors. There’s areas that where the the population is decreasing dramatically, and where we’ve seen the huge migration shifts over the years, like Flint, Michigan, Detroit, Michigan, they’ve lost forty and fifty percent of the population. Those are markets at. We’re going to stay away from now. There’s like, as we mentioned, that we operate mostly in the Sun Belt state, And throughout the South East, is our concentration of projects right now, and in Arizona, which is where I am right now. Where we’re going to go visit one of our developments here. and those are the areas that we’re focusing on just because of the migration of folks, and any time there’s growth that’s obviously good for service based real estate investment like ours.
dave:
Sure, and from a business model perspective, a lot
scott_meyers:
Hm,
dave:
of investors are familiar with, let’s say multi family sending quick indications right where you’ve got a value add opportunity. You might have a new development or or a class a Right in that business model. How they’ll you add value? Talk to us how that’s similar different to you know, self storage project that you’re working on
scott_meyers:
Yeah, very, very, very similar. You know, I’m coming from the multi family arena, exiting at and coming into self storage, Because the there are truly more opportunities to great value and self storage than there are all the other asset classes. We have insular income streams that we can add to the facilities, like offering tenet insurance, as well as a Bat services, pack and ship and drop shifting services and the receiving, and then also document services for storage, as well as delivery and threading services, the retail Addition of retail, selling locks and boxes and the moving supplies, then adding, of course, adding additional buildings and units, and then an income stream. On top of that is the greatest way to create value. but it’s It’s much easier and faster when you add ten thousand square foot building, Dave, with a hundred units in it versus a multi film in which you’re only getting several, you know, or a dozen or so units out of that, because when you raise rates, which we ken every thirty days if we want to, versus an apartment you can only do Once a year when they renew. It just gives us more flexibility and the opportunity to again and on all the profit and income streams, and then raise rates at at a quick clip. Some of our facilities. We’ve raised rates twenty to twenty five per cent when we move in, and then we’ve had regular rates increases every three to six months until we get up to market because we have the ability to do so and again, just the low low loss rate, because when people move, our account receivable is very low just because we, we have the ability to sell our stuff and recoup our back, rent, And late. these, so adding on to the facilities and all the the profit centers and income streams we found were able to move the needle much faster and at greater length than we were ever able to do in multi family,
dave:
That makes sense. And do you see? do you have a preference right? In terms of you doing that value add would say, an existing may be buying from a Mom and Pop type operator
scott_meyers:
Hm,
dave:
and adding all those additional income streams to it. you know, or doing you know, a brand new development type project.
scott_meyers:
Yeah, so we, we like both. Of course, the greatest value add is that if you buy a piece of dirt and then you build a building on it and then put an income stream on it, You know that is the greatest value. Add all things be considered, but the quickest to be able to cash flow is to buying an existing facility and then add in the retail sales and start offering one time adninfee where they never had before offering the ouholl or other third party truck rental services where we don’t pay for anything, we just provide this service as an agent for them, and add all those you know, those pieces in Where they didn’t have the income streams previously, and then also layering on the technology piece to that where we can reduce our pay roll by running our facilities unmand with the kiosk if we choose to, and then, instead of going around and putting locks on individual units, we can use electronic key fobs and litryonic locks to be able to overlock the units when people are behind and rent, and everything is really just done from a command center where folks just have to go out. Our staff just goes out to our facilities, maybe once a week to keep an eye on things, to pick up any trash and do anything We done physically. But the facilities run essentially with the Kos, got unmanned without human interaction, so there’s a lot of ways that we can move the needle and a facility by reducing expenses and then increasing the income stream that’s already in place, and obviously doing it in a quicker time frame by buying a facility versus on developing, but on the development side, you know that’s where were usually get a bigger pop. You know that’s where we get the two x and three x return. Although it just, it does take us a little bit longer to get there to get it completely out of the ground, built on And stabilized at eight, eighty five percent occupancy, and all of those concessions burned off, and and all of the insilary income streams in place, so we do. both. we like both,
dave:
Yeah, I would agree with that, Scott and just having them mix in your portfolio. Right
scott_meyers:
Hm,
dave:
if you’re looking for that cash flow play, the value ad is a little bit better. But if you don’t need that cash flow right away, you know you can make more through an equity pop. right if you make that investment, Because essentially the investor is taking on a little bit more risk
scott_meyers:
Correct.
dave:
with that right, So you get compensated as an investor. For that,
scott_meyers:
Absolutely, yep,
dave:
you know, I, just one of the things I just love about this asset class is that From an operational standpoint, I mean, anyone out there who has run a business before even thought about. you know. getting a business going, It’s really amazing to know that you could have you know a couple of hundred unit facility, and like you said, just being managed from a command center
scott_meyers:
Hm,
dave:
with the advances in technology and what’s going on? I mean, talk about a light oot print.
scott_meyers:
Yeah,
dave:
Really, From you know, an expense and operational standpoint and then your Just, you have all of those leaders to be able to manipulate right the income. You know your expenses, and really optimize that. And and just to unpack what you said earlier as well, that’s It’s a really big difference to Multi family is that you do have the ability to move rent on a monthly basis.
scott_meyers:
Hm,
dave:
You know, unlike Multi family right, which is, it’s a you now, typically a year long
scott_meyers:
M,
dave:
lease.
scott_meyers:
hm, Yeah, for for all those reasons and more, we love the asset class and it is just a very simple, predictable business model, which is which is good for me. I like the fact that also you know, this is a business in which well, first of all, you need to treat it like a business. there are many folks out there that look at it as such a simple business that it’s a hobby and no business as a hobby, or else it’s not a business, and you’re not going to be able to know once again be able to create that value unless you’re walking the four corners of your business and constantly driving the performance. But we’ve been at this for a number of years. We’ve been in real estate for thirty. I’ve been in storage for eighteen. We know the metrics and we know how to again pull the leaders as you mentioned, and we know how much and how far what it’s going to cost and how far we can usually create change and affect the value of our facilities. He again, those predictable moves because we know exactly what it looks like. Furthermore, we’ve ben through a couple of recessions and so we can see what’s coming down the pike, and see a little further down the road than other folks would have been in the business, whether in business in general or in real estate or in self storage, And that allows us once again to be able to keep our returns where they need to be, to look for any other potential issues or challenges a little further down the road, because we have that experience as well, and having that behind us just allow us to be able to pivot and move just a little bit in a more nimble fashion than even some of the big rats, even though they have the experience, just allows us to be able to make these decisions a little faster and be able to monitor the investment were also vertically integrated as well, which means that when we develop facilities, It’s really the only piece that is out source. We don’t have a construction team in place, although we do a lot of that in terms of a heavy maintenance and some construction, but we leave that up to the general contractors, but property management, our fund management invest our relations. Everything else is all kept in house. That way, We once again, well as anybody, will tell you, nobody cares one percent as much about your property as you do so. In terms of property management, we’re not working for fees on that side of the house where we’re going to maximize the value of the investment And keep the expenses down in contrast, And so for that reason, we brought and developed our property management all in house, and so everything once again is vertically integrated, So we can, we can control those costs and better than any other third party would be able to do. And we have a more vested interest in maximizing the income as well,
dave:
Yeah, in addition to having a strong competitive differentiator,
scott_meyers:
A hundred per cent.
dave:
And Scott, what do you think in terms of exit potential? right with buyers, just walk us through that a little bit. and if you have a particular sweet spot for Ait sizes, right, because I know, in storage, you know you could get everything from you a twenty unit place
scott_meyers:
Right,
dave:
to you know five hundred unit place right. Is there kind
scott_meyers:
Hm,
dave:
of a sweet spot that you guys to like to operate in? And then how is that impacked right on the back and when you move to exit, you know. Do you have you know? Do you have some Bigger lever players that are buying the bigger ones and may be doing a roll up strategy? Or who are your typical buyers?
scott_meyers:
Yes, all of that you hit to hit the nail right on the head. And so what we’re buying right now, and what we’re developing is institutional grade facilities to the extent that we can get facilities that are fifty five thousand square feet and above, if it’s an existing facility. We’re trying to create that value by buying out a B or B minus class b, b minus facility and take it up to B plus or a minus, developing nothing but class institutional projects that would have attracted those institutional investors When there be funds or rats or Tonal players, regional players that we want to gobble, up, you know, a portfolio or even individual facilities, But we have exited a number of projects and gone full cycle through the years last two years being very active and many of those projects know, like Baby Saw and many other saw in twenty twenty twenty twenty One where there were big funds, especially in self storage. You know, heading into a recession, it was the most desirable asset class again. And so we had multiple exits, and we were selling some of our development projects at a certificate of occupancy. You know, as soon as they were Built, we were selling them for a higher price tang than when our five year projection exit was when, when the entire project was full, leased up and stabilized, and so some of those we exited for obvious reasons, to take advantage of being able to roll that money over again. Get a high I r. for our investors. Um, And so we will now continue to do so and monitor that, but the goal is almost never, say, never, never say always, but almost every time that we exit with multiple projects at a bigger Price tag, the multiple that we get in terms of a cap rate or or an equity multiple is higher from these institutional investors that are, that Hey would rather deploy more capital on one transaction with multiple facilities and they will pay a premium in order to do so for speed. Obviously, the writing a check for speed if they’re looking to grow and it’s just less work all together. so in order for us to be able to pack and Os up and sell them, that is the most desirable way. And so that is the goal. That is strategy. we’re seeing one of the beautiful things, Another one of the beautiful things about our industry right now Is that this is the last asset class. Truly, that is on the Wild World Western Front, if you will, Because the the other asset classes being mobile home parks, multi family assisted living, dental practices and buildings, retail hospitality, There are roughly eighty percent owned by the rats or institutional investors, and maybe ten to twenty percent, depending upon those asset classes still owned by mob and hops, if you will, are smaller individual players, whereas in self storage at sea, Pposite, of that, only twenty percent in the industry is owned by the rats or the major players, and they are coming in in full force, competing with us at the lower level, but they are our buyers. You know, they are our customers. So as we grow these portfolios or if we buy three or four projects within one low cow within one geographic area, we’ll roll those up, and maybe sell those up individually or roll them up into the bigger package to be able to sell off. So we do have a fund and we’ve also got different private placements in direct investments that have one Ready ended or multiple, as well as a larger fund that, just depending upon our exit and the strategy determines where we’ll put those projects and then ultimately how we will exit.
dave:
Makes perfect sense, Scott. If you could give our listeners just one piece of advice about how they could accelerate their wealth trajectory, what would it be?
scott_meyers:
You know well, First of all, I don’t give advice. I’m not paid to, and nobody wants to hear advice. We have a rule around here where we only share experience, and and the experience that I’ve seen is is what most people have seen as well when everybody else is running out, is when you should be running back in, or at least looking to get back in, but doing your own due diligence and getting advisors and round you, or mentor, whether you’re investing passively or actively, you know, as we head into this next economic cycle, and as you mention Dave, you know, many folks would say we’re in it Already or we’re heading into a recession. Know more millionaires were created. More successful businesses were started during a recession than any other time for a multitude of reasons, and that’s usually because most things are on sale, and that includes a real estate. and so the projects that were bringing on right now are very strong. The returns that we’re seeing when we come out on the back side of these are going to be incredible. and for for any active investor, passive investor, I would just say that sitting on the sidelines is probably not the best place to be. And again, that’s why I say This is. I don’t give advice. But if you just do the math, interest or the inflation right right now, depending upon you know who you read, where you get your data from the numbers that you actually dial into, you can say it’s at six percent, nine percent, or you know the real numbers are closer to the mid teens. fifteen or sixteen per cent. If you’re sending on cash right now, you’re losing money. and so eventually you got to get in to get those returns again to fight off inflation. But the longer you stay in now you really have you know a whole To dig yourself out of, if you’re looking to claw back the returns or the losses on cash, just sitting on the side lines. and so, if anything, if it’s advice, I would say from experience, Dave, that if you’re sitting in cash right now that whether we’re at the bottom or not, there’s there’s investments out there that are producing returns that you shouldn’t have to wait until what you feel or think is the bottom. That has never been, in my opinion, a smart strategy. I’ve made money in high interest rate environments When the roller coaster is going up and Way down, you just got to get your money into play. period. That’s that’s my. That’s my experience.
dave:
A hundred per cent? That’s great Scot to appreciate that wisdom. So it’s been really great having you on the show today. If listeners would like to connect with you or learn more about what you’re doing. What is the best place for them to reach out.
scott_meyers:
Yeah, for all things self storage, go to self storage, investing Dot com and we’ve got all types of white papers on the industry About what we do. You can connect on the tabs to our our passive investing opportunities and website, and we, we educate, we mentor, we do, joint ventures, obviously sendications, as we’ve been chatting about, and also active investors that look to partner with folks as well. So for all things that, self storage just starts with Self Storage investing Dot Com. And then if you just Google, Scot, Myers and Self storage, I think there’s about forty thousand impressions on me and my brand out There were on all the socials and you can find us anywhere.
dave:
Awesome, Scott, Really appreciate your time today and sharing your wisdom with the listeners and look forward to connecting it again soon.
scott_meyers:
All right, my pleasure, Dave. thanks so much for having me.
dave:
Hey, everyone, welcome to today’s show on wealth strategy secrets. We’ve got another great show for you today. Today, we’re joined by Mike Zlotnik. Mike is known in real estate circles as Big Mike due to his stature. But more importantly, he’s known for his personal integrity and for having a keen understanding of the financial aspects of successful real estate investing. Mike has a depth of expert knowledge in economics and investment opportunities in real estate. What’s hot, what’s cold and where things are trending now. Mike, welcome to the show.
mike_zlotnik:
Dave, thank you so much for having me. Honored and humbled to be on your show. Appreciate the opportunity to be here.
dave:
Yeah, absolutely, Mike. I know the audience is really going to enjoy this conversation. There’s so much uncertainty into the market right now. As we record this, it’s Q1 of 2023. You know, are we moving into a recessionary pyramid period? Interest rates right on the rise, although the Fed only hiked a quarter point just this week. So that was kind of interesting. So lots of dynamics going on in the marketplace and a lot of investors are wondering what makes sense on the investment horizon. But before we jump into economics and everything, tell the audience a little bit about your background, your journey, and your story.
mike_zlotnik:
Sure. I live in Brooklyn, New York with my lovely family. I like to crack this joke. I’m married to my lovely wife. I have four monkeys and a cat, four human monkeys, four kids. They’re broad range from 22 to 12, so they’ve kind of, not small kids anymore. I had a journey. I came to the United States as a political refugee from the former Soviet Union in 1989. That was that long ago. I’m a US citizen, US patriot. I spent my initial career in technology field. I spent almost 15 years working in IT, various roles, getting all the way up to a senior executive in that field. But my true passion has always been real estate. I’ve been an investor in real estate since 2000, enjoyed being a passive investor for nine years, and then went full time. in 2009 Becoming a basically fund manager and we’ve been running family of funds tempo family of funds since 2000 and it’s been a fun journey We’ve we’ve done a lot of loans. We’ve done a lot of commercial real estate so we we’ve built a lot of expertise in broad range of commercial Assets, and I don’t claim to be a jack-of-all-trades At the same time, over the years, we’ve invested into multifamily, storage, industrial, office, shopping, and a number of other asset classes. So I actually like the broad diversification strategy because you don’t know what’s going to be a home run and what’s going to be a strikeout.
dave:
Great. And so do you actually have a wealth strategy that you’re following today?
mike_zlotnik:
So we build wealth through our own dog food. So we invest into a lot of things that we love. Like Warren Buffett, I don’t wanna be diversified into a hundred deals, but the deals where we select, we take a little bit bigger positions ourselves. And obviously our investors participate in these investments. So the wealth strategy is not like a holistic wealth strategy, it’s more opportunistic. We’ve been building our portfolio of real estate assets. as the primary wealth building mechanisms for multiple years. So I certainly, I’m not an expert in stock market, but I do love the investing in real estate and the benefits and one word of predictability of investing in real estate. So this, my personal strategy has been growing wealth through, for various investments in real estate assets, from loans to equity positions. And I can tell you that I’ve grown and discovered that building a portfolio of turnkey properties is not for me. I started that whole exercise, built a portfolio of my own and realized there’s a lot of work there. So I would rather own pieces of large commercial assets than owning a bunch of single-family residential houses. I don’t know if it helps, but we basically own pieces of many commercial projects and that’s the way we prefer to do it rather than owning one asset outright. We own 10% of this, 20% of that, 30% of this, and that’s the way we’ve been investing. And diversification is a critical element of what we do simply because if you just take concentrated risks, we do that, but there’s more exposure to what a specific deal can do. And we’ve seen this in up markets and down markets. Great looking deal with paper, can strike out and be a problem, and a… deal that looks like it’s barely going to make its target return becomes a massive home run. And that whole experience has taught me one lesson. Even if you have great conviction to write a big check, still you still have to diversify. So even follow the words of the wise of Warren Buffett and Charlie Munger, where they take outsized bets on things they believe in strongly in the right time of the market. That whole strategy makes a lot of sense, but they still diversify. They’ll write a five billion dollar check when they have a billion dollars in the bank. So that strategy still makes sense.
dave:
Yeah, and what do you believe is the most important for investors, right, in 2023, right, as they’re thinking about capital allocation? What are the most important things people should be thinking about?
mike_zlotnik:
Sure, so the question is for the fresh money or for the existing money, because they’re different things. For fresh money, of course, some folks are saying downside protection, which is a very important consideration in investing. Another way to think about for fresh money is can you invest into great distress and discounted deals? So as we’re entering into a recession, keeping the eyes and ears open, being very opportunistic. looking for a great deal is the way to start the year. Now, great deals may not be coming today or tomorrow, but they should be coming later in the year. We’ll talk about this because there’s a lot of pressure that’s built up in the economy that’s gonna cause distress in some of these transactions. So being very opportunistic, having cash or having access to cash is a way to go with fresh capital. Obviously with existing investments, it’s a different… ballgame because you have to look at what you got and how these investors will fare in a recession. Is there a risk to a project? So assessment of existing investments, kind of, can you winterize your portfolio, at least understand your portfolio and be prepared for certain deals to take a hit? And that’s a psychological exercise and it’s a physical exercise because you have to know what you got. If you don’t go to a doctor and you don’t look at your portfolio and you have, let’s just say, 30 investments and… 25 of them are solid, but five have potential risk of some level of a loss, maybe catastrophic loss, and you can’t really plan. So it’s important to know what you got. And then on the fresh investment side, the opportunity is going to be planned plentiful. What Fed has done, and we’ll talk more about this, but I love to use these words like the movie, the Fed has acted late and they were too fast and too furious. They move the rates up way too fast and over a very short amount of time when the economy was just addicted to very low interest rate environment. And a lot of deals, real estate and corporate deals just have too much debt at a very low interest rates. And when the debt matures, it creates gigantic pressure for the operators or owners, as they’re going to need additional capital, they’re going to need to sell distressed potentially. So there’s a lot of opportunities. that could be coming and being ready and prepared, not fearful to act. I believe that’s a state of mind and state of a wallet. That’s the way to go.
dave:
Sure. So for investors who have existing portfolios, right, across different asset types and everything, are there any particular KPIs that you’re following to track your investments and kind of, let’s say, stress test them to see how they’re performing?
mike_zlotnik:
Sure, so the most basic analysis that we do in our portfolio management, we compare both operating and financials versus projections versus the plan performance. This is the most common thing that most operators do. You invest in the value of multifamily, whether the projections month to month from an operating perspective, how many units were planned to be renovated versus how many were renovated on budget, on time, on cost, right? And then on the reverse side, on the financials, just looking at the economic numbers, what were the projected NOI, what is the actual. If things are moving towards a target, that’s actually good news, right? You’re operating from that perspective, you’re executing on a plan. You should absolutely look at the stress points that a given investment might have, like low and term maturity or rate cap expiration. So investments made a couple of years ago, when their interest rates were low, they were They basically were two possibilities. Unless you bought a stabilized asset, you went immediately as an operator to get a long-term bank loan, Fannie Mae, Freddie Mac, or just a long-term bank paper. And that’s wonderful. But if you bought a value-add project, or you invested as an LP with a sponsor into a value-add project, the chances are the project has some kind of bridge there. And it’s not a sure thing. Some folks have taken longer-term loans and that would have been a great decision. but way too many people have taken bridge. And then bridge debt could be maturing. So most of the rate caps I’ve seen being bought were up to two years. So again, project from two years ago could already be expiring on the rate cap. And the rates were substantially lower. So the interest rate that they’re paying now versus the interest rate they got, let’s just say one and a half, two years ago, could be 80% higher. Payment factor could be 100% payment factor higher. That’s a gigantic stress point. So for sure, looking at that, and understanding does the project expect to have that sudden payment increase because the rate cap expired, it’s a substantial concern. And there’s only two solutions, well, there are three solutions to that, right? At that point, the deal could be not meeting debt service coverage ratio. So a few options. One, buy a new rate cap. So the bank may say, bring liquidity, buy, bring cash, pay us. You’re buying freight front. fresh rate cap and then your interest rate is now manageable. Right? Second option becomes raise capital. So you raise capital and you pay down the mortgage, which is not necessarily as attractive and it would be a lot of capital raised. You could either raise from existing investors or you can raise from new investors. And the third option becomes sell. Sell becomes a concern if you are selling into an environment that’s not really receptive to the sale. For example, you have a bridge loan but you haven’t fully executed or you had some problem, a hurricane hit, or some other issue happened, and you were not able to execute the plan, you’re half the way through the plan, if you’re gonna sell now, it’s gonna be looked as a substantial distress or discounted opportunity. On a buy side, that’s a great deal. On a sell side, it’s a pain point. So what we are doing is it’s not like a KPI, KPI. It is a practical exercise of review stress points. There could be other stress points, but these financial rate increases, which again, the stress point that is very common. There are uncommon stress points. A project ran into massive operating issues. So that’s why the first two things I mentioned, comparing operating pro formal versus actual and financials pro formal versus actual is important because they’re going to tell you, are you on plan or not? If you aren’t planned, at least that component looks good. So I hope it helps. This is a general kind of. high level type of a view. And the other thing that we do is we want to see good communications. So when we work, because we run family of funds of funds, funds of funds, we basically invest often as LPs, just limited partners. We also invest as GPs, co-GPs, but we work with folks that run these assets. We basically work with operators. And we want to make sure operations are very strong. So, and the decision becomes, Depending on the size of your investment, do you want to get monthly updates or you’re okay with quarterly updates? So we’re gravitating in this environment as much as possible move to an operating Monthly operating updates and get clarity what’s going on a monthly basis What used to be good enough on quarterly now might need monthly type of review? What else can be done to address if the issues are coming up and level of communications is very important What happens is this when things are going well? Operators and sponsors communicate well when you see some kind of drop in communications. It typically signals someone something is up This is human nature I’ve seen this again and again and I mean this with all due respect to all these operators But if some kind of stress level happens people start under communicating and then you got to go figure out what’s really happening You might need to go and visit the asset and understand what what’s what’s going on Or at times your asset may be fine, but they may have problems on other properties and they’re getting stressed from that and they may not be giving your property enough attention. So understanding is the operator stress. And I’ve seen this too. Your project is fine, but the operator is stressed because they have loan maturity on another loan and they need liquidity there. And your project is fine, but they’re stressed, which is not necessarily a bad problem. And not as bad of a problem, but you still wanna make sure your project is getting enough attention. I hope it helps.
dave:
Yeah, no, solid insights, Mike. I really appreciate that. You know, one thing I think we should kind of put in perspective for investors, right? I mean, a lot of us who are investing in real estate, right, we’re kind of living in this bubble a little bit, right? Thinking about all these things that are kind of dynamic. But again, let’s put on our investor hat and think about all the different asset classes that a lot of people have. And frankly, you know, still the majority of folks out there have a majority of their portfolio. holdings sitting in government sponsored qualified plans or in stocks, bonds, mutual funds to some extent. The S&P was down just about 20% last year. If you had, let’s just take 100K, if you had a 100K in your 401K, it was down 20%. You actually need to make, you’d be then down to 80,000. the following year, you actually need to make a 40% gain, just to get back if you’re going up again 20%, right? It’s 20% just to get back to where you were, right? So it’s interesting to kind of compare and contrast, asset classes and kind of think about on a relative basis, looking at your portfolio, right? You talked about some of the inherent risks of real estate and everything, but what are your thoughts with that compared to equities markets?
mike_zlotnik:
Sure, and a full disclaim, I’m not a specialist in equities market. I have my opinion on that. And listen, equity markets have a lot less predictability than real estate. There’s generally greater volatility. And as I rightly point out, you may have a 20% down year. Next year, just to break even, you have to get up 25%. If you lost 20%, if you’re down to 80,000, like you said, now to get to 100,000, just to break even over two years, you need to go up by 20,000, which is now 25% relative to the 80,000. In general, this is what happened when I think about the stock market. The balance sheets are overloaded with cheap debt. The same problem that real estate has. Many corporations are known as zombie companies. They simply don’t turn in NOI after their service. They basically continue to just stay afloat. Whatever income they make, they just service the debt. And when the debt is up, the debt service is up substantially as a result of high interest rates, it’s a massive, massive choke. So a lot of corporations will face… let’s just call say maybe even worse problem that real estate faces by virtue of having too much cheap debt in the past. And now the debt has to be rolled. Mature maturing, um, is a substantial, it’s a, it’s probably a bigger problem than in real estate, but there’s something to keep in mind. So would I rather be in a stock market with a lot of uncertainty, uh, and let somebody else control, uh, what, uh, what happens versus private real estate investing. I would rather be in private real estate investing. Also, I just put together a very short educational video. This comes really fresh to my mind. And in that video, the question was compare Wall Street-traded real estate investment rates versus private funds. And there are many, many differences. One, what they invest in, they usually invest into more stabilized assets. They try to invest full income versus in the… private real estate, you can invest into income, you can invest in growth, you can invest growth in income value, you have a lot more flexibility. But there’s a one gigantic difference between the two. One, when you invest in Wall Street, you don’t get to know like in trust people you invest with. You’re investing in some 40,000 pound gorilla. Either it’s a REIT with corporate executives or it could be a publicly traded company that you just don’t get to know the management. You’re too far away from them no matter what. Unless you’re a gigantic investor, you’ll never get access to it. With real estate, you have real experience touching people, breaking bread with people, networking with people, understanding executive teams of these private real estate fund management companies or real estate syndicators. From my perspective, it’s a lot better experience for you as an investor. And as a fund manager, I wanna know who I invest with because we operate a model like an investor, fund to fund. So we write checks into our other deals. We basically, our rule of thumb. We need to know, I can trust people we invest with first. Secondly, what deals they invest in. Okay, do we like those deals? Can we negotiate the right terms? And then three, how much capital we will deploy in those deals, depending on the first two elements. So that whole element is gigantically better in real estate versus the stock market. You just can’t, unless again, you’re writing a billion dollar check or some large check, you’re not gonna go shake a hand off Jamie Dimon or another corporate executive. They just… gigantic players relative to most of the kind of average Joe Investor.
dave:
Yeah, for sure. And I think also being in the alternative space, right? You know, we’re, we’re really aligning where the fundamentals are very strong. So I, I still think if you look at the fundamentals of, you know, commercial real estate right now, I mean, there is still a massive, I think by 6 million homes shortage, right? That we have across the country. And then you take that even further into some of these sunbelt states and the markets where a lot of people are really expanding. So there’s a need, right? There’s still a very strong demand. And in some cases, right, the recessionary times is even driving more people into that. So for instance, I mean, look, I’ve got kids who are trying to buy their first time house. Well, with interest rates at this point, they’re not going to be able to do that. So their only option is probably to rent, right? Or they’re looking at states, states that have no taxes, like Florida, Tennessee, Texas, some of these states. So you have even more of a migration with some of these things. So I think the fundamentals remain strong, but it’s interesting. A lot of the points you point out are really salient around really protecting your downside. and operationally, right? How strong is that team that you’re investing in, right? What would you think, you know, from that perspective?
mike_zlotnik:
So let me continue your train of thought. For sure, they cracked this joke. Recession in Florida? What recession? It
dave:
Yeah.
mike_zlotnik:
ain’t gonna
dave:
Ha
mike_zlotnik:
happen to people
dave:
ha.
mike_zlotnik:
safe because there’s so much involved migration and the same is happening on many other states including Texas. So I concur with your opinion that during a recession and especially with a somewhat high interest rates environment, there is greater demand for rental housing, especially affordable. Affordable multifamily housing has seen substantial growth and there’s not enough supply. That is a fundamental shift. During recession people substitute down. You can’t afford a bigger place. You rent a smaller place. You rent an apartment instead of a house. You still want good location. You still want to be in good school, but you’re okay to live in an apartment instead of the house if you can’t afford the house. And this high interest rate environment has actually been good news for rent increases. It actually triggers inflation, accelerates inflation from that perspective. So, certain asset classes in commercial real estate continue to look attractive in this environment simply because they have strong fundamentals during recession, like affordable multifamily housing or some level of storage. Some other asset classes look a little concerning. If you have office space or if you have potentially… Retail has been kind of interesting, right? There’s some open door in retail and… People love to come back after the post-COVID reopening. And then it’s closed-door retail that may continue to be dying out over time. So you have to be a lot more careful in that asset class. Industrial continues to do well. There are great opportunities, even in a recessionary environment. There are some niche strategies that we’ve invested in that continue to do really well. Give you examples. So we continue to invest with guys called discountlots.com. They buy land. in the boonies kind of recreational land and then they sell it to investors as receivables and for five six times the price they pay for it. So it’s an example of a new strategy that completely isolated from high interest rates because the rates doesn’t even matter. The reason I brought it up is just it’s in the investing world there are opportunities that don’t necessarily depend on market condition and they don’t depend on cycle as much. But going back to your statement about location, of course, these southern states with inbound migration and the long run will continue to do well. But also you need to look at also affordability. So affordability has been a substantial issue over the last couple of years with rapid inflation. So looking at where the incomes are and where… the housing is affordable relative to the income level, is important too. So we’ve done deals in suburb of Detroit and people might say, it’s not an exactly sexy market. Well, it’s not, but the housing is so affordable. And if you’re creating a great product in the market or you’re innovating great properties, the investment by itself may be a phenomenal investment because you are producing a very affordable, higher quality product. So investments by themselves, need to be every real estate is local, no matter what people are gonna say, you may have a great investment in a terrible market where you can have a terrible investment in a great market. So I just wanted to separate that, that the deal selection with the right operator, with the right strategy, often matters more than purely, hey, let’s write a check in Florida or in Texas. And we’ve seen, give you example, Austin has been a super hot market. And I was in Austin a couple of weeks ago and I met with a local developer and he thinks, that the Alston is going to be isolated from any kind of recession. And I certainly respect the opinion. But the data is telling me that the market is so not affordable that it’s going to be difficult to believe that there isn’t going to be a price correction in that market. So some of the forces, general forces of supply demand and affordability are going to play in the recessionary environment, especially if the prices have gone up so much in the past. So at the end of the day, Reversion to the mean will happen in the long run. That’s kind of my view.
dave:
Sure. And so what do you think really looking forward, right, past 2023? What do you think in terms of the future of real estate and where the industry is headed?
mike_zlotnik:
So it’s a great question. I appreciate the question. I would say that I’m a firm believer that US economy can’t afford high interest rates for too long, although the Fed has made every point to say they’re on a mission to fight inflation and they’re not done raising interest rates. And one of the important points, Fed has shown over many economic cycles, they’re late, almost always late. I don’t want to say this categorically always late, but they’re very, very often late. And here’s an example of how they’re late. They’re still raising interest rates now, if at funds rate, they’re still raising it. While the 10-year treasury is already signaled that it’s peaked out. This is my opinion, I may be wrong. The 10-year treasury may still go up, but 10-year treasury peaked at about four and a quarter and it’s down to about three and a half at a time of the recording. My view, it sort of peaked at that four and a quarter, I don’t think it’s going back up there. So what… My perception of the market is they will still execute one more maybe rate increase, they’ll push the rates another quarter and I think at that point they’re done. They’ve already inflicted too much pain on the market. So as they keep the rates for a long time at this restricted level, this restrictive policy is going to continue to put pressure on the economy, these maturing loans, as more time passes, the bridge paper, the corporate debt that matures, now needs to renew at a higher rate or value of project with the bridge paper maturing and new mortgage needs to be obtained or rate cap is another fresh pressure point, but it’ll happen in six months from now. So what I see happening is probably Fed keeping the rates where they are through the end of this year. Maybe if there’s enough pain in the economy, they’ll start cycling it down. But on a long-term basis, US economy just cannot afford interest rates where they are right now because of a level of debt relative to the size of the economy. We’ve just ballooned the overall debt. I’m not saying we’re moving to the Japan model. That’s many years away. Japan debt to GDP ratio is out of control. It’s been out of control for a long time. Nonetheless, we still have a lot of public and private debt relative to the size of the economy that can afford high interest rates. So as long as they don’t do anything crazy from a fiscal policy perspective, like what they’ve done printing trillions of dollars to fight COVID, which created a lot of dollars in the economy. and that created potential inflation. Obviously, supply chain issues have created inflation, but more dollars in circulation, $10, 10 apples, you make $20 and 10 apples, it’s twice as expensive for every apple. That’s the basics of the inflation. So if you go back now and you think about where we’re going, we’re certainly going into some level of recession, second half of the year, and probably good portion of 2024. So most recessions last somewhere between 12 and 18 months. If you follow the projections, that recession is likely gonna happen second half of the year, and you add 12 to 18 months on top of that, you’re probably looking into recession continuing all the way through the end of 2024. Now, what kind of recession and the severity and what the opportunity is going to look like, we don’t know for sure, but folks need to be prepared. The fresh cash could start finding home soon if there are great deals coming. Very important point. So if you believe the rates will cycle back down Then the opportunity to buy is now or in the upcoming months and quarters The reason for this is the good old rule of investing You typically buy real estate when rates are high and you refinance or sell when the rates are low That typically again lower
dave:
that.
mike_zlotnik:
interest rates lower cap rates better for sales or better for refinancing so conceptually If the great deals are coming in the second half of the year, maybe even earlier, and you are an investor and you’re looking to write a check, if you can actually confidently say why it’s a great deal. This is the first question I ask any time anybody brings me a deal today, why it’s a great deal. And if they can’t explain why it’s a great deal, then it’s not a great deal. And if it’s not a great deal, am I really motivated to write a check right now when I see better deals coming in the future? And the answer is no. But if there’s a great explanation why it’s a great deal today, simply because, hey, great capital hit, the seller didn’t finish innovation, they’re out of cash. And you can actually understand and verify and justify that whole thesis. Then you can write a check into great deal at the higher interest rates. And when they cycle back down, it’s an additional wind behind. uh you know in your back.
dave:
Yeah, I think you really nailed it right there, Mike. It’s really buying assets that are under value. I mean, that’s the first place you make money, right, is on the buy. And if you’re looking at today’s interest rates, conservative projections, and you find a great deal, it is a good deal. And I think we’re starting to see some of that happen in the market, some creative things kind of going on, but some good underlying fundamentals that are really driving that. So I think investors that are poised to take advantage in this market, and I think also investors should really keep that long-term view on. And unfortunately, the equities markets get us all positioned to be kind of reactive in looking at things on a daily basis. But that’s what’s great about the real estate asset class and some of these others. that you can kind of think, you know, like the wealthy do, right, which is long term, right? They’re making decisions for the long term and based on the fundamentals. So really good thoughts there, Mike. If you could give investors just one piece of advice about how they could really accelerate their wealth trajectory, what would it be?
mike_zlotnik:
So before I do this, let me add one more comment. Just kind of a thought that has crossed my mind. So one, in relation to what you just said. So be a long-term investor versus short-term. That’s probably a great advice. So thank
dave:
Yeah,
mike_zlotnik:
you for saying this and I’ll support
dave:
there you go.
mike_zlotnik:
that. But I’ll tell you this. So what comes to mind is I was just analyzing the past and we’re way ahead of real. recession and the real problems yet. At the same time, when I went back and I decided to study and just think about what has great investors done or the greatest of all investors, at least the Oracle of Omaha, Warren Buffett has done during the crisis 2008. It was one of the best way to think about this, just go back and see what people have done. So he says, when others are fearful,
dave:
and others
mike_zlotnik:
You got
dave:
are
mike_zlotnik:
to
dave:
greedy,
mike_zlotnik:
be greedy.
dave:
yeah,
mike_zlotnik:
And you got to be
dave:
yeah.
mike_zlotnik:
greedy when others are fearful. So
dave:
Right.
mike_zlotnik:
what he did is just a quick comment. He wrote $5 billion check into Goldman Sachs. When the market, everything was in panic in September 2008. And he wrote a check. There’s basically seven lessons that I could talk about. And some of them, you asked me what are the good advice. But learn from Warren Buffett. So $5 billion check into preferred equity instead of common equity. Lesson number one, invest with downside protection. Downside protection, preferred equity, is safer than common equity. And we do this today with the structures where investors can actually invest a check into preferred equity versus common. Preferred equity has greater downside protection than common. So he wrote into preferred equity with 10% yield. Lesson number two, when you invest, if you can, get some cashflow today and get some upside tomorrow. So he did get his 10% per year dividend yield. Not easy to do, but he did get it when the market was in a down part. Right. He also got a, um, he required, uh, that if Goldman Sachs were to buy out that preferred equity that have to pay him 500 million as an exit fee. So he basically bought, bought a minimum prepayment penalty on the deal. Now it’s not that everyone can exercise it, but he did it just as an example. On top of that, he got phenomenal upside. He got $5 billion worth of worms to buy Goldman Sachs stock for $5 billion at a strike price below the market. It was ridiculous. The deal was so obscenely good, but it was done. So another lesson is done. If your name is Warren Buffett, you have strong reputation, and people approach you for money, you have the negotiation leverage. So if you have track record, if you’re a known player, people approach you. You have that ability to of pricing power because you your name is reputation, right? That’s another lesson learned At the end of the day, he also got great upside So when you invest today and you can get good downside protection, can you also get a great upside? right Uh another lesson’s learned if you find a great deal, don’t be shy to write a check Right, so he wrote a gigantic check but at the same time he knew his level of risk reward ratio was just so healthy That he could write a big check so The reason I’m giving you this, because you’re telling me what is the greatest lesson, I just give it a whole bunch of them.
dave:
Yeah.
mike_zlotnik:
Think like Warren Buffett, act like Warren Buffett. Can you always get that kind of a deal? Probably not. Nonetheless, thinking like this helps. So when you negotiate a deal, when you are looking at the opportunity, can you get any of these elements? Anyway, I have a, actually we have a newsletter that just came out with that article. If folks want to get a copy, they could probably go on our website. And I have seven lessons outlined from that lessons learned from 2008. And then going back to private real estate investing versus, uh, uh, versus public, and you said this, and I love this, right? Public reads and any public stock, they live quarter to quarter. If they don’t report good numbers for one quarter, they get crucified. The investors are selling the stock. They get nervous. The big difference in real estate is you have to be long term investor. So you have to look behind the scenes. You have to look behind a short-term performance and understand is this a good fundamental investment? And if it is, don’t be shy to write a check.
dave:
All right. Mike, thanks so much for coming on the show today and providing so much value to the listeners. Really appreciate it. I know everyone’s gonna really enjoy those insights. If people would like to connect with you or learn more about what you’re up to, what’s the best place?
mike_zlotnik:
It’s a little cheesy, but I’m known as the Big Mike, and the name’s stuck. I’m a big guy. I’m 6’4″, and I have a side. There’s just no other way. People have been calling me Big Mike forever. So I’m a fund manager. So it’s a bigmikefund.com. Really easy to remember, bigmikefund.com. However, if you forget the D at the end, if you heard bigmikefund.com, I promise it’s not a kinky site.
dave:
Perfect. Mike, thanks again. Really appreciate the time. It’s been very insightful and look forward to speaking again.
mike_zlotnik:
Thank you, Dave. Appreciate being on your show.
dave:
Hey everyone, welcome to today’s show on wealth strategy secrets. We’ve got another awesome show for you guys today. Today we’re joined by Shannon Waller. I’m so grateful to have Shannon on the show with us today. She has been with strategic coach for many years as a personal coach. And Shannon is one of the most genuine, positive and enthusiastic people you’ll ever meet. Shannon loves nothing more than seeing people become better, happier. more successful versions of themselves, and facilitating the honest, practical conversations that help them get there. As she explains, being able to speak frankly about problems, obstacles, and mistakes is absolutely vital to success for both entrepreneurs and their teams. When you’re dealing with reality, you have power. When you’re dealing with pretend, not so much. A pragmatist at heart, she excels at making it complex, simple and transforming obstacles into opportunities for connection, learning and growth. Shannon, really excited to have you on the show. Welcome.
shannon_waller:
Thank you so much, Dave. I’m absolutely delighted to be here and to spend some more time with you.
dave:
Yes, no, this is gonna be fun. And I know this is usually you’re on the other side of the mic and trying to corral Dan Sullivan,
shannon_waller:
You start.
dave:
which by the way is I think a unique ability that you probably didn’t even realize you had, being able to facilitate him.
shannon_waller:
It turns out it’s a thing.
dave:
Yeah, for sure. So for people who aren’t familiar with you and your background, please share with us, you know, how, how you got into coaching and a little bit about your back.
shannon_waller:
Oh my gosh. So before I joined Coach, which was in 1991, so well over half my life ago, I was really working in, I’ve always been interested in people in business. That has always been my passion since I was 18. So my education is related to that, my conversations, who I love to work with, is anyone in business. I actually think it’s the number one place for not only professional development, but personal development. Because when you throw yourself against the marketplace, you learn a lot about yourself. So it’s always been my playground, much more so than any other kind of industry I could imagine going into. So anyway, just through kind of fortunate happenstance, met Babs, Babs Smith and Dan Sullivan, co-founders of Strategic Coach in 1991, I think in June. And then long story super short, they approached a friend of mine to see if he wanted to work with them, went down, saw a presentation, loved what Dan said, literally got back to the office. salesperson at the time, Susan said, Oh, do you know where I can get ahold of Shannon to my friend? He goes, yeah, she’s right here. Passes the phone over and the question was, did you enjoy the presentation? I was like, yes, I loved it. Stuff I’d known but hadn’t integrated that way. That’s one of Dan’s unique abilities. And then she asked me this brilliant question. She’s a Shannon Quickstart on the Colby. She goes, are you happy with what you’re doing? And out of my mouth pops, no, I’m bored. Five weeks later, I had joined strategic coach. Initially supporting her doing sales, but then I’m excellent, not unique at sales. And so eventually went into, in 1995, started coaching team members because I saw this massive disconnect between entrepreneurs who desperately wanted to grow their organizations and communicating that or translating that to their team proved to be incredibly difficult. So that’s really been, sounds a bit lofty to say part of my life’s work, but it’s certainly been one of my passions since 1995 when I created… the strategic coach team programs. Since then, I work with entrepreneurs, their executive teams. I call them 10X team leaders. Recently, I just took over coaching the 10X level of the program from Dan as he moves up to what we call FreeZone. So, yeah, coaching is what I love to do. And just for the reasons that you described at the very beginning, it’s my passion to help maximize people’s strengths, capabilities, results, but also their happiness and their fun. So yeah, so I really get to do that and strategic coach tools are epically fabulous to be able to help do that. And entrepreneurs are the business people I enjoy most. Our brains think alike. I don’t understand corporate very well. Entrepreneurship is definitely the most fun playground ever.
dave:
Yeah, that’s, that’s so amazing. You know, I mean, one of the things that really struck me about strategic coach was, you know, after building some businesses without it, you know, early on, um, there was just this whole realm and world of corporate, right. And corporate America, right. And it’s just like, you know, as an entrepreneur, it’s actually everything I was trying to escape. Right. I was trying to get autonomy. I was trying to get freedom of purpose, freedom of time. But as you start building a business in the traditional world, you just keep hitting these ceilings of complexity, as Dan likes to call them. And it just seems like, okay, the bigger you get, it just gets to be not much fun. But with strategic coach, there’s this amazing focus, like you talked about around not only your professional life, but your personal life and how you can integrate the two to really drive fulfillment. to drive this unique ability aspect, to drive the team aspect, and just, you know, really, truly make an impact.
shannon_waller:
Yeah, and it was so, it’s such a relief to realize that there is another way to do it. It doesn’t always have to be the brute force method. You don’t always have to be a rugged individualist hitting your head on that ceiling. There are ways to, you know, 3X, 5X, 10X your income, your revenue, your profit, but also your freedom, your fun, your relationships. And so it doesn’t have to be longer and harder that we’re working. We can actually do it. called the 10X framework, but you really can think about how to do things differently very much by tapping into what you were saying, unique ability. Even before we started, it’s like unique ability is a multiplier. When you do what you love to do and are best at, you automatically get more out of it than you put in. It’s just how, and every human being does have unique ability. Some people take a lot more freedom to be able to apply it, but that’s only one of them. But when you combine that with some of the other ways of… of quickly accelerating, maximizing, you know, the simple, elegant idea, parts of your business and your team, you actually do get the life you want, not just the one you dreamt of. And there’s lots of ways to build a business. Some are, well, quote Joe Polish, some are hard, annoying, lame, and frustrating. What you want is easy, lucrative, and
dave:
an
shannon_waller:
fun.
dave:
elf
shannon_waller:
So you can have
dave:
business.
shannon_waller:
a half business or an elf business.
dave:
Yes,
shannon_waller:
I’ll
dave:
yeah.
shannon_waller:
take elf every day of the week.
dave:
Elf every day, exactly. Now there’s so much to unpack there. I definitely wanna come back to unique ability, but let’s help the audience understand a little bit about being a rugged individual and if you can just break down that concept because I know a lot of entrepreneurs struggle with this.
shannon_waller:
And let’s be clear, it’s not that being a rugged individual is bad. In fact, it’s really the normal natural starting point is when you are, if you imagine starting a business for a while, you don’t have the funds to invest in anyone else. It is your chief cook and bottle washer. And that’s not a terrible thing because you actually learn what it takes to run the business, to do the different things. You understand it at an intimate level that most people never do, especially in a corporate environment. But there’s a point where it taps out. So it’s actually a mindset. So rugged individual, the line that goes through your head is I can do it better myself. Now for very, very, very few activities, pardon me, that’s true. But for most of the activities, it’s not true. So what happens is you end up hitting that ceiling that you were talking about. You end up, so it’s a lot of diminishing returns. For a little while you’re on the up, right? But then you get a point where the more time and effort you invest, you actually get so tired and you’re not good at a lot of these things that you actually go down the other side. And just before you do that, you need to go, oh, in our vernacular, I’m not the who for this. And that’s when you may need to make that mental shift from being a rugged individual thinking, I can do it better myself. And we all know people like this. There’s people, all of us have tried to help or support and who just are kind of allergic to their immune system rejects help. And like, I can do it better myself. It’s kind of like a three-year-old, right? It’s like, no, I can put my clothes on backwards, but whatever. There’s
dave:
Hehehe
shannon_waller:
just have that fierceness. And I was one of those fiercely independent kids, like, leave me alone. Um, not a ton has changed, but it’s, so being a recognized individual is a very natural phase of growth. There’s nothing, but it be being stuck there, especially if you really have a desire to grow and you’re, you’re being capped by yourself, by your, by, you know, we’re often our own worst enemy. That’s when it’s time to actually have a mindset shift. And the mindset shift is from, I can do it better myself, to what we call unique ability teamwork, we can do it better together. Right. And so that’s part of my voice. So we have this fun book called Who Not How, which I’m a huge fan of. A lot of people look at delegation as really a chore, a nasty to do that never works well. You invest in someone and then they leave and they go somewhere else and you’re left doing it all by yourself again. But when you actually find the right who, who loves to do it. So if you think about a new ambition that you have, a new goal in your future, and the normal approach is, oh, how do I do it? Which just decreasing energy, increasing fatigue, all the things. If instead you think of, oh, do I know a who who knows how to do this? And we call it. I said this morning to somebody, hooting it up, when you hoot yourself up, it’s like, oh, I can hire someone. I can trade. I can borrow. I can barter. I can, there’s something that they, that I have that they want and vice versa. And then you make that mindset shift to unique ability teamwork. But it means you have to be willing to let go. Sometimes that feels like a trapeze and fly in space for a little while until you can do that. But it’s so easy to get trapped by the rugged individualist mindset. At the same time, we’ve all been there and in certain activities, we probably still are. It’s not an all or nothing, but it’s one of those things that the more you free yourself up or who yourself up as we like to say, the more liberating it is, the more freedom you have of time, more freedom of money, the more freedom of relationship, the more freedom of purpose. Because frankly, if you think about it, all of us are put on the planet, whatever your belief system, with a few things that we are truly unique at. Then there’s a lot of other things that we’re really good at. There’s a lot of things we’re okay at, and there’s frankly a lot of things we really, we were not put on the planet to do. You put in the time and effort and you don’t get the result. And so if you can just focus in on those few things, it’s that multiplier, it’s that automatic scale. Um, and then you find other people who are also unique in all the things that you’re not, all of a sudden that freedom just, just expands exponentially. It’s one of those things, it’s hard to believe until you do it, but once you do, you’re like, It’s just, well, you would know that. I’m sure you’ve got your own stories, Dave. It’s like, oh yeah.
dave:
Oh, yeah, for sure. I mean, I think Shannon, I mean, easily unique ability is a top five insight that I’ve gained, you know, in my entire career, you know,
shannon_waller:
Mm-hmm.
dave:
I would say. And just to help listeners, um, you know, understand unique ability. We kind of talked to that. You can rewind and listen to one of our other episodes. with Julia Waller where we go into unique ability, but you can go into Colby.com, K-O-L-B-E.com. It’s just a 20-minute test to figure out your co-native ability of essentially your instinctual wiring of how you’re wired. We now hire employees based upon this. Everyone in my family has gone through this. So… Um, wherever you are in your journey or in life, if you don’t have a business right now, um, I can’t tell you how powerful this is about just, you know, learning more about yourself, learning more, um, to create that teamwork, like in our family, it’s so amazing. You know, I have one higher implementer, my oldest daughter. So when we do some kind of family project or when I trip or like, you know what Adelaide’s in charge, like. She’s got it. She does the planning, all the logistics, let her have at it. And then we free ourselves up or who ourselves up, right? And let each person kind of stay in their lane and it creates so much harmony. I mean, we have six people in our family. So it creates so much harmony, I would say there. And then also, from a team perspective. I mean, my first business, you know, we hired based on skills, right? I mean, the traditional method and looking at different skills and people in the role. Uh, but now it’s all based on unique ability. So, you know, I’ve got fact-finders doing the work that I don’t want to do. And they absolutely love it. You know, they eat it up and do it better than I could do.
shannon_waller:
Holy.
dave:
Right. So everyone, as you say, I think it’s so powerful because it really becomes a multiplier, right, by having, adding that additional capability.
shannon_waller:
Well, and I love just to touch on what you said for the family. It allows sometimes much younger children to really feel valued and that they have purpose and a contribution because they’re going to do things that other people in the family won’t do. How amazing for a younger person to have that sense of intrinsic capability. I mean, it’s tough to find in this world of social media. So I think actually you’re really equipping people when you do that. I profiled my husband before I married him. with the Colby profile.
dave:
Hehehehehe
shannon_waller:
Turns out we’re almost twins. Fact finder follow through, we both prevent like
dave:
well.
shannon_waller:
he’s a two, two, 10, four. I’m a three, two, nine, five. And so it’s like, okay, if anyone’s going to plan or organize in this family, it ain’t us. And so, but, and here’s the cool thing about this, Dave, is that it meant that we didn’t have any guilt. Like there are so many wives, there’s some husbands. Husbands tend to feel guilty if they’re not handy. They don’t have that hands-on implementer.
dave:
Mm-hmm.
shannon_waller:
Women tend to feel guilty if they don’t love organizing and meal planning and laundry, all of which I can’t stand by the way. But I have no guilt about that. I know how my mental energy plays out. If it’s having an innovative, useful, you know, quick start conversation with you, Dave, all in all day.
dave:
Yeah,
shannon_waller:
You and I already
dave:
yeah.
shannon_waller:
decided there’s about three topics we could talk all day about.
dave:
Yep.
shannon_waller:
Right? So, there’s just, it’s this freedom from guilt. I didn’t even talk about that, but that’s kind of amazing. And that’s also true of team members. You get to value people who might be lower on the traditional totem pole, but they bring such a unique capability to your team and to your company and they leverage you so much that they get a ton of deep appreciation. Like my support partner, Katrina, who helped organize. me being here and showing up when I’m supposed to. She loves scheduling. For her it’s like Tetris. For me
dave:
Yeah.
shannon_waller:
it’s
dave:
Yeah.
shannon_waller:
torture. Torture. And I’m not good at it and I probably have myself and Dan too. He had him booked in three different cities on the same day. Not a good
dave:
Yeah.
shannon_waller:
idea. Right? So, I love it because it allows us to appreciate our own talents, but also other people’s and then construct really great teams. Now, obviously you need smart people and obviously you need committed people. Committed comes from the heart. intelligence, obviously, for the brain. But then knowing how someone naturally strives and take action, and Colby is the only validated instrument that does that, so could not recommend it highly enough, is so useful. And I Colby my kids, my daughter Charlotte, who’s now 19, but in grade three, she printed off her Colby profiles and she put them into plastic folders and I think there were four and she had colored duct tape and she put her name and she handed her Colby profile to all. of her teachers. That’s how much she
dave:
Wow.
shannon_waller:
buys into it.
dave:
Wow.
shannon_waller:
She’s like, this is who I am. You know, she was a quick start implementer.
dave:
Yep.
shannon_waller:
So she was very spontaneous and not terribly book driven. Um, so it’s just, it’s just fun. It’s just so validating. And that’s really the benefit of, and it gives you language. There’s lots of other great profiles and tools we use too, to help label and name your unique ability, to give you a language with which to articulate it. Uh, but knowing that so. you know, it’s fun to see if both of us are maximizers on CliftonStrengths or both of us are quick starts. And, and all of a sudden that’s this amazing shortcut where we know how to connect and communicate with one another. It just shortcuts the process of getting to usefulness, if that makes sense. Yeah.
dave:
Yeah, a hundred percent. And especially, look, I mean, most of us are brought up in traditional academia teaches you to work on your weaknesses, right? But we realize in the business world that it’s all about identifying your strengths, doubling down on your strengths. And then if you’re an entrepreneur, just like Dan says, right, it’s, it’s all about shortcuts, right? Because we’re trying to do be faster, better, cheaper, right? At every level. So how are you going to do that? You got to maximize those strengths, right?
shannon_waller:
Totally. And I love one of his early expressions. It’s still one of my favorites. It cracks me up. He goes, well, if you work on your weaknesses for a really long time, what you have are really strong weaknesses. Right?
dave:
Yeah, it’s
shannon_waller:
And it’s
dave:
spot
shannon_waller:
this mindset
dave:
on.
shannon_waller:
of trying to be all things to all people. It’s like, no, we are unique individuals. And when you start taking that seriously, as Dan also often talks about, and you really appreciate it, which means it goes up in value, right? It’s… the world looks different. And then you get unhooked from some of that traditional mindset, programming, whatever the heck you want to call it. And you get freed up to operate very differently. And then people start looking at you like, what are you doing? You’re obviously very successful, but you’re taking a lot of time off. Did you just go on a trip? And aren’t you able to contribute to this charity? And it’s like, how do you do all that? And they get super curious. It’s very fun.
dave:
Yeah, that is literally Shannon, the core and the ethos of our company and what we’re trying to help with our clients, right? Is break free from, you know, not only in the financial world, but, you know, from conventional wisdom, right? And the way things, things were taught just because they were taught, they were done that way for so many years. And our parents taught us that our employers taught us that, right? But it’s kind of breaking down some of those, you know, paradigms that were there. And how can you have enough courage to write? you know, think outside of the box.
shannon_waller:
And this is the word I was looking for before. It’s the narrative. Like how can you break out of that common narrative? And you know, our school system was fabulous when in the 60s and 50s, people were going into factories. The job of the school system was to produce people who would work well in factories. That’s not our world anymore. We now live in a networked world where you can find and research and tap into capabilities across the globe. I was just looking at one of our chats within our coach community and someone saying, hey, one of the program advisors was saying, hey, one of our clients wants to have this work processed overnight so that when his team comes in in the morning, they can work on the process quotes is what it was. Does anyone know of a resource? Right? This is awesome. Like, when could we do this before?
dave:
Right.
shannon_waller:
We can tap into very specialized talent. So we’re not in factories and we need to… unhook our own thinking from how we were trained. We definitely need to encourage our kids because they’re not working in that factory world. And sometimes our clients too need to learn to be validated that their unique capabilities are worth investigating, acknowledging, celebrating, being talked about, exploring how they make a unique contribution. It changes the conversation completely. And it’s like one of the most fun conversations to have in my world.
dave:
Yeah, 100%. And the other thing that we shouldn’t underestimate as well is just the the energy component of unique ability. Right. So this piece was also just really amazing to me. It’s like, if you think about certain tasks, you know, that you usually do. So like, for me, it would be like administrative type tasks or high fact finding, you know, read some kind of contract and things like that. And You know, before you know it, you know, you’re a few hours into your day, you haven’t accomplished much, you’re feeling tired, you’re just kind of dragging and everything, but when you’re in your unique ability space, it’s unbelievable. You, it is the energy that you can go all day and keep going because it it’s natural to you, right?
shannon_waller:
100,000% if there’s such a thing. It’s interesting. And when you do activities that are draining for you, it might only be 5% of your day. It can easily be 50% or more of your energy. So
dave:
Yeah.
shannon_waller:
it’s like, oh, well, everyone has something they have to do things they don’t like. I’m like, is that really true? Really? Maybe until you figure out the right who that’s true. But really,
dave:
Yes.
shannon_waller:
I think we kind of get a little sucker punched into thinking that we have to… be depleted, that there has to be pain, that it has to be hard. And I’m sure I can actually hear people as they’re listening to this going, blah,
dave:
Yeah.
shannon_waller:
because it’s such a common message. But the truth is, and you know, and I know we’ve, and everyone knows, we’ve all had a day where somehow the stars aligned, the universe was designed with you in mind that day, and everything you did was just a joy. There was a great state of flow as the expression goes. And you’re like, Whoa, what just happened? You were doing your Unique Ability probably with your right audience. It’s the key part of Unique Ability. And you end up more energized at the end than when you started. Like I had a really long day yesterday, but all of it was in my sweet spot. My area of Unique Ability, and this is not usual in common. I don’t recommend it, but it was a 15 hour day. That’s not my normal
dave:
Well…
shannon_waller:
day. Just
dave:
Well…
shannon_waller:
to let you know, it may also be because I have some free days coming up. That might have something to do with it. But I could coach all day. I could talk about these concepts and tools all day long because it gives me energy. So this is the cool thing about unique ability. So if you look at incompetent, competent, excellent and unique. Incompetent, this is when you put the time and effort in, you don’t get the result. You were not put on the planet to do this. Competent, which is what is so rampant in corporate, it’s like, we want these core competencies. I’m like, well, if it’s reading, writing and arithmetic, sure, I can understand, but really? So, confident, that’s a minimum standard. You’re adequate, you’re okay, but you’re not… No one’s ringing any bells for you on that one. Excellent, which is where most people get trapped, and I’m going to guess that most of the listeners are trapped, have some excellence. This is where you have superior skill. You’re better at it than most people. There’s a lot of teamwork. There’s a great reputation. There’s cash. You get a lot of external rewards, but internally you’re like… It’s kind of, it’s brown out, not burnout. You’re like, really? I’ve already got 15 t-shirts. Like, do I really need to do this?
dave:
Yeah.
shannon_waller:
And then unique ability is that same superior, superior skill, but with passion. You love it. It lights you up. Literally people’s eyes light up. So I look for when people’s eyes light up or they lean in, I’m like, hmm, I know what I’m looking for. So it’s really fun. And to your point, you know, you can always see room to get better because you care about it. but there’s a lot more energy. So at the end of a coaching day, which I had on Tuesday, my feet were tired. Just not used to
dave:
Hahaha.
shannon_waller:
standing in high heels anymore after two and a half years of lockdown. But I was so psychologically, emotionally, mentally, all the other things like alive.
dave:
Yeah.
shannon_waller:
Best drug on the planet and all internally generated. Right,
dave:
Yeah.
shannon_waller:
so sorry, that was a long addition
dave:
Yeah,
shannon_waller:
to your
dave:
no,
shannon_waller:
energy point, but it’s so
dave:
it’s
shannon_waller:
true.
dave:
so great. Yeah, and I think for the listeners out there, a great way to characterize this, you know, that Dan talks about, right, is it’s something that’s fascinating and motivating to you,
shannon_waller:
Yes.
dave:
right? There’s just such a great way to kind of encapsulate it. And, you know, there are so many people that are, you know, from the outside, you know, they’re successful. right? Maybe they’ve, you know, maybe they’re a doctor, they’ve reached a certain level, executive, they have their own business, you know, whatever it is. But they’re challenged with some of that, you know, fulfillment, right, and purpose
shannon_waller:
Yeah.
dave:
and everything. And kind of, you know, in our concept, Shannon, right, we talk about the holistic wealth strategy, and that was my book. And it’s really kind of a breakdown. And at the core of it, it’s it’s really freedom of money, but the freedom of money is what gives you all these other things, right? Like freedom of time and purpose and relationship. So when you can peel back the layers and understand yourself with unique ability, right? It’s so insightful to be able to then, you know, rechange your wiring, to be focused on that unique ability, things that are fascinating and motivating things that are energizing. And it’s like amazing how you know, work is fun. Like, you know, work is
shannon_waller:
It really
dave:
a blast.
shannon_waller:
is. There’s a fun stat that I think you and the listeners will enjoy. So Louis Schiff, connected with Inc. magazine, fabulous author. One of the books that he wrote is called Business Brilliant. And he came and gave a presentation on it. So I can’t remember if this information is from the presentation of the book, but I’m pretty sure it’s in the book. And he studied. So he and his colleague and partner, Bruce Allen Prince, studied… Ultra high net worth people, so 30 million, roughly 30 million above, high net worth and then middle class, I think that was kind of the three levels that they went to. And they asked each group how many things are you really, really good at? When they asked the middle class, they’re like, oh yeah, I’m really, really, really good at five to six things. They asked the ultra high net worth, 1.9.
dave:
Wow.
shannon_waller:
They admitted to being really, really, really good at less than two activities.
dave:
Yeah,
shannon_waller:
Does that tell you something? You might,
dave:
exactly.
shannon_waller:
we might
dave:
Yeah.
shannon_waller:
want to take a page out of that book.
dave:
Yep.
shannon_waller:
And they’re like, no. And they, they, they’re who, not how in action. They’re like, oh, no, no, I’m all, I’m, I’m only really, really good at one or two things. Well, darn, I don’t think that correlation is a mistake. I just, I just find that fascinating. And it’s,
dave:
Yeah.
shannon_waller:
and so research validates this, which is, which is fun.
dave:
No, it’s so true. But again, I think it’s so challenging for people to let go of some of the limiting beliefs. And I’m even seeing it with my kids now. So they’re in their early 20s, and just really struggling with, you know, that that purpose and figuring out where they fit in what they like to do. You know, they didn’t like school, all these things, right. So So it’s really trying to find that, but I think the more you can really embrace and understand that unique ability kind of concept, it’s just really huge.
shannon_waller:
It really is. And it’s, it’s, I mean, I love 20 somethings. That’s actually one of the other audiences that I enjoy. So my, my eldest star is 22. Uh, and so I love talking to her. I love talking to her friends. I’m, I’m friends, I’m buddies with some of them. They, they’ll, they’ll meet with me for dinner. I’ll have them do their Colby profiles. Like I will do all the things because I so want to support them. And I really do think that finding, I mean, I, I was confused between 18 and 24, probably. So I understand that, but we live in a very big, complex, multidimensional world that I think it is really hard to figure out how you’re going to create value. So giving kids the tools and the mindsets and again, something that you and I are both very familiar with, really understanding how things look from the other person’s point of view. So what does the world need from you? Where is there a danger you can solve? Where’s there an opportunity that you can maximize? How can you reinforce people’s strengths? How can you create value? Like, what’s a problem you are passionate about solving? What problem do you find endlessly fascinating and motivating? Well, that’ll keep you busy for 25 years. The problem of entrepreneurial teamwork and the lack of harmony between it has kept me fascinated since I was 18. That was 39 years ago. That
dave:
Yeah.
shannon_waller:
was a long time.
dave:
Yeah.
shannon_waller:
38, 39, 38 years ago. So yeah, so long, long, long time. And it’s just… You know, when you can find the problem that you’re interested in throwing yourself at and using your talents and your capabilities and then you build connections and all the other ways that we’ve all learned how to be successful, it’s really powerful. But I think it is extra challenging and I think kids these days need that extra help because they have so much external influence, again, social media, but just media in general, without a lot of clear direction that giving them a strong sense of who they are internally and what their goals are. can be a massive and then again, how can they create value? Give them that recipe. Then we’re kind of setting them up for success better.
dave:
Sure, sure. Shannon, what do you think in terms of, all the years you’ve had coaching, if you could boil it down to just three concepts, what would be the most powerful?
shannon_waller:
Hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
dave:
Probably unique ability teamwork is one.
shannon_waller:
Yeah, which is actually, it’s kind of, I’m going to cheat because who not how is kind of unique ability and unique ability teamwork all combined. So yes, I would definitely say that’s one. And the second one would actually be what I was just talking about. And that’s really our value creation formula. It’s like using your unique ability, how are you going to create value for your audience? And you’re going to do that by understanding their dangers, their opportunities, and their strengths, which are all. driven by emotion, fear, excitement, and confidence, and then figuring out your value creation. So that essential formula is something for me that is another core concept because when you know that, when you know DOS, and that was, I think, the first concept that attracted you to strategic
dave:
Yes,
shannon_waller:
coach,
dave:
yes.
shannon_waller:
which is really powerful. Oh my gosh. How do I choose between the gap and the gain and the four Cs? It’s a
dave:
I was
shannon_waller:
hard
dave:
gonna
shannon_waller:
one.
dave:
say four, yeah, was four Cs in there or not?
shannon_waller:
Yeah.
dave:
Well,
shannon_waller:
So
dave:
why
shannon_waller:
force,
dave:
don’t you go through each of them, yeah.
shannon_waller:
yeah, and then other people can choose and I get a bonus.
dave:
Hahaha.
shannon_waller:
So the four C’s, again, is something you’ve experienced, but one of Dan’s geniuses is actually being able to take what is common but not obvious. So everyone’s gone through this experience, but then you name it and you’re like, oh, right. And then you can apply it very consciously. So again, when you set yourself this bigger target, the first step… Some people say clarity, but Dan says commitment. You have to commit until you commit, and commit is a word that Colby uses. This is when you actually decide you commit to take action sometimes without knowing everything, right? Then you go through this wonderful, horribly feeling stage called courage. We love, we love confident. We love feeling capable and confident. The problem is we don’t know how to get there, and this is what trips up kids all the time. because you have to be willing to make that commitment and then go through that feeling of courage. And everyone knows this. You know this when you have committed to something and then you’re like, oh crap, what have I just done? You promised to give a speech, you promised to be an MC, you promised to join a board, you promised to contribute a chapter to a book. You did something because you got excited and then you didn’t know. And you’re like, I don’t know how to do this. And you scare yourself. So that’s the courage phase. But what’s interesting is that if you’re willing to stick with it, and Dan has a great expression, you can have short courage or long courage. So the more fully committed you are, the shorter your courage phase. I’m all for short courage, not interested in long suffering. The more you commit to it and throw yourself in, the faster you create the capabilities. That’s actually the function. It’s kind of like learning to swim when someone throws you in the pool.
dave:
Right, right.
shannon_waller:
It’s that kind of circumstance. And then you develop these capabilities and then you become super confident. Like I remember the very first time I hosted a webinar, terrified. I needed like this whole cadre of people supporting me. Julia would make me little like stars and emblems and give me awards just for doing it. Well, now I can do it in my sleep. I did one before lunch, right? It’s like not a big deal, but the very beginning it was, it was huge. Um, and then you develop this confidence. You’re like, what’s next? So then, then you go scare yourself again.
dave:
Yes.
shannon_waller:
you make the next bigger commitment. So that’s the four C’s. And then the gap and the gain, it’s probably the most important for high achievers, to be honest, because we can get so sucked into measuring, we can get sucked into the idea of potential, very dangerous. We can get sucked into the idea of the ideal, right? And we can be incredibly successful and incredibly unhappy. at the same time because we’re measuring, we’re measuring ourselves against our goals. And by the way, when you’re doing the four C’s a lot, you keep setting bigger and bigger goals. You’ve got this ideal. Oh, this is my perfect week. This is my perfect client. This is my perfect house. This is my perfect kid. This is my perfect spouse. This is my perfect body. Well, perfect lasts for about a split second, in my experience. So we measure against perfect and our measures keep changing. Oh, I thought it needed to be this weight or this blood pressure. Oh, it’s actually now I should really be this. So it’s a moving target. It’s like chasing the horizon. You can run real fast. It can be dark outside. You’re still never going to get there. So the ideal is really useful, but it’s a mental construct. We made it up. Just like the horizon. Instead, we need to look and see where do we come from, right? And measure our gain. And that, you know, if I’m going to talk to an audience that I’ve never met before, I will almost always start with a gap in the game. And because it’s the one where like people are like, Oh, I’ve been in the gap. for decades. I’ve been putting my husband in the gap. I’ve been putting my wife or my kids in the gap. We hear that a lot. My team, I put my team in the gap because people are not trained, they haven’t trained themselves, they haven’t thought about their thinking to measure from where they started. And if they look at where they started from, they’re like, holy mackerel. Look what I pulled off. Look what we pulled off. Look what we’re capable of doing now. So really learning how to celebrate the wins and to… To use that confidence to set a new exciting goal, but not to beat yourself up by not achieving the ideal. I think for mental health and wellbeing, it might be the most important concept, if that makes sense.
dave:
Yeah, it’s so powerful. And what’s interesting is, is as you go through the four Cs, right, it actually starts to become a capability and a muscle that you
shannon_waller:
Yes.
dave:
have, right?
shannon_waller:
Yeah.
dave:
So now you’re starting to think about that, you know, with everything. And, you know, we’re always just like Joe Polish, you know, it’s like, do something scary every day, you know, and we’re trying to do that in our family or with work or whatever, you know, you have to. get out of your comfort zone and really have the courage. And it’s the same even in the investing world on the financial front. You have to take the courage to ask some questions, do some
shannon_waller:
Mm-hmm.
dave:
things differently, see what
shannon_waller:
Yeah.
dave:
kind of makes sense for you. And then on the gap and the gain, I mean, it’s just so important to be able to, yeah, look backwards and I love, I mean, I’ve been on many of your calls on the mornings, Monday mornings, even doing the… you know, setting up your weekly planner and getting crystal clear clarity in terms of what’s on for my week. And one of the things that Shannon does as well is, right, there’s a weekly planner and there’s a whole process, but it’s all about, um, you know, talking about your wins from the prior
shannon_waller:
Yeah.
dave:
week. Right. And this positive focus about, you know, What did I accomplish? On a health front, personally, with relationships, with work, what was that? And then try to build off of that momentum. So it’s great that you do that, and you can incorporate that in so many places in your life. I mean, my wife and I, when we connect, and we walk the dog, it’s a first thing we talk about. What
shannon_waller:
Yay.
dave:
are your three wins for the day?
shannon_waller:
Totally. I do that with my husband. I go down. He starts in the morning. I just got him an Oura ring. He’s got his Apple watch and I hear all about his sleep
dave:
Nice.
shannon_waller:
scores every morning.
dave:
Nice, yeah. Ha ha ha ha.
shannon_waller:
That’s his first positive focus,
dave:
Yeah.
shannon_waller:
which is really fun. I can be in five meetings with you and we’d go through five different positive focuses if it was that kind of a day. It’s interesting. Starting your week with this is so critical because presuming We’re up to big things. All of us have things that are super important to us. And we can start from feeling like, oh, oh my gosh, I didn’t do this. I didn’t do that. This hasn’t happened yet. I should be further ahead. Could, would, should, all gap words. And Marilyn Waller, whom you know, my mother, Julia is my sister, should was a four-letter swear word in my house. I was not allowed to word this. I could get away with swearing and cursing much more easily than I can get away with the word should. And then when I met Dan, he was like, should mean it’s an external expectation not created by you, externally imposed expectation not created by you. So you didn’t make that up. Somebody else did. So I think it’s really important to really look at what you’re measuring and where you’re measuring against an unrealistic ideal that’s going to keep moving or you’re going to look behind you. So I think that’s really key. And starting the week that way. When you start from a bank of confidence, like extract all the value. You’ve heard me say this, like go mining. Last year is a gold mine and your job is to go find all the gold and write it down personally and professionally. And that’s going to set you up for success and you have the confidence to do new scary things. It’s kind of like the four C’s in action, right? You’re writing down what gives you confidence and that’s going to propel you to do new things to get you out of the comfort zone. And on that note, I think you will totally enjoy this. I was coaching a workshop of 10X. 10X clients and they’re like, if I’m not always a little bit scared, I get nervous. If there’s not
dave:
Hehehe…
shannon_waller:
a little bit of fear, uncertainty
dave:
Mm-hmm.
shannon_waller:
and discomfort, I’m like, I freak, I get freaked out because they’re used to being on that edge, right? They’re used to being
dave:
Yeah.
shannon_waller:
on the edge of a little bit like, am I going to fall off? And that’s when they feel most alive, most creative, probably frankly, when they’re doing their best work, you know, if you freak yourself up to the point where you’re can’t function, not healthy. And if you’re so comfortable, you kind of fall asleep, also not good. But there is, there’s a nice balance to keep in the middle of the four C’s.
dave:
Yeah, I mean, the psychology is so interesting, isn’t it? Right? Like how the how the brain thinks. And also, if you go back and really look at our natural wiring, too, right, as humans, right, we’re we’re on the lookout for danger, right? So
shannon_waller:
Humbly.
dave:
we want
shannon_waller:
Totally.
dave:
to react to, you know, something that could be coming. And we live in such a world, I mean, especially, you know, we’re recording this beginning of 2023, are we going into a recession, there’s just so much uncertainty war, like all of these kind of things. But You know, you have to really build those skills and try to drive out what is certain, you know, in your life and build upon that momentum and take action with the things that you can. And it’s amazing how much you can just, you know, see the results unfold in front of you, regardless of all these extraneous things.
shannon_waller:
I think that’s an incredibly important point. And Dan and I recorded podcast inside Strategic Coach, if anyone’s curious. And he was talking, I love this conversation. I’m like, Dan, I just want to talk about the upcoming recession. And by the way, Dan made the choice to stop watching television four and a half years ago. So he goes, I’ve noticed the world’s gotten to be a much nicer place since I stopped watching television.
dave:
Mm-hmm. Mm-hmm.
shannon_waller:
He got something like 400, 800 hours a year back. It was crazy. Which now he reads. and exercises and does other things. But he’s like, okay, this recession, he goes, I said, so we talked about a bunch of strategies, which is really kind of going back to what we were talking about, being super clear on what your unique contribution is. How can you create value for your audience that you are in touch with, that you know? What is your personal economic system, regardless of what’s happening in the world? How can you create value for them? Go and do that. And help people. see their future. We have a great question called the R factor question, which is simply a future based question. So I better say it now. So if we were meeting here, say even a one year from today, what has to have happened for you, both personally and professionally, for you to feel really happy with your progress? That’s the question. Then your job is to shut up, right? And just listen, because he said, what happens when people are scared, right? When they’re amygdala is triggered, is that they run out of future. Well, people who don’t have a future don’t spend, they don’t invest, they don’t move. They just, we all tighten up. That’s a natural safety response, right? He said, when you help give people back their future, then you can create something together. So we talked about all those strategies, a couple more in addition to that. And then, so I said, oh, damn, this is a great way to be recession-proof. He goes, recession-proof? Recession oblivious.
dave:
Yeah,
shannon_waller:
And I just
dave:
yeah.
shannon_waller:
cracked up. I’m like,
dave:
Right.
shannon_waller:
go Dan. So it’s,
dave:
Right. I heard that episode. It’s awesome.
shannon_waller:
right? Yeah. And so I’m
dave:
Yeah.
shannon_waller:
like, trust Dan to say that. And it was, it was really fun because when we actually take control, when we take our own experience seriously, what we can actually impact, as you said, what we have influence over and tune out a little bit the narrative, cause it’s frankly not in your best interest. And I’m not sure whose interest it is in. Um, and if it bleeds, it leads. So it’s designed to scare you. Let’s be clear. And you actually focus on your own achievements, your client’s achievements, your family’s achievements, your neighbor’s achievements. And then you build on that for how can you be intentional? How can you create more value? How can you expand your positive impact? All of a sudden you realize, I’m okay. My life is fine. And the people around me, I’m helping them be more fine too. And so we can shift tides with this kind of mindset. But it means stepping back and taking your own experience more seriously than you do the news or other people’s.
dave:
Yeah, really, really powerful. Shannon, to really try to tie the knot on this and make things actionable for listeners, if you could give them just one piece of advice about how they could really make some progress, right, with some of the concepts we talked about today, what would that be?
shannon_waller:
one thing. That’s a challenge.
dave:
This is my coach audition.
shannon_waller:
Yeah, clearly, clearly.
dave:
Right? That’s a good question.
shannon_waller:
And this is less of an exercise, but more of a just something to remember. And it goes back to what I just said, actually. It’s to really take your own experience seriously. Where did you win? Where was it easy? Where was it hard? Where are you clearly? What are you clearly not designed to be doing? Why are you still doing it? Like really take yourself seriously, appreciate what you’ve been given or what’s factory installed as we like to say at Coach and take that seriously because I think life starts to change when you do that. Then you start paying attention to your own narrative as opposed to somebody else’s and I think until you, you know, one of my personal mottos is know thyself, which is why I love all the profiles. When you do that and you start taking yourself seriously, stuff shifts. things change for the better. Because then you’re clear on what you want, not what other people want. You start, I mean, I have some odd hobbies. So I don’t have very many domestic talents. Baking is one of them, but I didn’t want to eat a ton of sugar. So I’m like, I need something else. And I like to use my hands. So, and I also get frustrated by dead limbs on trees or cottage property. So I went and bought a battery operated chainsaw. I love chainsawing. It’s really fun. I do it on my property. I do it on my friends. My husband was no help at all. His chainsaw also does not work as consistently as mine. So chainsaw, I’ve got pictures. And then I picked up watercolor. That was, is that a common set of hobbies to have? No. I don’t care. It’s me. Do you know what I mean? So it’s fun. It’s entertaining, which I also enjoy. But it’s like, and what am I really good at? I’m really good at coaching a certain type of person on a certain type of mindset and conversation. That is why I am here. Other stuff, not so much. So, you know, and each of us could have the conversation about what you are uniquely superb at. So I think when you, but it starts with taking yourself seriously. If you don’t, none of this is available. And if you do, all of it is. So that would actually be the starting point, if that makes sense.
dave:
Love it, Shannon. Really appreciate you coming on the show today. I’m really grateful for the opportunity to share your wisdom with the audience. And if people want to learn more about Strategic Coach or connect with you, what’s really the best place?
shannon_waller:
Oh my goodness, strategiccoach.com. We have all the things. There is a resource hub there that is crazy with resources if someone’s interested. But if you actually want to look at applying the tools and concepts as you do, Dave, and integrate them into your own life, check out the website and then book a call. Because we have a great process where we actually ask you that future-based question for three years, not one, to help you figure out where you want to go and then whether or not what we have to offer is is in service of that. If it’s not, we will tell you. We are not for everybody. Not everybody is for us. So that would be the number one thing to check out with Strategic Coach. Then Inside Strategic Coach podcast. I have a Team Success podcast because I am passionate about all things entrepreneurial team related. And then, yeah, so check me out on LinkedIn is probably the best thing to do. So it’s just Shannon Waller and you’ll see all the things, all the resources. Yourteamsuccess.com has some fun free downloads if that’s a passion of yours too. So yeah. That’s kind of the best way to get a hold of me.
dave:
Awesome. Thank you so much, Shannon. Really appreciate it.
shannon_waller:
My pleasure, David. It is such a joy to talk to someone who is taking himself seriously, knows his unique ability, employs the DOS, does, does Colby all the things. So thank you for being my kindred spirit. Really appreciate
dave:
You
shannon_waller:
it.
dave:
bet. Thanks.
dave:
Hey, everyone, welcome to today’s show on wealth strategy secrets. We’ve got another great show for you today. Today, we’re joined by Gary Wilson. At age 40, Gary retired as a corporate VP and mergers and acquisitions in national banking. He completed over 100 transactions per year consistently every year without a sales team or assistant. He’s also traded over 5000 investment properties in less than five years. Further, he authored seven real estate investment books, including a few of the well-known ones, The Massive Passive Cash Flow Method, Flipping for Profits Without the Risk, Rental Profits Without the Pain, Investor Agent, Make More Money, Not More Work. Gary’s also a founder, trainer, and coach of Path to Profit System, teaching more than 20,000 agents and investors and nearly 1,000 speaking engagements. And he’s also appeared on over a hundred national and local media outlets, including major outlets such as CBS, Fox, NBC, and ABC. Gary, welcome to the show.
gary_wilson:
Thanks, Dave. I appreciate you having me and I appreciate the opportunity to serve and help others too.
dave:
100% Gary, I know listeners are really gonna enjoy today’s episode. As you know, we talk a lot about wealth strategy and coming up with really alternative ideas, really hacks on how to create wealth versus alternative conventional wisdom that’s really out there. And what struck me about you is, you’re just really such an innovator in the space, right? And real estate. It’s been around for so long, but you definitely solve a few of the problems I think people are looking for. And I think people are going to get really excited about that. So without further ado, why don’t we jump in and talk to us about your background, your in banking, and how did you get into investing in real estate?
gary_wilson:
Sure. Well, the early years, I actually had two opposing influences on my experience when it came to money. My mother’s family was more the employee, you know, you work until you retire and get Social Security, have a pension and just, you know, basically, you know, sit in a lounger, you know, for the rest of your life and see the grandkids. And that was it. You know, but no savings, no investing, just, you know, the company’s going to take care of me. The government’s going to take care of me. And my dad’s side of the family, they were the opposite. I mean, you know, going back several generations, entrepreneurs, you know, farmers, merchants, business owners, and some of them quite well to do. But my grandparents, having come through the Great Depression, they were still. very tight with their money. I mean, like saving scraps of soap and re-boiling them to make them another bar of soap. And when they passed away, they were multi-millionaires. So I just had this really crazy programming going on. They had to un-program. But thank God I had a great roommate, my college freshman year, his name was Socrates. His dad was a Greek immigrant. And when Sokka and I graduated, we were going to go course rent a place. We were living at the beach. We’re going to go run the place down by the beach and live the good life. We both had our first professional jobs and his dad said, no, you’re not going to rent, you’re going to buy and I’m going to help you do it. Now he didn’t give us any money. He didn’t give us the fish. He taught us how to fish. So we bought a property, four bedroom, two bathroom ranch in Virginia beach, Virginia, but you know, five minutes from the ocean. And we assumed the owner’s first mortgage. You can still do this today, by the way, for all the listeners, you’ll have people say, well, you can’t assume mortgages anymore. It’s not true. You certainly can certain types of mortgages. So we assumed his first mortgage, we refinanced to second, he had a second, and then we gave him a third note for the remaining equity. So it was creative financing, ran out of the gate. And we do what now people today call house hacking. We had our own bedrooms. We had two other bedrooms, we rented out to two other guys and their rents pretty much covered our costs or other than like 50 bucks. So I’m like, I’m sold. I’m thinking, okay, well, let’s do more of this. And of course we got, I got married, moved away and moved to Pittsburgh. And I remember when we bought that property, Sock’s dad, um, at the closing table, you know, he said, we’re going to go to the beach house and celebrate. So went to one of his beach houses. We’re on the deck and he’s pounding his chest saying, if you boys do what I tell you to do, you won’t have to work for anybody else when you’re 35 years old. Well, I didn’t listen. I let 10 years go by and you started a family, had a corporate job. And learned I was not born to be sitting behind a desk in a corporate office. I mean, it was like dying spiritually. So I decided I’m going to do what Mr. DeVette taught me. I’m going to start investing. And I did and built up a portfolio. And in five years, I was able to leave that day job and focus on investing. And so I had, so this was a great thing for listeners to write down or just remember and write down later if you’re driving. I had a model that I came up with my own and my model was, I wanted to have enough capital to be able to manage at least four jobs. In other words, buying a property, remodeling it to put it at a higher level of production and then rent it out and refinance it. So if I had capital to do four jobs like that and I had the income from the existing properties to meet or beat my corporate income, I would retire. That’s exactly what I did. I could have retired within a year and a half if I wanted to. But I wanted to be in a really solid, stable position because guys, I had, you know, five weeks vacation. I was, you know, reporting to the executive level of a major bank. I don’t want to give the name, but they’re one of the big ones. And a 401k, I went out a great office, had people, you know, 10 different business applications I was running. And it was, you would think I was like, had it made, but I was not happy. Um, that was the key. I just couldn’t take it anymore. So I left. Um, and started focusing on the investing full time. So I’m gonna give everybody a, another formula here that I followed, um, to help me really grow a portfolio. What I did is I did not trade up using like 10 31 exchange because I studied that I understood, I understood, I mean, I felt a lot of people do that, but 10 31 exchange is not perfect. It has some inherent drawbacks in the design. Um, And I didn’t like the restrictions, like a 45 day window to identify new properties if you trade up, and 180 day window to close. Well, that’s extremely tight, especially if you get bigger properties. So what I did is I built like a pyramid. So the foundation was all those early properties that I went through a disciplined approach of paying. So I’ll buy the first one. I would take the excess cash flow and start paying down the principal, like making extra payments. to build up equity faster. And then I would get a line of credit on that property to make a down payment on the next property. And then quickly pay off that line of credit and do the same thing with that. Now I have two properties with equity. And I got to the point after the 10th property, and this was gonna again, ruffle some feathers here, but because people will say you can’t do that and I did it, which was getting a commercial line of credit, a business line of credit across the equity in my 10 existing properties. See. Most commercial lenders, Dave, they want to refinance the entire package and start scratch where they’re in first position. But I didn’t want to do that because I already amortized these properties down a good bit. And so I found a commercial learning. So now I’ll do the deal. You know, so you did. So you can imagine across 10 properties, that was substantial amount of equity and allow me to buy the next property for cash, which was a big, big, this was the turning point. So now I had a bigger property that I paid cash for. that I was able to get a brand new first mortgage on it. And I did it in the, in the form of a business line of credit that I could draw on, buy another property and pay it down, draw on and pay it down over and over again. And that was really the key to success. Does it happen overnight? No. But does it happen for sure? Absolutely. So the key here is to not be too hasty and not be too aggressive and stretch yourself out so thin. that your lever is up to your eyeballs because the market, the business, the world, the economy is always going to be cyclical. It’s going to go up, it’s going to go down. It’s never going to sit sideways. It’s either going up or going down. So when it goes down like it did in 2007 through 11, it could be painful. For me, we actually thrived in that timeframe because we already had a lot of equity. We had a lot of properties. you know, we were, we were cash flowing and you’ll find out in a recession, as long as you have the right kind of properties, you’ll have more people wanting to rent them because a lot of what would be buyers are no longer buying because they’re knocked out of the market. So we were well positioned where other people were losing their shirts. We actually grew six fold during those recession years because of that discipline approach. So I wanted to start with that. You know, and Dave, if you have questions, just tee me up and let me know. I don’t mind sharing anything that I did to help people. But I will tell you the kind of preface, the second part here is I did actually build a brokerage company because I had all these other investors I started teaching, by the way, for another person, how to teach people how to buy rentals and manage them and flip homes. And that led to me to get building a brokerage company to teach the agents how to work with those investors. Cause that was one of the big. Um, challenges in investing in real estate is most agents, at least in the residential world, have not able to help you. They’re wonderful people, but they’re only trained to help you and I buy your own home. You’ve got to go to commercial to find, hopefully find agents who are, who know how to help you investing. But believe me in commercial, their motivation is getting as big a commission as they can get. They don’t care how you spend your money, you know, I hate to say it that way, but that’s what I found out. So on a residential side. There was no training, no development for agents to learn how to work with investors. And that’s what we did with my brokerage company. And I since had sold that company and started training on a national scale for another company. But, but, but back to what I was saying, um, the reason that’s important guys is you want to have multiple streams of income investing in your real estate as, as a foundation upon what you can launch other businesses. Okay. That’s how I saw it and that’s exactly what I did. It wasn’t like, you know, it was fun. I always enjoy it, believe me. I love the flow of the hunt. But when you build a business, it gives you a lot more benefits. So I built seven businesses over the years all related to real estate and five holding companies to own the properties. But it all started because I started, I bought that one little ranch home. I only owned half of it with Socrates. I started there and built up. using those discipline approaches. So in any case, is that a?
dave:
Yeah, no, I really appreciate that story, Gary. I love hearing stories of entrepreneurs and seeing that inflection moment. And we talk a lot about getting crystal clear first on your vision. And what does it really mean to you to be able to build wealth and everything? Because real estate is really just kind of the vehicle. But clearly, you know, you had been doing well according to societal standards, right, and where you were in your career, but you really took that courage to step out of that comfort zone and go into something completely new and everything. So I really encourage, you know, listeners, if you’ve got a great idea or whatever, you know, take that first step, take action, because it all starts right there. So first of all, kudos to that. I think that’s really great. Next, let’s just talk about lending for a second. You come from the banking background, which is really powerful how you were able to transition that into the space of real estate. What I found in the space of lending and doing different deals and everything, and even on the residential side, it’s really interesting because the majority of lenders… They just have this cookie cutter approach and they’re looking for a certain set of metrics that they want to shove you into this box, but you have to be able to take 99 no’s before you get the right yes.
gary_wilson:
Yeah.
dave:
Because money is money and somebody will lend you the money, right? If you have the right principles in place, you’re trying to do something creative, I think that you can get there. And I’m seeing that now even with my kids, right? Who are… just post college and trying to figure out lending, but they don’t have this W-2 track record and all these kind of things. So you can bend the curve and find people out there. Any other thoughts on that from your perspective?
gary_wilson:
Yeah, I got to tell you guys when it comes to the, the, the financing part of it. Um, I will tell you, it’s actually a tour of the, the, one of the three legs of a three leg stool. You have to have the financing. So while I was going back to my, my formula and my model, I want to give you my ratios. Okay. So first off, when you’re building a real estate portfolio, it’s expected just going to be a highly leveraged. You know, there’s some, some market cycles where people are 90, 95% leverage. This is my own personal opinion, but I think that’s too much. Not that it can’t be done. It certainly can be done. The challenge is, is you may be building a big portfolio, but your, your downside risk is increased because if something happens, if something goes wrong, you know, if you lose a job, if you get a divorce, if someone dies, um, or if you have a major loss at anything at all, or the economy, like the last recession. Thankfully, I had a pretty solid equity position, and some of our properties did struggle, but for the most part, we had better properties and better areas that actually did well. So what I’m getting at is, back to the original thought here, you wanna watch your ratios, and I know it’s tempting, because you will find people who will loan you money up to even 100% sometimes. It’s crazy, but they will. That is redlining and all it takes is a couple of mishaps, missteps, um, you know, fires at your properties, even with insurance, it’s going to cost you money to really knock you off the horse. And it’s painful. Okay. And for example, I, you know, I did go through divorce and in the middle of all that actually broke my back in two places. So I was not even, I couldn’t walk, which means I couldn’t drive. They literally took my driver’s license away, you know? Um, and that was in the middle of the worst recession in 80 years. I’m thinking, oh dear Lord, what up, please, just get me to the next moment. And whatever I did, I’m sorry. But any case, here’s the ratios, two ratios. The first one is on the ownership, the asset liability side. And my recommendation is this, that you don’t owe more than two thirds of what you own. So if you own 10 million, in income producing assets, i.e. real estate, don’t owe more than 6.65 million. Now, I’m going to give you a little qualifier here. When you’re in a growth phase, you’re aggressively growing and rates are low and the money’s flowing, yeah, go ahead and borrow 80%. Make sure you’ve always got your 20%. That’s my threshold. I do not violate that. Put down 20% minimum, okay? And finance the rest. If you do that, you’ll get better rates and terms. Okay. And then quickly, what you want to do is you should always look for value add properties, properties you can increase in value by remodeling or adding on whatever the case is, putting in storage, adding laundry, you name it. Okay. Um, increase the value so you can increase the rents. So when you increase the value through remodeling, for example, you know, you generally get a bigger payback on your, you put in say a hundred thousand in remodeling. but your value will go up 200,000. Well, the income is what’s really important to the bankers. So on the bigger properties, particularly it’s all about the income. It’s used actually called the income or approach to the valuation. So here’s, I’ll give you a quick description of what that means. Let’s say you have a hundred units, a hundred unit building, and you raise your rents by a hundred dollars a unit. That’s $10,000 a month extra, and 120,000 more. a year extra income, right? And that’s all, you know, goes right, it goes to its top line income because your expenses don’t really change that much, okay? Well, what happens is when you look at the valuation, you’re trying to say, you look at a cap rate or cash on cash return is what the banks do. All of that goes to value. So if you’re at a 10% cap rate area, that means you just added, if you have 120,000 more income coming in. You just added 1.2 million to your net worth. That’s major, that’s a huge impact, okay? Now, on the income expense side, my ratio is this. It’s the opposite. You don’t wanna owe on a monthly basis on principal and interest payments. You don’t wanna owe more than one third of your gross income, okay? You can make it say one quarter of your net income, but I just use one third of your gross income. You’ll always be in a good position with the banks. You won’t have to call the banks. The banks will call you. And while I’m not afraid of getting private money, I’ve done that. I’ve done hard money, private money, both directions, giving and receiving. Okay. Or lending and receiving, excuse me. I never, I never give money away. Unless it’s a charitable thing, but in business, you’d have to be exchange of values. So in any case, what I’m getting at is as long as you maintain those ratios, You’ll never have a problem borrowing the good money at the lower rates and the best terms. Okay. Big bank money is always going to be cheaper than private money. Flat out, hands down, no exceptions. I know people will tell you there’s gurus out there that say, don’t ever use your own money. Always borrow other people’s money, get private money. I’m not against that, that that’s what they want to do. What I’m telling you is when you have the right ratios, you can get money less expensively. Okay. And at the end of the day, I do operate pretty much on a cash basis because I’m always replenishing what I put out there through refinancing. All right. And I maintain my, my ratios, but the guys, if you maintain those two ratios, be disciplined about it, put on the blinders, you know, sometimes you had to block out the late night gurus cause they’re going to sell you a no money down package for $10,000, but the only reason they’re doing it is they know majority of people when they’re asked. about money they’re going to say, I don’t have any. How do I invest when I don’t have any money? I don’t have enough income. I don’t have any savings. I need all my income to pay my mortgage and my rent and blah, blah, blah. You know, this is, it’s a mindset thing. It’s the state of wallet reflects your state of mind. So what I’m getting at is, you know, don’t be one of those folks be disciplined. All right. Be smart and be wise and you will attract the good money. And when you buy the right properties, Right? Not the cheap crappy stuff. I’m talking about nice properties, not A grade luxury, but you know, B, B level properties, you’ll always get the financing will find you, the financing will follow you and you get the better rates in terms of sorry, I feel like I’m preaching, but that’s
dave:
Yeah,
gary_wilson:
a really serious
dave:
no, no,
gary_wilson:
subject.
dave:
that’s,
gary_wilson:
Yeah.
dave:
yeah, it really is. And you know, you’ve got such a good prerogative, you know, really coming out of that space and also being in the trenches and everything. So appreciate that. I think why don’t we transition, there’s really so many avenues we can kind of go down, Gary. But why don’t we frame everything up for the audience? And why don’t we just talk first about your personal wealth strategy? And you know, what what your vision is for that?
gary_wilson:
Sure. Well, first let’s talk about real estate. What we’re doing now going forward is we’re not doing traditional rentals, any new purchase. It’s not gonna be for the family living there for a year and cutting the grass and all that stuff. What we’re doing is we’re focusing on corporate housing. Corporate housing is your traveling nurse, your traveling software developer, your somebody in the oil and gas, military, sports and entertainment. They all need short-term housing. one month for between one month and 12 months. You’ll get generally on average two to three times the rates that you would normally get for a traditional rental out of that, okay? So the upside potential is increased dramatically. The downside risk is reduced dramatically because these people are not coming with their children and their pets. They’re coming to work for nine months. And that’s all they’re gonna do. They’re gonna go to work, come home and sleep, go home and visit their families on the weekends. So they’ll have very little wear and tear on your property. often whoever they’re working for on a contract basis will pay their rent for them. So you almost, you have no collections to worry about. And you don’t have to worry about evictions because they’re going to leave. They’re going to take the next contract. So you get less wear and tear on the property, less headaches, less work. And by the way, in the pandemic, I’m sure everybody saw there was a forbearance on mortgages and a moratorium on evictions. particularly states in the Northeast like New Jersey, New York and out in California. Horrible for landlords because the forbearance or mortgages guys only apply to owner occupants. If you had a non-owner occupied property, i.e. rental, you still had to pay your mortgage. And yet the courts are like, well, sorry, you can’t evict those people because we’re not allowed to. That is horrible for owners. So we’re only buying in the states that are business friendly, like Florida. In case South Carolina, I’m just giving away a big secret here. South Carolina is where we’re going to focus for the future. It’s been relatively untapped and what he’s paid attention to it until now this podcast. But now in order to fund that here’s what we started doing. Being that I was in banking and I did mergers and acquisitions. Prior to that, I worked as a contractor for the Navy with a top secret clearance chasing Soviet subs. So before that, at a college where I worked at NASA, Langley Air Force Base on the space shuttle program. So thankfully I’ve got some skills in research and analysis. So what I started researching is the crypto world. And I know right now half the people are saying, yeah, please tell me more. The other half of the people, they were like, oh crap, here’s another one of these guys. Guys, I’m telling you, you need to embrace it and take it seriously because it’s here and it’s here to stay. And what they call blockchain processing is no longer going to be just in the crypto world. It’s also going to be in the world of title. Every time you buy a property, that title insurance is not going to be on the part of the blockchain. Okay. Retail businesses, restaurants, pet owners, pet stores, all going to the blockchain. All right. What they call web three, i.e. the metaverse is, you know, the next generation of you know, Facebook and all that. So everybody was on Facebook for a generation. Well, now the metaverse is gonna be like Facebook on steroids and just like in Amazon, people will buy products and services through the metaverse. So make sure your position, cause this next wave of evolution and innovation is gonna be probably on the scale of the industrial age and the information age, all right? Computer age, technology, you know, this is big guys. And I know there’s some scary stuff out there, believe me. I read and study the news too, but I’m telling you, I’m in it and I’m doing pretty darn good. So we’re taking those earnings and funneling into the real estate for the corporate housing. We do Airbnb, it’s a great way to, Airbnb is awesome by the way, but that’s short-term vacationers typically. We’re talking about the corporate travelers. That’s the markets, it’s the fastest growing segment in the real estate industry. So we’re combining multiple strategies here that work with each other. And I could go on and on there, but you know, you having an IUL, Indexed Universal Life Policy, could be a critical part of your financial plan. Gives you lots of benefits, protects your family and your estate, and you can borrow against it, and you can have an annuity component to it that gives you a passive income tax-free long-term. We could talk on another whole session just about that. And by the way, you know, being involved in mutual funds for growth stocks. So you get the dividends, you don’t care if the market goes up or down, you’re still getting dividends and things like utilities. So probably a pretty good thing to do too, to have your balance and have a balanced portfolio that’s diversified. But I want to come back real quick to the crypto. Here’s how you know you want to get in before it gets up in what we call mass consumption stage. Right now it’s an early adapter stage. Fidelity. investments, one of the largest on the planet, just announced right before Christmas, that they now have a trading platform for you to trade crypto. We already know JP Morgan is buying up huge chunks of crypto. They’re saying publicly, the CEO is publicly saying, we really don’t know much about that, but we can tell you by looking at the data, they’re buying giant chunks. China owns the largest share of crypto than any other entity on the planet, and yet they’re telling The country owns a larger share of Bitcoin. They’re also the largest miner of gold, by the way. When I’ll leave off with this, we can start it, we can have more questions. But gold is the one true tangible asset. They’re not making any more of it. Of all the gold that’s been mined in the world, it will fit in less than two Olympic sized pools. OK, so in any case, you could use that for a hedge also if you want. But But at a minimum have three, at least three things guys, three things you’re doing and, you know, unrelated, diversified, and you should be okay. And if you can do it where they can feed each other, like I do that, that’s even better, you know? So that’s
dave:
Yeah,
gary_wilson:
big
dave:
that’s
gary_wilson:
picture.
dave:
really, yeah, that’s great, Gary. I mean, really big picture. Yeah. I think we could do basically an episode on every one of those areas.
gary_wilson:
Yeah.
dave:
We’re, we’re a huge fan of the infinite banking concept and we’re helping clients with that. So that, that’s, uh, you know, a really nice hedge does a lot of things. Gold, there’s definitely a place for gold and precious metals, especially in this environment, with fiat currency and things like that. I like your holistic view of having a portfolio that is diversified in different things. Then also in businesses, it’s really interesting how you’ve been able to create basically synergies between the different businesses that you do. You know, you see the people who gain the most momentum by having that synergistic effect, right? Because it really becomes a multiplier versus that, you know, shiny object syndrome that most of us entrepreneurs say like, hey, there’s a great franchiser, there’s another business model that I can create, but it has absolutely nothing to do, you know, with their current ones. So, I think that’s really, you know, powerful. And maybe that’s a good segue to, you know, if we were to really jump into, I mean, again, like a lot of topics we could really cover here. But one thing that I found, you know, really innovative and just really great of about what you’re doing, because I actually felt this myself. I mean, when I tried to transition into. you know, I was doing passive investing, but I also thought, okay, maybe I’ll start a single family portfolio. I mean, I tried probably three different times in my life to get into it. And it just always seemed to me that, okay, there’s really a lot of competition. There’s people who are, you know, eat, breathe and sleep, you know, this, right? So, you know, are my assumptions actually correct? in a particular area. If there was a property on the market that you were even looking at, it was probably too late. You needed to identify off-market type properties and everything. So then to me, the risk actually always seemed really high for getting into some of these things. So please talk to the audience about what you’ve done, which I think is so cool on training other brokers. you know, for the investment space to help people out with this.
gary_wilson:
Yeah. Well, I appreciate bringing that up because it’s really my passion. I mean, you really have to love people to do something like this, and you have to have a servant’s heart. But in the early days when I was really getting into investing and I had to use agents, I realized, like I mentioned earlier, there was a real lack of expertise there. And again, if you’re an agent, please know this, I’m saying this from love and respect. because I also have a license. I have license, real estate licenses in three states. And I’m a broker in three different states, and we operate across the entire country. But what I recognize is your brokers and mine were not teaching us how to work with investors or how to invest ourselves. It’s a completely different mindset than owner occupants. It’s a different set of terminology, different methodologies. And if you’re not trained in that, you’re by default, you’re using what your broker’s teaching you, which works with owner occupants. And if you try to use that with investors, it’s not going to work. If you’ve experienced it, you know, it’s frustrating for you, frustrating for them. And they’re like, they’ll treat you like dirt. I mean, they, they don’t, they don’t think a lot of agents. Okay. What’s different though, is if you’re what we call an investor agent, and you actually do know how to identify, you know, of analyze and negotiate on and off market deals, I promise you, you’ll have more investor clients and you know what to do with. That’s what we did, Dave. And it wasn’t like I had a, it was my life’s passion. I just stumbled across it. I thought, I’ve got to solve this problem. And my gosh, it had take off. I had my own brokerage for, initially I built my own brokerage because I was working for somebody else and they were typical old brokerage, no, just do it our way, do it this way, do desk time, do cold calling and door knock and all this stuff. And I’m not saying that stuff doesn’t work. It’s just very hard work for very little pay. But when you do things the way we do it, so we have what we do, David, on our team. It’s a national team. We’re in 36 states now. And I bought a program that gives us access to every property anywhere in the country. And in the U S we work and we have clients in 13 different countries, but they all invest in the States. So residential commercial doesn’t matter. We know the property, everything about it. And we know the owner and everything about them. And I know that may sound scary to people. But in the US, we have what’s called the Freedom of Information Act. So we can access all that data. Some of it you can get for free. Some of you paid with us. It doesn’t matter because we bought an entire program and does all that. It’s called data aggregation. So at our fingertips, we can see what mortgage you have, who you have it with, how long you had the mortgage, how much you owe. We can see if you’re behind on your property taxes. We can, we get all the usual stuff, bankruptcy, foreclosure, probate. Everybody gets that. But we get a lot of details that allow us to really think about the mindset of the owner of the property. So we’re not chasing amulets. We’re not looking to take advantage of people in distress. What we’re looking to do is find people who are in a position in life where they’re more likely to be interested in selling like long-term owners. Okay. There’s a little hint there. If you’re an agent, write that one down. Okay. So what we do is we, um, we approach the owners using specific messaging. that matches them, that’s just the market, using specific media that that market’s most likely to respond to. Think about it. Some people like emails, some people like texting, some people like Facebook, some people like LinkedIn, some people like watching YouTube videos, some people just like a regular old phone call. Well, we study, we know demographically which group of people are more likely to respond to which type of media. So we use that media. And then the message in the media, in the market, all three are in alignment. And that’s how we have such high conversion rates. So we find the inventory for our investor clients and we helped them to analyze and negotiate. We got all the tools for analysis and negotiating. And that’s really why it grew. We just started that team, by the way, two years ago and we’re already in 36 states. And we’re inside of another brokerage. It’s not like I’m running a brokerage anymore. All I’ve got to do is focus on training the agents to be productive with the right kind of consumers, the right kind of investors. And we certainly work with our occupants. I mean, that’s part of the business. In fact, we even do commercial work. We’ve got some pretty big projects going on around the world right now in India, Mexico, Canada, or of course the US, anywhere from a duplex up to a $800 million development project. You know, we have that. So if you’re an agent listening to this, or you’ve thought about getting your license, just, you know, you can look me up. It’s, I mean, I’m… in the public eye, just look for Gary Wilson. There’s other Gary Walshons, but you’ll see the Gary Wilson in real estate. And we’ve, we, we’re happy to speak with you about that. If you’re an investor, you definitely got a place to find the right kind of investor agents. Okay. Don’t, don’t just use your neighbor’s nephew because he got his license last week. That’s going to hurt you. You know, I mean, it’s probably a wonderful person, but you need somebody that’s actually trained and coached to serve you specifically. with investing the right way. That’s one of the keys. So financing is one of the three legs. Your team, which is your real estate agent, your contractor, insurance, all those guys at your team, right? And the third leg is you, you and your heart and your mind. And you put those three good things together, you’re gonna have a successful portfolio. So you mentioned single family home stay, but I’ve done a bunch of those. But I will tell you that one of the best ways to get started in real estate is start with small multi-family, right? Four plexes, tri-plexes, duplexes, different market, but the ratios are much more in your favor. The cash flow to cost bases are much more in your flavor. So we start off both of our investors, illustrators and extent of any circumstances with those types of properties. Now we have some clients that start off buying and one guy bought a 93-unit building right out of the gate. So we basically look at what you have and where you’re looking to go. and match you up correctly with the right agents and the right training and marketing and so forth. And at the end of the day, it’s got to you, it doesn’t even cost anything. The agents were the ones that pay for all this. You know, through their commissions, they pay for their own coaching and training. You the investor get the benefit from it. But I do want to tell you what, if you’re an agent out there, I know what it’s like and I know what the market’s doing. Everybody is pretty obvious, volumes down. And don’t let anybody try to tell you otherwise. No market lasts forever. This one’s been going for quite a while. And when you jack up prices for aggressively for a few years, and you follow that with not one or two, but four and five increases in fed rates, it’s going to chase people out of the market. Your demand is going to drop. It’s a mathematical certainty. We’re heading into a recession. Can’t tell you how wide or deep or long, but just know this, it is going to happen and it’s actually already started. And if you don’t want your business dropping, your owner-occupant business will drop. Like in Texas right now, volume is down 35%. That’s a statistical fact. That’s hard news for a real estate agent listening to this. But don’t worry, just go to the globalinvestoration.com, click learn more, and you’ll see how to not just survive, but thrive in this market. And then the investors are the secret. And Dave, here’s what’s interesting. Everybody would tell you volume has been down and it’s true. Just like I mentioned, in December volume is usually down because of the season, Thanksgiving and Christmas, right? The volume on our team actually increased in December. I’ve never seen that before, you know, but it’s because of the investors we work with, you know, investors when the owner occupants move out, the investors move in, you know. So,
dave:
Yeah.
gary_wilson:
any case, sorry to ramble
dave:
It’s amazing.
gary_wilson:
there, but that’s
dave:
No,
gary_wilson:
a, that’s
dave:
it’s
gary_wilson:
such
dave:
amazing.
gary_wilson:
a critical thing, you know.
dave:
Yeah. Really, really great nuggets. Really appreciate that wisdom, Gary. Um, I guess in the interest of time, um, so many things really to unpack, but, um, I guess if you could give listeners really just one piece of advice about how they could really, uh, you know, change the path of their wealth trajectory and really accelerate that, what would it be?
gary_wilson:
Yeah. Well, I tell you what, here’s a good one for you. Most people that are listening to your podcast, I’m sure, are already well positioned. You know, financially, they’ve got some investments, they’ve got a good career, they’ve got a home. So if you’re looking to get into real estate, guys, I would encourage you to keep every piece of property you ever buy. Okay. Just look at what’s happened in the last 10 years, from the great recession to this great bubble. I mean, property values have doubled in most parts of the country. And over time, they might not double like that every 10 years, but they’ll always go up. So use real estate as the foundation upon once you leverage other things like other businesses. Okay. But the key here is keep your properties. I tell you, I’ve never regretted buying a property. I’ve gotten a lot of gray hair from some of those properties, but they always made me money. And I will tell you though, I have sold properties. And every one of those ones I sold, I wish I had right now. So keep the properties you have, use that as your foundation upon what you can build other things through leverage.
dave:
Excellent. I really appreciate your time today, Gary. So many insights there. If folks want to learn more about what you’re doing, what is the best way they can reach out or?
gary_wilson:
Well, really the latest book, it’s now the eighth book, it’s actually already outperformed the prior seven books. I guess it’s pretty good. It’s called Global Investor Agent, okay? And then the caption is, you know, how to not just survive but thrive in today’s market. It’s written for agents. In fact, I wrote half of it and eight of my agents wrote the other half on the team. And I didn’t pick all the top performers. I, you know, had them, I gave them all the opportunity and as the first eight people that volunteered. So you got brand new agents all the way up to veterans. But in there, it gives you the story of how I got to where I am. So it’s good for investors too. I would say grab that book on Amazon, or if you just, you wanna get the quick version, go to globalinvestoragent.com website. Just click on the learn more button, and Beverly will set you up with a call. I speak to everybody personally, myself directly. I know it sounds odd, but that’s just the way I do my business. I… I don’t farm things out. I don’t have a staff of a hundred coaches. You actually get to work with me. And, uh, so that first call was a way for me to, to figure out where you are, where you want to go and then give you some options and you don’t have to spend a lot of money on that thing. Most of it actually is free. It doesn’t cost you a dime. Um, it’s only when you really want to get aggressive that you got to put some, uh, you got to pay for some time there, but that just start there. Globalinvestoragent.com click on the learn more button and, uh, let’s have a conversation, you know.
dave:
Excellent. Thank you so much, Gary. Really appreciate it.
gary_wilson:
You’re welcome, Dave. It’s a pleasure. You know, let me know how I can help and serve others more, you know.
dave:
Hey guys, welcome to today’s show on wealth strategy secrets. Today we are joined by Justin Breen. Justin is the founder and CEO of the global PR firm, BR Epic, and also exclusive connectivity platform, BR Epic network. The purpose of his life is to be a connecting superhero for every visionary, abundance, investment mindset entrepreneur who shares their stories with the world. He’s an active member of strategic coach 10 X and abundance 360. Dr. Peter Diamandis wrote the forward for Justin’s latest book, epic life, which made the wall street journal USA today, bestseller lists. Justin, welcome to the show.
justin_breen:
Thank you, Dave, and thank you for serving our country. Greatly appreciate it.
dave:
Yeah, you bet. No, appreciate that, Justin. I have really been looking forward to having our discussion today. I know the listeners are going to get a ton of value out of this. And really, you know, part of the framework for our show, right, is this holistic wealth strategy that’s kind of based on my book and really our framework for how we see building wealth and life.
justin_breen:
Mm-hmm.
dave:
And part of that is, you know, really how you define wealth, right? And it’s not necessarily
justin_breen:
Thank you very much.
dave:
always from a financial perspective. And part of the first stage of that is really all about mindset, right?
justin_breen:
Yeah.
dave:
And having the right mindset to be able to achieve things. So I think Justin’s going to be an awesome example for a lot of folks out there of what’s possible really
justin_breen:
Thank you.
dave:
with having a strong mindset. So So why don’t we kick things off, Justin, with, you know, tell us, you know, how things really started, you know, from your background and everything.
justin_breen:
Yeah, sure.
dave:
Yeah.
justin_breen:
Yeah, so I don’t believe in randomness. Stop believing that a long time ago. So we’re recording this on January 18th and January 18th is the anniversary of my father’s passing. He died January 18th, 1991. So 32 years ago today. And so obviously most sons are close with their dads. My relationship with my father is a little bit different. A little bit different. He was 61 when I was born, 61. He’d be 106 now. 106 if he was alive. And he was a World War II hero, first lieutenant, shot down multiple times in combat, many times without a parachute, got back in the plane. The highest level, you don’t make excuses, you just make the investment, get back in the plane. became an attorney in the Nuremberg trials, Nazi war crime trials, precedent insurance company. And so from when I was about five, when I had a brain until 13, when he died, every day he’d say the cream rises to the top, the cream rises to the top, the cream rises to the top. So that stayed with me. It’s the first chapter in a new book, Epic Life. It’s devoted to him. and we only partner with the cream that rises to the top or those will get back into the plane without a parachute to rise to the top. That’s entrepreneur life.
dave:
Yeah, awesome. So when did you start your first business as an entrepreneur, Justin?
justin_breen:
Yeah, so the cream rice is to the top and you get back into a plane without a parachute. That’s what, that’s my litmus test. So people make excuses. I don’t, I mean, when you have a father like that, you know, if someone makes the excuse in a Marine, somebody dies, right? So you don’t make, you don’t make excuses. Captain Marines, I can imagine one of your men or women making an excuse. I don’t see that going very well. So, um, started first company in 2017. I was a journalist for 20 years. Uh, and had job salary cut in half. Uh, that was February 10th, 2017. So I tried to find a job, couldn’t find a job incorporated April 16th, 2017, uh, six days after turning 40, uh, with zero business background, zero. I still don’t know what an S corp is. Cause I think it’s funny to not learn what that is. So over the next six weeks reached out to 5,000 people to find first five clients. One out of a thousand said, yes. I’ve got a fifth client on June 1st, resigned June 2nd, and then June 5th, Robert Feter, top media columnist in Midwest, did a story. I’d started my own firm. So that’s just to start the first company.
dave:
Yeah. And did you have a particular epiphany or something that said,
justin_breen:
Hahaha
dave:
Hey, I really need to become, you know, an entrepreneur and, and become self-reliant.
justin_breen:
Well, I didn’t even know what this world, I mean, most people don’t even know this world exists. The greatest gift of being an entrepreneur is that our sons who are eight and 10, the eight year old wants to be a general in the army, by the way. And I could very easily see that. But the greatest gift of being an entrepreneur is that our kids get to see this world exists and then do something with it. So I had no, I mean, I had no idea, I had no idea what I was doing. And I’m just like, Oh, I’ll just start a company. Cause why not? I mean, I can’t find a job, uh, job salaries cut in half. And then I’m like, Oh, I’ll just name the company Brepik. Cause I like saying the word epic all the time and then be our first two letters of last names and others. Two Brepik companies, Brepik scholarship fund, Brepik youth baseball teams. I mean, it’s there will be a Brepik foundation. I just think it’s kind of funny, but. Like. No, I mean, usually entrepreneurs are aliens within their own family, community and verticals. The only people that understand us are top entrepreneurs on the planet. I just didn’t know I was that person until starting first company.
dave:
Yeah, it’s interesting, right? I think I took, it was like a Harvard Business Review had some little online assessment that said,
justin_breen:
Yes.
dave:
fill out 20 questions to see if you’re an entrepreneur. Now
justin_breen:
Mm-hmm.
dave:
I did this probably 10 years into becoming an entrepreneur,
justin_breen:
Mm-hmm.
dave:
but I wish someone had given me that after college or something and said,
justin_breen:
Right.
dave:
likes to rebel a lot.
justin_breen:
It doesn’t listen. And then join the Marines. It
dave:
Yeah.
justin_breen:
doesn’t listen. It’s kind of funny. I’m always fascinated. The only thing I write down before I meet someone is their name and their Colby score, K-O-L-B. It’s not your personality. I don’t really care what someone’s personality is. I just want to know if they’re going to actually do something. And I talk to a lot of entrepreneurs who came from the military. Or they’re doing both at the same time. And I was, I was talking to one of them, uh, you might know him, Gary Clavin. He’s a coach and strategic coach. And he graduated first in his army Rangers, uh, graduating class. And he’s like, in the, in the military, they teach you to be a 10, 10, 10, 10 Colby. I’m like, oh, that, that makes sense. That makes sense. But you’re not naturally a 10, 10, 10, 10, you’re what? Five, seven, four, four, or something like that.
dave:
Yes. Yeah. No, the Colby score, we’ve actually had Julia Waller on. If you guys haven’t checked out that episode, please go back and see Julia Waller’s episode
justin_breen:
She’s a 6833,
dave:
on unique ability.
justin_breen:
told me. Yeah, she’s a 6833.
dave:
Yeah. I mean, I mean, why don’t you tell us then, I mean, what’s been your experience since you learned about
justin_breen:
Hmm.
dave:
unique ability and taking the Colby score? How has that really changed your life?
justin_breen:
Everything, everything. Um, so I’m an eight, six, seven, one. Um, that’s a unicorn score. I don’t think I’ll ever meet another one. Most of the people I talked to are three, three, nine threes. So nine are the, nine is the quick start. Three is the follow through. So that’s ADHD diagnosed or undiagnosed. It’s not a disorder. It’s just mislabeled by humans. Most, not all, certainly you’re an exception, but most visionaries are very high, quick start boom, boom, boom, boom, boom, boom, boom, boom, boom, boom, and little to no follow through. So if they don’t hire a million people, uh, disaster. And then I’m the very, very, very, very, very rare entrepreneur that has high quick start boom, boom, boom, boom, boom, boom, and high follow through it breaks and high fact finder and high fact. So say it, do it doesn’t get handed off to 30 people gets executed. And then, uh, Mary destabilizing human. My wife, Sarah, who’s a pediatrician, she’s an eight seven four two. So lower quick start, higher follow through. Hey, don’t forget to pick up your children and make sure you say thank you to people. So I’m very grateful for that. And I have found Colby works in life business, whatever. Our kids are both nine quick starts. They’re both nine quick starts with two follow-throughs. They’re eight and 10. That’s full visionary maniac. And not always, but usually, visionary entrepreneur, Mary stabilizing human. Not always, but usually.
dave:
Yeah. Now, I mean, and just for the, again, for folks who aren’t really familiar with this Colby score, right? It measures basically four different dimensions and it’s really your co-native ability of the brain or in other
justin_breen:
Yeah.
dave:
words, your instinctual wiring,
justin_breen:
Yeah.
dave:
right? So
justin_breen:
Right.
dave:
it covers four different areas. The first one being fact-finder, how good you are with really details. The second one is follow through. Do you actually follow through on things? The third one is quick start. How fast can you take an idea and run with it? And then the last one is implementer, essentially how good you are with your hands. So like lots of surgeons and stuff
justin_breen:
Zero.
dave:
are high up there. I know for me, I know you and I are really are low. Um, you
justin_breen:
You’re
dave:
know,
justin_breen:
a
dave:
implementers.
justin_breen:
four implementer, you’re a four.
dave:
Yeah,
justin_breen:
I would
dave:
I
justin_breen:
be
dave:
can.
justin_breen:
as, no, that’s high for an entrepreneur. That’s really high. That’s, that’s most of the people I talked to, they’re three and under. Um, if there was a zero for Colby, it would be me. I don’t know how to hold a pencil, right. Um, but I rarely see four and higher in entrepreneur world. Like you said, it’s an entrepreneur who happens to be a surgeon, an entrepreneur who happens to own a construction company, maybe in like an architect, but I mean, entrepreneurs for the most part, they don’t have to use their hands. They have to use
dave:
Yeah.
justin_breen:
their brains.
dave:
Yeah. Now I know a lot of people in the strategic coach community credit, uh, Dan Sullivan and really Kathy Colby, right? I
justin_breen:
Mm-hmm.
dave:
mean, this has been one of the most transform formative, uh, things that they’ve gone through is really understanding your Colby score. And,
justin_breen:
Oh, yeah.
dave:
and what was, you know, really powerful for me is the more you can really understand yourself, right? You can then become much more fulfilled. You can
justin_breen:
Right.
dave:
double down on your strengths and what you’re actually good at, and then let go of these other things that you’re not good at and
justin_breen:
Right.
dave:
build a team around you to support that. And that, you know, just like you said, Justin, that happens also with your family, um, happens with, you know, a team at work building a team. Um, and you just find yourself so much more in flow with life when you’re
justin_breen:
Right.
dave:
not going against the grain, right? So, you know, I think just really fantastic insights and encourage people. You can actually go to colby.com
justin_breen:
Mm-hmm.
dave:
and take the quick test. It’s like 20 minutes just to figure that out. And it’s really a game changer. So tell us a little bit more about your platform right now. What are you doing? I mean, it’s really interesting to see the evolution. I know you’re a big thinker, right? You have a lot of ideas of things
justin_breen:
No, I
dave:
going
justin_breen:
don’t.
dave:
on,
justin_breen:
I have
dave:
so.
justin_breen:
almost
dave:
Ha ha. Ha ha.
justin_breen:
no ideas. Yeah, so I’m 32 out of 34 in ideation. I have very few great ideas. But top three strength finders are activate, maximize, achieve. So if there is a great idea, activate, maximize, achieve that. I mean, that new book, it’s hilarious, because the forward, or not the forward, Peter Diamandis wrote the forward. But the first page is like in five, now almost six years as an entrepreneur, I’ve had five great ideas. So less than one a year. point eight great ideas a year. Um, but if it is a great idea, then activate, maximize, achieve that. Um, and unlike most entrepreneurs, I’m not all over the place. Ultra, ultra focused on spending time with my family and then growing networks. So that’s pretty much I do. All I do all day is spend time with my wife and children or their connect top visionary to top visionary. It’s a lot of fun.
dave:
And you do have your PR firm, correct?
justin_breen:
Yeah, so the purpose
dave:
Yep.
justin_breen:
of my life is to be a connecting superhero for every visionary, abundance, investment mindset entrepreneur. Not business owner, not consultant, definitely not human, entrepreneur, and share their stories with the world, not their world people that bores me, but constantly connecting the world people. So that’s done through PR firm, was a journalist for 20 years, created entire business based on how PR firms annoyed me for 20 years. I don’t. actually know what PR firms do other than annoy me and then second company annoyed by platforms that let everyone in because at highest level people didn’t have time for that so created invite only high price point platform linkedin without the BS.
dave:
Got it, so that’s essentially the network that you’ve created right now, VR Epic Network.
justin_breen:
Yeah. And so my partner, uh, who’s also in strategic coach 10 X his name’s Mark Fugiuara. He’s a one five nine six Colby. So he’s full backstage, but a nine quick start. That’s very, I mean, that’s very, very rare. So he’s really the one who created it. Um, I mean, we were partners, but most of his day is doing eight and nine figure deals, um, I’m not, don’t have financial background in them. Um, we have a book coming out, uh, Mark. Me and then Russ Allen Prince who in family office space is number one in world and he’s editor of private wealth magazine so we have a book about how to build a family office multi-family office and And Russ is also the editor of private wealth and they have two thousand subscribers average revenues eight figures per subscriber So it has to be the right number numbers are fine. But if it’s not the right number, it’s meaningless. So Russ keeps doing stories on me and the book, which I’m grateful for. And then he’s like, Oh, when you have PR partners, introduce them to me and he’ll do stories on them. So that intro alone is worth. Millions in this world, millions of dollars. So it’s a lot of fun being in that space all the time.
dave:
Sure. And tell us, you know, what has been your single biggest learning in terms of, you know, connecting people?
justin_breen:
Yeah, so you’re a three, one print. That’s an interesting thing. You want to succeed and achieve and then for everything needs to be perfect and right. And so I’m an eight, three print. That’s your unconscious motivator. So that’s strong and self-reliant succeed and achieve. So there’s no overthinking, no over feeling. There’s no, nothing needs to be perfect. Just execute, execute, execute, execute, execute. And so what I’ve, the one thing I’ve learned is the only way to do anything is and learn anything is to do something. So. People can talk all they want. I just talk to me is meaningless without activating, maximizing, achieving. So what I’ve learned is ignore people that talk and don’t do anything and just focus on people that actually do something. And that creates endless abundance, endless and never stops. And that’s a lot of fun because people like that are hard to find at first. They’re hard, but once you find them, uh, they just keep introducing you to more people like that, and then eliminates what you cost to charge. It eliminates nickel and diming. It eliminates overthinkers and that’s fun because then you eliminate most of society, but that’s okay because the ones that actually do something, they’re very grateful for you and I’m very grateful for them.
dave:
Yeah, it’s amazing. I think a lot of people
justin_breen:
Thank
dave:
just
justin_breen:
you.
dave:
don’t give enough credit really to, you know, the power of a network, right? And I know Joe Polish talks
justin_breen:
Everything.
dave:
it, you know, talks about it, you know, the genius network that he creates and such, but, you know, you could literally get introduced to someone that could give you a multimillion dollar idea in one meeting or
justin_breen:
Of
dave:
something,
justin_breen:
course.
dave:
or some insight or some type of connection that could literally transform your life. I mean, the, the
justin_breen:
Right.
dave:
power. of your relationship is so key. And I think especially, you know, I think this is interesting, Justin, right? So I’ve actually put a theme on this year of 2023, right? I think, you know, there’s so much negative noise out there with
justin_breen:
Not in
dave:
recession
justin_breen:
my world.
dave:
looming. I mean, just so
justin_breen:
Totally
dave:
much kind
justin_breen:
ignore
dave:
of going
justin_breen:
it. I totally ignore that. Don’t even
dave:
exactly
justin_breen:
think about it.
dave:
right. How do you manage that? So
justin_breen:
You
dave:
I’m
justin_breen:
don’t?
dave:
putting
justin_breen:
You
dave:
a
justin_breen:
just
dave:
theme
justin_breen:
ignore
dave:
on it
justin_breen:
it.
dave:
called,
justin_breen:
Yeah,
dave:
yeah,
justin_breen:
ignore it. Mm-hmm.
dave:
called mindset. I think it’s going to be all about mindset, right? And
justin_breen:
Of course.
dave:
how you can push that aside and actually, you know, live with an abundance mindset and push things ahead. So
justin_breen:
Right.
dave:
tell us a little bit about your, you know, abundance mindset, how you live, how you think,
justin_breen:
Yeah.
dave:
and really share some of that insight with the listeners.
justin_breen:
Thank you. So again, talk to me is meaningless unless you do something. And then most of my days talking to the world’s top AI deaters, they’re all over the place, and then I hear maybe one great idea a month, and then I’ll activate maximize achieve that. And then more often than not, I’ll hear a bad idea, because they’re all over the place, or they torch their families, or never have a family. I’m like, well, that’s a bad idea. I’m gonna activate maximize achieve not doing that. So that’s how my… That’s how my brain works. And so, turns everything into patterns. And my favorite pattern is if you have the right mindset, it attracts the right network and creates the right opportunities. So right mindset attracts right network, creates right opportunities. So we only partner with visionaries who live in abundance and who look at things as investments, not costs. Again, visionaries, not business owners, not consultants, not humans, visionaries. who live in abundance, there’s no scarcity, there’s no what do you cost or charge, there’s none of that, no negative news, and they look at things as investments. So if you have an investment mindset, it completely eliminates what do you cost or charge or nickel and dime people. So again, what that does is it eliminates arrogant, scarce minded people and it attracts abundant visionary investment mindset people. And that’s fun, and that’s fun. And what I’ve learned is, is that Usually, but not always, people like us are aliens within our own family community and verticals. The only people that understand us are top entrepreneurs on the planet. So it’s lonely. It’s lonely at first because you’re saying things that most humans don’t understand. But what I’ve learned is you just keep saying them and then finally the people that actually do understand you are top entrepreneurs on the planet. And so I spend my day with my family or connecting top entrepreneurs on the planet. There’s no, there’s nothing outbound. There’s no gimmicks. There’s none of… It’s just creating value for top people on planet and then they create value for you.
dave:
Yeah, absolutely. It’s so powerful. I mean, going to the strategic coach 10x sections and you sit around a room of other entrepreneurs with eight figure businesses, and we’re all visionaries collaborating on ideas, working
justin_breen:
Right.
dave:
through problem solving.
justin_breen:
Right.
dave:
And it’s just the power that you get from that, right, is really transformational.
justin_breen:
Endless, it’s endless. And so when you’re a journalist, you don’t get into that for employee account office space revenue. They’re totally, I don’t, that’s not why you become a journalist. So it’s always, for me, it’s always been about purpose. And so doing this, being entrepreneur, it’s just expanded purpose, expanded everything, freedom, income, purpose, time with my family, spending time only with people I want to talk to. Um, but it’s always been the same. It’s always been the same purpose, connecting people and sharing stories with the world, none of that, none of that has changed. And then one of the chapters, uh, in Epic Life, um, one of the chapters is name your years, so again, I’m very low in ideation, but if I hear a great idea, activate, maximize, achieve. So PR partner, great friend, Joe Martin, right before COVID, he’s like, Oh, I named my years. I’m like, Oh, that’s a. Good idea, I’ll do that. So 2020 was global growth, everyday global growth, global growth. Had conversations around the world, joined multiple top global entrepreneur groups. Started having PR partners around the world. So everyday global growth. 2021 was no limits. So everyday, no limits, no limits. When you have no limits, there are no limits. So that was fun. 2022 was Epic Life. say Epic Life every day, name of the book is Epic Life. More time with my family than even in previous years. Started second company with someone I’d never met in person until the launch party, that’s Epic Life. And then this year, 2023 is NetWorks, two words, NetWorks. So second company, we already have a few members, but this is the year that that company really takes off because we’ve really laid the foundation for it. last year and we’re really ready to get it going this year.
dave:
Yeah, that’s great.
justin_breen:
Thank you.
dave:
And tell us a little bit about your collaboration with Peter Diamandis.
justin_breen:
Yeah, Peter’s, I mean, he’s a visionary genius at the highest level. I mean, if you would have told me almost six years ago now, and after job sale, or it was cut in half that, that Peter would be writing a forward for a book that I wrote, I would have been a little confused by that,
dave:
That’s
justin_breen:
but
dave:
a moonshot right there, right?
justin_breen:
yeah, well, right mindset attracts right net. So people like Peter really like me. Regular humans, they don’t understand. Um. So I’m in abundance 360. I don’t care about revenue at all. It’s meaningless to me. Most people do. At the level I’m at, overwhelming majority of companies, our founders are running eight figure to 10 figure businesses, 10 million to 10 billion. So that would be nine figures. Or I don’t even know. I say I’m not good at math, I guess. But so if I’m not in a room like that, I get bored. I get bored. Because those are full changing the world people. They’re not their world. people. So I’ve introduced a ton of people into Abundance 360 because most of my day is talking to people that S-H-O-U-L-D be in Abundance 360. And so I’ve introduced them to them and I’m like, oh, Peter, I’ve written a book about how to build collaborative global companies while putting your loved ones first. I think that’s the message people like us want. They just don’t know how to do it. And I’m like, oh, can you write the 40s? He’s like, okay. So like, thank you. That’s how it works. I mean, my brain turns everything into pans, like I said. So there’s a fourth stage, four step level to starting a business that I see. One is get to get, so pure getting, that’s fine. Reach out to 5,000 people to get first five clients. It’s okay, start there. Then there’s get to give, you’re mostly getting, or excuse me, it’s give to get, it’s give to get. So you’re mostly, mostly getting. mostly getting, but you’re giving a little bit, so like two intros for, if you get 10, you give two, then there’s, then there’s give to get, you’re still trying to get a little, you know, you’re giving eight to get two, you’re still trying to get, and then you get to the visionary abundance investment level where it’s give to give, but only to the people who get it, so. We’ll endlessly give to people like Peter, regardless of whether he gives anything back, I mean, that’s immaterial. But it’s only to people like that because they’re the only ones that understand what I’m talking about and they’re the only ones that get it So that’s what I’ve seen over and over
dave:
Yeah, it’s such a different mindset to not be worrying about, you know, making the monthly number, you know, whether you’re working for somebody else or, you know, paying your own bills, right? It’s all about kind of a philosophy and a mindset on what
justin_breen:
Right.
dave:
you can achieve, right? So do
justin_breen:
Right.
dave:
you have a particular wealth strategy
justin_breen:
No,
dave:
or a framework that
justin_breen:
no,
dave:
you manage
justin_breen:
nope,
dave:
to? No?
justin_breen:
nope,
dave:
Okay.
justin_breen:
no, I don’t care. Again, journalists, I don’t care about that stuff. Meaningless to me. I mean, so, and I’ll give you an anecdote to that. So again, I’m the anomaly of anomalies in that, in that world. I just did an assessment the other day. I just did an assessment. And it was like your, it was like for your wealth. Not wellbeing, but your wealth, like, uh, I don’t know, strategy. And it’s up to a hundred. And I scored two out of a hundred of wanting to discuss anything financially or strategy and, or talk to your wealth manager, two out of a hundred, two.
dave:
Yeah. Yeah.
justin_breen:
Just leave me alone. I don’t want to do, I don’t care. Just let
dave:
Right.
justin_breen:
me live the purpose. Okay. So most. Entrepreneurs would not be like that, but I am because you’re a journalist, you don’t care about this. Okay.
dave:
Yeah.
justin_breen:
So. End of 2018, end of 2018, I’d made more money than I ever thought possible in one year and I’d never been more miserable in my life. So I’m like, oh, that doesn’t make any sense. I’m supposed to focus on wealth, right? Most miserable I’ve ever been. So I’m glad I went through that good learning experience. So had to learn, had to learn that. And the most, the most miserable people that I know the most. Cause entrepreneurs are the most damaged people with the best coping skills. Most damaged people, best coping skills, highest IQ, highest EQ, most guts. Um, and so they use those coping skills to create massive wealth, employee account, whatever that stuff. And that stuff’s fine. But many times at the expense of anything meaningful, no family, torched family. No, and so those are the most miserable people I know. They have all this material stuff and nothing meaningful. I am not
dave:
Yeah.
justin_breen:
that person. Bad idea, activate maximize achieve not doing that.
dave:
Yeah, for sure. I mean, and that’s why we really think there’s a huge difference between wealth and being rich. You know, being rich is
justin_breen:
Hmm.
dave:
material things, making a lot of money, right? Being wealthy is in mindset, it’s in health, it’s in having the right purpose.
justin_breen:
Right.
dave:
And it’s
justin_breen:
Yeah.
dave:
actually, it’s pretty fascinating, right? Because a lot of this is the psychology of all this, right? We’re talking about mindset, right? So,
justin_breen:
Hi.
dave:
you know, what does being, you know, successful in living? You know, living like a billionaire mean to you, right? It’s just like you’re talking about, spending time with your family, you know, working on big ideas, making impact, you know, those kind of things, you know, whether you have a billion or you don’t, it’s your ideal vision of what life really could be.
justin_breen:
Well, I would say most people are entrepreneurs, not people, definitely not people, but most entrepreneurs, you think 10X, you think wealth, you think employee account, office space, locations, that’s fine. I only have two 10Xs, only two, one, because I’m a hundred percent simplifier and then see everything in the patterns, but the only two 10Xs are experiencing life with my family. If you have a good family life, you have a good life. If you know someone, I actually want to meet this person that has had a good family life that has not had a good life, introduce them to me. I have not met that person. I don’t think I will. But if you know someone that has a good family life that has not had a good life, introduce them to me. So that’s one. And then the other 10 X is a network on a global level. When you do that, you create endless opportunities for your network and yourself. So I haven’t done anything
dave:
Tell
justin_breen:
outbound.
dave:
us a little bit more about that, tell us a little bit more about that on a global level, right?
justin_breen:
Yeah,
dave:
I mean,
justin_breen:
right.
dave:
I think a lot of us, you know, think very geographically, we’re kind of constrained to the areas
justin_breen:
No,
dave:
that
justin_breen:
no,
dave:
we
justin_breen:
those
dave:
live in,
justin_breen:
are business
dave:
you know.
justin_breen:
owners. That’s not, I don’t talk to those people because those are business owners, they’re not visionaries. So, and then the formula for creating a successful global company is simple, is you see a problem, create solution, problem, solve successful global companies. So see a problem, create solution, problem, solve. So a PR firm, annoyed by PR firms, create a solution, problem, solve, successful global company, solves the problem. So it doesn’t matter where someone’s located, it doesn’t matter what. They do, that’s immaterial. Doesn’t matter how big company news is just, are you a visionary? Do you live in abundance? Do you look at things as investments not cost? So all I hear is we’re tired of being bestseeker. We want to be in more news media, usually at a global level, but many times national regional to create more validity and credibility for our brand. So who doesn’t matter where you’re located. And then shows like these are replacing mainstream media because they’re led by entrepreneurs, not journalists. And you can do a deep dive. on someone and then the audience, I mean, the audience can be located anywhere. That’s immaterial. And then I’m guessing a regular human is not listening to this. I mean, I doubt it and, but a visionary will. So shows like these are transformational and transactional platforms for entrepreneurs. That’s all they, that’s all they are.
dave:
Yeah, it makes sense.
justin_breen:
Right.
dave:
Yeah,
justin_breen:
Yeah. Solves
dave:
it totally
justin_breen:
the problem.
dave:
makes sense. No, it does. But it’s interesting because I don’t think a lot of people,
justin_breen:
Thank you. Bye.
dave:
a lot of people see it this way, right? Unless you’re exposed to some bigger level thinking or some people, right? That your network or a network, right? That has this type of vision. You know, a lot of people, you know, just don’t see this, right? And we all have, it’s funny. I’ve heard the expression called crabs in a bucket. Right? So you’re trying to like move up to that next level of your network or, you know, bigger things around your relationship. Uh, but we all have, you know, either family members, legacy friends, things like that that are kind of pulling you back, right. And, you know, backwards and just like crabs in a bucket, you know, you’re trying to escape and really be free to get up to this new level. So, uh, it’s important to really let go some of those, um, you know, friendships,
justin_breen:
See you later.
dave:
even if that might hurt, right, because you’ve got to be able to elevate, you know, your network and relationships.
justin_breen:
I mean, so, you know, you’re in Strength Finders, you’re a maximizer, relator, responsibility, focused discipline, so you’re a relator. I’m thankful for that. I’ll be curious to know what you’re dead last in, if you know. I am dead last in empathy and second to last in included. So for people like you, I have endless empathy. I just don’t understand people making excuses in any capacity. and no inclusion. So all my companies are endless empathy and inclusion for top visionaries on planet. And then again, usually people like us are aliens within our own family, community, and verticals. Only people that understand us are top visionaries on the planet. Okay, so and then the other thing is again simplify everything into patterns. So I keep making bigger investments to be in smaller rooms, but the people in those rooms are making bigger impacts. So bigger investments, smaller room, bigger impact. That allows me to spend biggest investment in smallest room, which is my family, where I can make the most impact. So it’s the same formula. So you just keep writing bigger checks to be in smaller rooms, but the people in those rooms are making bigger impacts. Then there are no crabs climbing out of the bucket. You eliminate the crabs. Oh, that’s it. You eliminate the crabby crabs.
dave:
Yeah,
justin_breen:
So
dave:
yeah.
justin_breen:
when the $250 a year networking room, it was all crabs and I didn’t. So I just, you know, then there was a 500 and then there was a thousand and then there was 2,000 and then there was 5,000. Then there’s the 10,000. At the 20, the two, well, two of them are 25K a year each, US. And then that’s the only room I want to be in, because that’s the only room I can actually learn anything.
dave:
Right. No, that’s such a great formula, a way to really think about it, right? Because, you know, that’s really key. You know, most people just aren’t looking at the world in that
justin_breen:
Well, they’re
dave:
way,
justin_breen:
not, they’re
dave:
right?
justin_breen:
not, yeah, they’re not, again, I just, now, usually people like us may be stabilizing humans, but most of the world, they’re stabilizing humans playing not to lose as opposed to playing to win. So I ignore, I ignore that world because they’re not doing anything anyway and they don’t get it. So, but I just hang out with the people that give to give to it, but only to the people who get it. It eliminates all this other stuff that most people are living.
dave:
Yeah. Justin, what’s your biggest goal for 2023?
justin_breen:
Thank you. So again, for most entrepreneurs, that’s a good question. For me, I just want to spend time with my family. My biggest goal for last year was to go on a baseball trip with my sons. We went on five days, five games in five days in five different cities. And so this year, that’s also my biggest goal, is to make sure we do that. We’re going to go east of Chicago this year. So that’s. I mean, from a business perspective, certainly getting the second company really, really humming but without the first goal being accomplished, the second one is meaningless.
dave:
Yeah, awesome. No, totally agree. And the family has got to be there. It’s really the bedrock for us to be able to achieve, right? And live that life.
justin_breen:
Yeah.
dave:
Justin, if you could give just one piece of advice to the audience about how they could really, you know, accelerate their lives, you know, have an abundance mindset really, what would it be?
justin_breen:
Well, besides writing the bigger check, regardless of what that is, I mean, when I first started first company, the bigger check was $250. And because you just take that again, the only way you can learn anything is to do something. And then I just kept talking to people that didn’t understand what I was talking about. And then in the $500 room, the guy’s like, I don’t know what you’re talking about, but the owner of my company does. That was Gary Claibin. And he’s like, I talked to him. He’s like, you don’t. You shouldn’t be in $500 a year, you need to be in 10,000. So I’m like, okay, wrote the check and that was strategic coach. But, but again, I’m full activator. So, uh, I don’t really like giving advice, but like, if you’re thinking about doing something, just do it. I mean, just whatever that is, whether it’s sending an email out to someone in business or starting that next company or finishing your book, I don’t know. But just actually do it. Don’t overthink it, just execute.
dave:
Yeah, it’s so powerful. And me, yeah, is a seven follow through. It’s totally support that. Um, it is all about executing, getting things done and, and it doesn’t have to be perfect, right? It’s that whole progress over perfection, you know,
justin_breen:
And
dave:
but
justin_breen:
you’re
dave:
the fact
justin_breen:
a three,
dave:
is
justin_breen:
one
dave:
you
justin_breen:
print
dave:
made progress.
justin_breen:
saying that.
dave:
Yes.
justin_breen:
Yeah, you’re
dave:
Yeah.
justin_breen:
a, you’re a literally, you’re unconscious motivators for everything needs to be perfect and right. That’s what’s amazing
dave:
Yeah.
justin_breen:
to me. I’m amazed when there’s the, the doer thinkers in, in coach. Most of the people I talk to are eight threes or three eights. My partner’s a, a three eight, but you’ve learned. I, this is a credit to you. You’ve learned that that’s not how entrepreneur world works. That you have to execute. Regardless
dave:
Yeah.
justin_breen:
if it’s perfect and right that’s a really fascinating and your for quick start right you’re a four
dave:
Five,
justin_breen:
You’re a five. You’re a
dave:
five,
justin_breen:
six
dave:
yep,
justin_breen:
six five three
dave:
middle. Yeah, that’s my own, really five, seven, five, four. That one you’ve seen is my, I took it a second time and it was a little different, so.
justin_breen:
Okay, so five, seven, the one on the coach’s website has you is a five, seven, four, four. That’s why. But yeah, it’s, um, my firms have partnered with one person, one, only one under a seven quick start in almost six years. That person, Jason Loh, who’s also in, he might be in free zone now. He’s a five quick start, but he’s not. He’s not a five quick, he’s probably an eight or nine. And I’m guessing by the way, you are not a five quick start. I would guess you’re probably a seven or nine. Uh, and then like, what I mean is like you have a selective high quick start. I just don’t think you’d be doing what you’d be doing as a four, a four or five quick start. It just doesn’t, that doesn’t add up.
dave:
Yeah. Yeah. No, awesome. And again, just to throw this out to listeners, if you guys want to check out Colby, K O L B E dot com, you can get your Colby score. Highly recommended to super, super insightful. And then the other thing that Justin was mentioning was the print score.
justin_breen:
Oh yeah.
dave:
Also super powerful. It’s kind
justin_breen:
Yeah.
dave:
of like the next level down to Colby. So
justin_breen:
Thank you.
dave:
that’s really cool. I actually went on the Coach Couples Connection
justin_breen:
Oh yeah.
dave:
last year, celebrated that with my wife, our 25th
justin_breen:
What’s her cold?
dave:
anniversary.
justin_breen:
What is her cold?
dave:
Our 24th. Wow, you’re putting me on the spot right now. Usually I forget our anniversary date, but…
justin_breen:
How can you freak that tele? It was my wife and I, Sarah, she’s in 8742, 8742, and then our 15th anniversary will be at this year’s Couples Connection, May 4th. So that’ll be
dave:
Oh,
justin_breen:
fun.
dave:
very nice. Now it’s amazing to be able to understand like how to work, you know, with one another a
justin_breen:
Well, is
dave:
day
justin_breen:
she
dave:
or
justin_breen:
a high-quick
dave:
two. She
justin_breen:
start or middle?
dave:
should know she’s low. She’s actually, she’s a 6443. So very, you know, high fact finder, lower in terms of follow through. So it helps explain a lot of things in terms of, you know, how we work around the house and everything. It was very, very helpful to go to that exercise.
justin_breen:
That’s an, I rarely see a Colby score with yours matched up to another Colby. I mean, that’s a very similar score except for the follow through. Most of the people I see they’re like 3393 married to 8822.
dave:
Yeah, yeah,
justin_breen:
That’s a, you seek what you need to heal. So like in
dave:
yeah.
justin_breen:
your house, you do the, you execute first, like you, you get the thing started.
dave:
Yes.
justin_breen:
Yeah, that’s
dave:
Yes.
justin_breen:
why you’re not a five-quick start. No way.
dave:
Yeah. Yeah. No,
justin_breen:
But then you
dave:
I have
justin_breen:
follow
dave:
to.
justin_breen:
through too.
dave:
Leading the charge. Well, I’m trying to delegate though.
justin_breen:
Yeah, but she’s a four follow-through.
dave:
Trying to delegate. Yeah, I know.
justin_breen:
That’s not,
dave:
Yeah,
justin_breen:
that
dave:
there’s
justin_breen:
doesn’t,
dave:
some challenges
justin_breen:
well, that doesn’t
dave:
there.
justin_breen:
add, that doesn’t, so my, my wife’s like, so I’m an eight fact finder. My wife’s like, who, she’s also an eight fact finder. She’s like, you have to stop identifying people as numbers, but I’m like, that’s how I see, so those numbers I’m like, well, okay, there’s the gap right there. I can see that. That’s really interesting. I would, I would think like, so a, a, a, a mediary would be helpful with a high
dave:
Yeah. Yeah. Justin, really appreciate you coming on the show today. I know there’s been a lot of really good insights here for folks. If people want to reach out and learn more about what you’re doing, can kind of connect with you or pick up a copy of your book. What’s the best place?
justin_breen:
Oh, thanks. If they go to the main website, brepichllc.com, B-R-E-P-I-C, llc.com, there’s a mindset scorecard. It’s through the Strategic Coach platform. Takes five minutes. People really like it. People qualify or disqualify themselves with their own mindset. And if they’re like, oh, I want to be here, but I’m not, it’s a way to like get the brain going. And then the book is called, the newest book is Epic Life. And again, thank you to… Dr. Peter Diamandis for writing the foreword itself. All over the world,
dave:
Awesome.
justin_breen:
all over the world.
dave:
Yeah. Awesome, Justin. Thanks again for coming on the show, spending your valuable time with us. Really appreciate it.
justin_breen:
Thank you, Dave. I really appreciate it, too.