J Darrin Gross Podcasts -

How You Can Make Passive Income from Land with Brent Bowers – CREPN #290

Brent Bowers 0:00

The realtor said, Well, you could put it on the on the MLS for maybe $10,000. And I was like, shocked, completely shocked. I knew it was a beautiful property. But I was like, Okay, I think this is a deal. So I hung up with her. And two minutes later, she calls me back and says, Hey, would you be interested in selling that land to me? And I just thought she was messing with me. I was like, well, what’s your offer? Just kind of playing with her, you know? And she said, I could probably do $5,000 and me being the amazing negotiator I am. I said, Okay, let’s do it. When do you want to buy it? And she said, we could do it next week. So her title company contacted me. So it was a Tuesday I paid the guy that $325 for the land and Wednesday I got my $5,000 check.

Announcer 0:31

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

J Darrin Gross 1:00

Today, my guest is Brent Bowers. Brent was an army officer spending way too much time away from home. And he knew he needed to make some changes. And that is when he found land and the ability to create a passive income with land. And in just a minute, we’re going to speak with Brent about how to build passive income through land. That gives you a life that allows you to do what you actually want to do.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do. You can like, share and subscribe. And as always, please leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Brent. Welcome to CRE PN Radio.

Brent Bowers 1:44

J. Darrin Gross. Thank you so much for having me on CRP, CRE PN Radio with a name like that, you know, this is an elegant show. And you know what? My mom always told me that I’ve had the face for radio, not the face for zoom, or YouTube. So this is new to me. So I will try to do my best. And I’ll try not to, you know, do weird things with my face while while I’m looking at it here. So hopefully, it’ll be fun for the listeners. Thanks for having me.

J Darrin Gross 3:05

Yeah, glad to have you. And you know the listeners Be sure to go check this out. Because I mean, you mean this is quite the site here. You’re gonna like it. There we go. Little little teaser. No, no, yeah, this is great that I welcome you. And thank you so much for taking part in this. Before we jump into our conversation, if you could take a minute and just share with the listeners a little bit about your background.

Brent Bowers 3:31

Yeah, absolutely. So my background, I got a real estate license in 2007. I also bought my first home which it turned into a rental property pretty quickly in 2007. Because I was moving to the coast to rock my real estate license. Everyone knows what happened in Florida in 2008. I was kind of hitting the ground running at the absolute worst time and I had to sink as low as driving people around in my car all day long. and showing them rental properties. I would get to these properties early and open the windows and turn on the air conditioners because for some reason these landlords didn’t believe in leaving the air conditioner on and it usually smell like a stinky old cat. And just things weren’t working out for me in real estate in 2008. So I joined the military in 2009. I still had a great passion for real estate I still I was studying. And I had rented that property out get back from my first one year deployment from 2000 from November 2010 to November 2011. And I come home to a trashed house where we had to evict the tenant and my wife was really upset with me because I just been gone a year and we didn’t have any money because it all went into a rental house and oh by the way, I was managing it from Germany. So it was literally hell on earth for me at that time. Did a second deployment about a year later. And I was just always gone. So I knew there had to be a better way. Then the military, I love the military, respect it in six days, actually Veterans Day. Thank you.

J Darrin Gross 5:09

I was gonna say I wanted to say thank you for your service and recognize that it is Veterans Day. So

Brent Bowers 5:15

Yeah, thank you to all the veterans out there. And I mean, I believe that so much I was in the military eight and a half years. But my last couple years, I knew I had to find my way out. Because I had, I went from enlisted to an officer. And what I, I always was just an all these officers. But what I didn’t see was that they would get there a couple hours everyday before all the enlisted soldiers and they will stay a couple hours longer just to make a little bit more money. And it just wasn’t for me. So I got it. I got back in the real estate started looking at rental properties, wholesaling. But I stumbled upon this great little niche called land. And it’s actually been one of the biggest game changers for me, because there’s virtually no competition, everybody’s going after the houses. So that’s a little intro about me, I don’t know how much you want to get into it and how you want to go from there?

J Darrin Gross 6:09

No, we’ll definitely get into it. So the sounds like you, you had kind of more of a traditional start to real estate you got into single family rental had the frustration of a trashed property than sound like you’re making any income either with money going back into the property Is that a fair assessment?

Brent Bowers 6:30

That’s 100 cent per cent fair, it actually got trashed three times. And you know, for those guys that do residential rental properties, or even commercial rentals, you learn through those hard knocks, I no longer put the highest paying tenants in the house anymore, I put the lowering the basically the high credit, the lower paying tenants because the guys that have the 700 credit scores, they don’t have to pay top dollar so we learned that lesson the hard way it only took like three times figure it out.

J Darrin Gross 7:00

And been there been there done that the credit scores and actually calling references and all that stuff. Definitely a good good note any any listeners out there that are looking to become landlords? So then you did you or you were doing real estate as a as a realtor, you went into the military when you came back? What was the the path? Or did you? Did you look for more rentals? Did you get frustrated? And then you found land or what was the?

Brent Bowers 7:32

Yeah, it was kind of more more rentals more frustration. When the army pulled me out of Afghanistan, or Afghanistan the second time to send me to school to be an army officer, they sent me to a place called Melbourne, Florida. I went to the Florida Institute of Technology. And I actually was renting a room from a guy for a little while because it was like a quick transition. I had like two days to start class I found a rental and it was actually a room. And you know the guy, it was just kind of a dirty house and he never took care of the cat litter box. And I didn’t grow up with cat. So I was like changing this cat litter box every day. Because it stunk It was like right outside of my room and I was feeding this cat and I was like, You know what, I’m gonna buy my own house. And I can do the same exact thing, but on a way better scale. So I did that and then kind of refinance about three months later pulled some cash out and bought another one. And I was like, you know, there’s something to this. However, there’s got to be a better way a faster way. So I started looking into wholesaling houses. And I did that a couple times. And it was actually perfect timing because I had to pay for some classes. And it just wasn’t really my thing. Um, so I started mailing the vacant land list as well. And once I mailed that vacant land list, my phone absolutely exploded. And this list was the tax delinquent list. But it was a vacant parcels of land like when I say vacant, I mean nothing on it. No structures, no house, no Well, no septic no driveway. These guys were blowing my phone up because they’ve never seen an offer or a mailer on their land. So I went and looked at this land. And I still remember the first one I bought, it was actually non buildable, you couldn’t access the property without trespassing on state land. And the guy couldn’t figure out what I wanted with it. And I ended up paying them $250 for this parcel of land, so and come to find out he had traded it years ago because he was a CPA. So you got a question there. I see your face. Go ahead. Well,

J Darrin Gross 9:41

no. The the kind of a landlocked piece of land. You mentioned the trespass? Non buildable $250.

Brent Bowers 9:52

Who would want that right?

J Darrin Gross 9:53

Yeah. So yeah, let’s talk about what what were the what were your thoughts that cause you to to buy it.

Brent Bowers 9:59

So when I looked at this piece of land because I actually went and drove and looked at it, I don’t look at my land anymore. But when I looked at this parcel, I just fell in love. I mean, there were beautiful pine trees. And it’s just the most beautiful piece of land. And I know, a property that if I can get this at such a massive discount, there’s got to be a buyer out there that would want this. So what did I do? I just stuck it on Facebook, took some pictures. And once again, my phone absolutely exploded. Oh, by the way, I disclosed, you know, not accessible. There’s no road going to this. It’s not buildable. Yeah. So you know, and this, this property was actually in Colorado. So I’ve gotten to Colorado this time. So I and I hit the ground running. So I wasn’t in Colorado very long. But I just knew that this parcel of land in this area was worth a bunch of money if somebody could figure out how to get ingress and egress to be able to get in and out. And you know, a realtor told me that you can’t stop someone from getting to their land. So I figured that something that an attorney can take care of right. So I put in Craigslist ad that not buildable not accessible, need an attorney to get access. And I marketed it for $5,000. And before I knew it, I had someone that put roughly, I think it’s $500 down and paid me $500 a month until the whole whole note was paid off. So it’s just and we did those multiple times. I can tell you that. How

J Darrin Gross 11:27

long was the so you close on the deals to $250?

Brent Bowers 11:33

Now Yeah, $500 down. But I don’t know, but you bought it for 250?

J Darrin Gross 11:37

Yeah, yes. And then you got 500. So what was the time between the acquisition and the and the sale?

Brent Bowers 11:47

Oh, two weeks, two weeks. So $500 a month for 10? Or it was like nine months because they’d already gave me five $500 down. I didn’t charge any interest because I didn’t know how to calculate all that stuff. And people asked me today, why don’t you charge interest? or Why didn’t you charge interest? I didn’t know I was just kind of we were building it as we went. And it’s just it was just incredible.

J Darrin Gross 12:10

So you’re hooked.

Brent Bowers 12:12

I was hooked. I was I did a second one. And I called the realtor. The closest I bought a second property that was not buildable. And this one was overlooking the pike national forests. Another property I think I paid $325 for this one. Well, I call a real estate office a mile away. And the realtor tells me Yeah, that land is not buildable. Here’s the reason why. It was one Ingress egress, they were afraid that if the firefighters went in, they can get pinned down. So they had to build another road over the railroad tracks. I was like, well, what’s it worth I got, I’m gonna buy it. But I want to be able to blast it out really quick, because I can’t keep like I didn’t have the money to just leave it sitting in a property like that, even though it was $325. That was that was grocery money I was spending. So I was literally pre selling this land. The realtor said, Well, you could put it on the on the MLS for maybe $10,000. And I was like, shocked, completely shocked. I knew it was a beautiful property. But I was like, Okay, I think this is a deal. So I hung up with her. And two minutes later, she calls me back and says, Hey, would you be interested in selling that land to me? And I just thought she was messing with me. I was like, well, what’s your offer? Just kind of playing with her, you know? And she said, I could probably do $5,000. And me being the amazing negotiator I am. I said, Okay, let’s do it. When do you want to buy it? And she said we could do it next week. So her title company contacted me. So it was a Tuesday I paid the guy that $325 for the land. And Wednesday, I got my $5,000 check.

J Darrin Gross 13:48

Wow.

Brent Bowers 13:50

I was hoping that I was hooked on the second one, actually. Because the first one I didn’t believe it.

J Darrin Gross 13:55

Right. Right. a fluke, right? For Now. Now. It’s now it’s actually workingax work and you’re making money

Brent Bowers 14:01

Yeah, making money.

J Darrin Gross 14:02

So so that’s so let’s back up for a second because I think there’s there’s a couple pieces in here that I think people that aren’t familiar with the whole land you know, opportunity. The first is that you bought low and sold high. But with that you also have the the financing aspect of that. And you mentioned that the first one, you didn’t charge any interest. I’m assuming that given that that’s a point that that’s been made or mentioned that you’ve since figured out a way to make more with even charge or per for interest for an owner carry kind of a of a sale. Is that fair?

Brent Bowers 14:48

Absolutely. We still do a lot that are zero percent interest but on our larger parcels, the bigger parcels because we’re now doing 30 year mortgages for some of them. We do charge interest on those and we also charge interest, whenever someone’s like, Ah, this is you can’t sell this piece of land, you’re asking too much. So we’ll lower the price and then charge interest and we could pretty much get the same price. Just amazing people just see Americans, they just see, like monthly payment.

J Darrin Gross 15:15

Yeah, it is a kind of a trap we’ve all been exposed to and encouraged to participate in. Let me ask you so that the parcels you’ve described here, the two that we’ve talked about have primarily been unbuildable. Are these acres are they you know, 50 by 100, you know, describe some of the the size and what’s the, you know, what, what the, I guess, give me a sense of what the scope of opportunity and the different types of land that you’ve come across.

Brent Bowers 15:49

So yeah, there there’s a couple different types of land with they call them infill lots like the buildable lots in the city, that’s 5000 square foot, 7500 square foot, and then you’ve got recreational land, it’s like a, it’s like an acre, two or three acres, maybe in the mountains that you would want to build a cabin or a tiny home. And then you’ve got the large parcels, which I call agricultural land, I don’t generally buy a lot of agricultural land, because if a farmers working their land and making money on it, or ranchers ranch in the land with cattle or sheep or whatever, they’re probably not going to give it to me at a massive discount. I’m looking for that landowner, that usually doesn’t step foot on that land, or they inherited that land, or you name it. husband bought it or builder bought it and passed away these type things. So these two first parcels of land that I gave the example of one was four acres, the first one, and that was the one that I got the $500 down 500 a month on, I would call that recreational land because it was like four acres in the mountains. This second one, the one that I sold to the realtor for five grand The next day, that was like a that was kind of like an infill lot, because they were all subdivided. They’re all I think 7500 square foot per parcel. So though that’s what I would call an infill lot. Now we kind of focus on the infill. And the recreational mostly, because those are the ones that are easiest to grab, you know, and, and really will still buy agricultural land, but it’s usually not generally something that’s being farmed or ranch as well. So I mean, I’ll buy any land that we can get at a massive discount and turn around and sell it at easy payments.

J Darrin Gross 17:36

Got it. So it sounds like kind of the key to this is you find a property that the seller doesn’t, it’s kind of a don’t want, or they’re just there’s not, there’s no attachment to or they’re there, they’re ready to get rid of it.

Brent Bowers 17:54

Because that’s exactly right. They’re ready to get rid of it. They might be out of state out of county. I mean, we bought land from people that actually own land next door, and they don’t have any plans to do anything with it. So most of the time, they’re behind on taxes. But sometimes they’re not either. It’s just really weird, though. But the funny thing is, is that emotional tach, it’s not like houses, like they didn’t grow up in the house, or they didn’t have their children in the house. It’s just vacantly, and it means nothing to them most of the time,

J Darrin Gross 18:24

right? You mentioned taxes, is that a source of potential sellers that you that you look to? Or is it more of just it’s got to be vacant?

Brent Bowers 18:36

Yeah, I’ll start with the low hanging fruit first. So that’s behind on taxes and out of state. And once we run out of mailing, those guys will mail all the vacant land in a particular area that we’re interested in. So obviously, we’re gonna start with the low hanging fruit, and then kind of move up. What’s cool, though, is if they’re not behind on taxes, you know, there’s less problems to deal with. Because sometimes, you know, the taxes are so high, we’ll always have to get the land for next to nothing. And that always hurts making that offer.

J Darrin Gross 19:06

Right, right. So, you know, this is kind of a new, a new thought for anybody that’s always thought they had to have a tenant, you know, to make make money. You know, like you experienced in your first couple of rentals, you had the tenant destroy your property. And that’s kind of more of a tenant selection lesson that you talked about. So in in land, it fair to say that the the way you make money is to turn it fast. I mean, there’s no, there’s no income if you have just a piece of land that you own.

Brent Bowers 19:45

Right, get that monthly payment come in as fast as possible. So we generally have a rule of what we want to make. So if we buy the piece of land for safe, you know, $5,000 and we want to sell it for 15,000. And someone can only come Come up with, say, $300 in 250 a month for the next however many months to get to that $15,000 Mark, we’ll get a buyer in there as fast as possible. Because when we don’t want to break the bank of the buyer, we want them to be able to pay every month on time. But yes, absolutely a piece of land that’s just sitting there is costing us money in taxes. Maybe it’s in a land owners Association, or an HOA, like we don’t want that we don’t want the liability, like as Robert Kiyosaki would say anything taking out of your money out of your pocket is a liability, anything putting money into your pockets and assets. So as soon as we put a buyer into that land that pays us the down payment, and the dock fee, and the monthly payment, it’s now turned into an asset. So we’re kind of like the, you know, the planet fitness model. But for land, you know, Planet Fitness has all these members paying a monthly fee. And that’s kind of what we’re looking for, for the land. And once they pay it off, we transfer the deed over to them. And they’re now the new owner.

J Darrin Gross 21:00

Okay, and let’s talk a little bit about that. Because you mentioned it’s once they’ve paid off the property that you transfer the deed, can you go into that a little bit and compare that to it to typical property sale?

Brent Bowers 21:16

Yeah, there’s two ways to do it. Well, here’s two ways I’ll explain that we do it. Generally, we like to do a land contract or a contract for deed, same thing, you know, talk to your attorney in the state that you’re doing this in, but all land contract is just says, Hey, Darrin, we’re going to sell you this piece of land for $5,000 down, you’re gonna pay us $100 a month for however many months. And as soon as you’ve paid that full 5000, I Brent Bowers will transfer this land to you, I will transfer basically do the transfer deed or, or transfer document or a deed, I’ll put the deed in your name, we’ll record it will file it for you, send you a copy, send you the original, whatever we try and do it within 30 days. And now Darrin, you are the owner of this piece of land. Another way you could do it is we can go to a title company, we just did it with a subdivide that we did in Florida, we bought 27 acres in Florida and turned it into three parcels of land. So these guys are putting $40,000 down for this land. And the total purchase price is 74,000. So they came to the title company with 40,000 put it in escrow. And we actually transferred the top of the deed to the buyer. And now we have a deed of trust and a promissory note. So if they don’t pay will foreclose and take the land back from them. So there’s two ways of doing it. You know, my, my attorney, you know, she was a little, you know, skeptical of the contract for deed until she wrote me a contract for deed that she felt comfortable with. The reason why I like to contract for deed is, you know, when you do $500, down and $100 a month, you’re gonna have something we call default, you know, there’s gonna be people that lose her job or get tired of the land, or they figure out that they’ve actually got to put a well and a septic in a driveway in a covert and actually do things to make this land buildable. And sometimes they’ll just say, Yeah, I don’t want it anymore. And that’s the sad part about this business. However, we just send a cancellation of contract, you know, we certified mail it, we send them an email text, we always try and work it out a new payment plan with them, whatever it takes, and we’ve been successful working it out. But sometimes we get the land back by canceling that contract for deed. And it’s so simple. It’s a mutual agreement. We don’t have to foreclose, we don’t have to pay an attorney. So I prefer a contract for deed, unless they’re putting a massive amount of money down for that for that property.

J Darrin Gross 23:52

Right. But But even in that, I mean, you just mentioned the foreclosure, there is no foreclosure.

Brent Bowers 24:00

Graphic contract for deed. No,

J Darrin Gross 24:01

yeah. If they haven’t met their contract their contract. What do you call it a contract fail? Or is it just a failure? I mean, what’s the

Brent Bowers 24:10

Yeah, and if somebody call it a cancellation contract, contract. Gotcha. And now you could have someone that gets behind and they want to fight you. And you might end up having to go to court for that. And a judge will pretty much make a decision on that, you know, like we try and make sure that the land buyers happy. We’re not going to fight with somebody on it. But we haven’t had any issues. In the few years we’ve been doing this, but I mean, you could have someone that says no, I’ve been paying on time and go to court with that, but usually you’re not going to go to court with someone that can’t afford to pay their payments.

J Darrin Gross 24:46

Sure. No, I mean, I think that you know, the point of all of this is it’s not like your first option that you’re looking to is to take the land back. Now. No way you want to get sold. You want to get your money and and You know, give them back, give them the deed, move on to the next deal.

Brent Bowers 25:06

Amen. Because when they get that Deed, they’re now happy land buyers. And guess what? Birds of a feather flock together. And they have friends and they refer them. It’s just amazing process how that works. They’re happy.

J Darrin Gross 25:18

Right? So So when when was the What time did you do the first deal? You’ve talked about a couple of points here. And I didn’t get the year, when was it?

Brent Bowers 25:28

I did the first land financing deal around 2017. So I haven’t been doing this a very long time. And this is still relatively new for my business model. I mean, it’s not like I’m some guru that’s been doing this 25 years, that’s I’m still in the business, I still have a team that I talk to daily on this, I don’t have to do the sales anymore, or the buying, which is really fun. But I get to have fun and see the process happening over and over and over?

J Darrin Gross 25:59

Well, let’s talk about what is your your process, we’ve talked about basically the, you know, the mechanics of it, find a find a property, you know, somebody doesn’t want, make an offer that they accept, and then promptly list and sell the property. Let’s talk about how you find the properties. You mentioned the the list? What I mean? Is there a I mean, is the list the secret? Can you talk to us a little bit about what your system is? How Yeah, what are the what are the keys that you need to be successful in land?

Brent Bowers 26:38

Key number one is, figure out what to do. And then key number two, I can sum it up in two keys, figure out what to do. And then number two is actually do it. And I would say the third key the bonus is hire people to help you do it. So you know, it’s getting done every single day. That was I see that’s the missing link from a lot of real estate investors that are not successful, they don’t build a team. So I would say that’s what’s made us the most successful is building themes. So process, here’s the process. So we pick an area I first started in my backyard. But now we’re in a few states, we’re in three states, eight counties. So let’s just use simple County, Pueblo, Colorado. So what we do is we went first for the tax delinquent list in Pueblo, Colorado, we sorted that list, some people call it scrubbing. I call it sorting, I hired someone a virtual assistant off of upwork.com to help me find all the vacant land on that tax delinquent list. And that’s how we started mailing first, eventually you run out of those guys to mail, and then you pull another list of all the vacant land in that county. So what we do is we send out what we call a blind offer letter. So we’ll start in like neighborhoods, or subdivisions, or a small city area. And we’ll figure out what that land goes for as far as retail price. Let’s just say it goes for $1,000 an acre, well, then I’ve got to back up and see what my offer price is going to be I generally try and offer anywhere 20 3040 cents on the dollar. Depending on the land, if it’s really obscure, or it’s just in the middle of nowhere, never going to have water power, we might offer 10 cents on the dollar. So we’ll offer the exact amount we’ll pay the seller in that letter, and then we will mail them well mail every single day of the week, and will start getting phone calls. And those phone calls will go to a voicemail say, Hey, thanks for calling about our letter. We’re interested in buying your land, please leave your name and the reference number. So we know what what we’re looking at. And then my intake manager, I call her my acquisition manager, Jen. She’ll call them back. And I think sometimes she’s actually taken live answer which I never could do because I had to be in the right frame of mind. I wanted to know the due diligence, but she’s gotten so darn good at this. She knows what what an area is worth. Now, because we mail the same areas. It’s not hard to master seven or eight counties in this short amount of time. So they’ll tell us what they want basically, or they’ll call or they’ll sometimes fax the signed offer letter back the blind offer letters. And sometimes they’ll email it sometimes they’ll mail it, and sometimes they’ll call which we prefer the least we want them just to send it back to us. We’ll look at it. Yep, we can pay that we contact them. We send the notary out there, we get the property deeded to us now if it’s a big enough property for spending a certain amount of money will will generally go through a title company. But we obviously do our due diligence, run the title search all that stuff that oh any the owners in a conference, we’re not just buying the stuff blind and then we take ownership of it and we immediately They start marketing it to our buyers list, we’ve now built a buyer’s list on a lot of websites, Craigslist, Facebook, we put signs out. So we’re always having people call in that are looking for parcels of land. So send an email once a week and sign them up to buy this piece of land, pay their downpayment, their Doc, their documentation fee, and we get that monthly payment coming in and rinse and repeat. So we have two machines, a buy machine and a selling machine. And then we just constantly turn it over. That’s really my my process in a nutshell.

J Darrin Gross 30:35

I think that’s that’s kind of what you know, I’ve come to come to understand that’s, that’s the key to this is you have to have a system. I’m curious. Can you talk about any little bit about the numbers? Yeah. How many numbers of properties? Are you? If you start with a list of 1000? Is that kind of a Yeah, that’s a good is that a big numbers add like a just about to what you need to start with to get some results? or?

Brent Bowers 31:02

Yeah, you can start with the list of 1000 General, I try and be at a 1% offer acceptance rate. We’re not always there with this whole COVID thing. A lot of people are buying land. So I’m kind of seeing like way, way less, I used to be able to send out 100 offer letters and get one one property. Now it’s somewhere around 200 to 250 letters to get one one deal under contract one property under contract. So 1000 letters, you know, I generally would try and buy five properties with 1000 letters as what my numbers have been left the last quarter. Last year, it was way easier to buy land than it was to sell it now it’s you know, it’s shifted a little bit. It’s been way easier to sell the land than it is to buy it. It’s just like houses, you know, buyers and sellers markets type things.

J Darrin Gross 31:56

No, I mean, there’s there’s a cycle to it. It sounds like so you you do then you should do your mailing daily.

Brent Bowers 32:04

Yeah, we generally mail daily. Right now we’re on 26 letters A day going out automatically. I’m trying out a new system. Howard Zander owns land speed. I’m we’re trying out land speed right now. So it’s like 26 letters a day? We’re not mailing on Sunday, obviously. So technically, what is that? 25 times five would be? One 125. So roughly were mailed about 150 a week, on average. So that’s, that’s 900 a month? Well, that would be three. Yeah, 900 letters A month? Is that what we’re mailing? So it’s it’s pretty crazy for the house guys out there. You have you know, you have to mail like five or 6000 letters to get a house land. We’re mailing so much less like our mailing expenses is so little.

J Darrin Gross 32:56

Yeah, it seems very manageable. And are you What’s your persistence? I mean, you just send one and one you’re done? Or do you have a follow up letter? Or is there any kind of a cycle, if you don’t hear from somebody to you to try again and reach out to them again, we’ll change it

Brent Bowers 33:12

up. So after they, if they do not accept our blind offer letter like to where we offer them an exact amount, will send a postcard, which is way cheaper than the letter. And we’ll get callers that call on that, that would never call on the offer letter, and vice versa. So we’ll change it up. And generally, we only mail list twice, we probably could mail it more. And it’s about every 12 weeks is our cycle, we could probably mail it a lot more often. But this this is very cyclical, too. So we’ll buy a bunch of properties. Or we’ll come across a land wholesaler. Yes, that is a thing. There are guys out there that get tons of properties in their inventory. And in wholesale to guys like me that want to seller finance it. Some guys just like to do the Quick, quick cash. So we’ll come across those guys from time to time and buy 117 parcels or four parcels or 11 parcels. So I love it because I didn’t have to mail those guys. So we’ll pause mail and from time to time, which I don’t recommend pausing very long because it’s nice to cherry pick land too, because sometimes, like we just got a property under contract for $16,000 that we’re buying in Colorado Springs, the comps are 115 115,000. So we’re buying the property for 16,000. And we’re going to sell or finance it for 115,000. Now, what’s the return on investment for that 115 divide that by 16,000. That’s like a 700% return on investment. And oh by the way, I’m gonna have a buyer lined up before we pay for it. So we use their cash, they’re gonna bring that $16,000 to the title company as their downpayment.

J Darrin Gross 35:00

An infinite he didn’t he I mean, there’s no no money,

Brent Bowers 35:03

that’s true, then it turns into infinite. That’s exactly right. Because I’m gonna use his down payment. And then I’m going to hold the deed of trust and the promissory note, he’s actually going to own that land. But I’m going to be the bank on Infinite return, because he’s going to pay for the land.

J Darrin Gross 35:19

Awesome. So let me ask you, somebody who’s listening, says this is what I want to do. What? How much time? would you encourage them to kind of budget to, you know, get this, I mean, you’ve had some initial success. But But to get a system to where you have this to where you can actually, you know, this is passive income, and you can live the life you want kind of thing, what are we talking about? What’s a realistic timeframe?

Brent Bowers 35:46

You know, why when I started out, now, I wish I would have just had this system from the very beginning, I was the guy buying I was the guy selling I was the guy collecting the payments, the cash, I would say, realistically, you could build a system like this in three, four months. Now you’re gonna have, you know, expect errors, expect, expect challenges and problems, like that’s what we’re if we expect that it’s not such a big deal. But, you know, someone can realistically have a system like this built in three months, easy. I just started coaching in June, I’ve had guys making passive income and roughly 30 days. Now, granted, as far as the time it took, for me, personally, I was an army officer, I was on base at 6am. And usually leaving base six or 7pm. Now, I may have taken my lunch hour a few times, few times a week, maybe five days a week to make calls, return calls to sellers. And then I would also, you know, post on craigslist and Facebook during my lunch hour. But I would say I probably spent about two hours a day, Monday through Friday, getting this off the ground. And I would say we’re always improving our systems, but it probably took me about six months to have have a system actually built. And then Luckily, I got an acquisition manager, that was a first thing I hired out, because I just couldn’t take the phone calls. And the second thing we hired out was the sales side of things.

J Darrin Gross 37:24

No, that’s, that’s awesome. I mean, you know, it’s exciting to have success. And relatively quick, I mean, I think about, you know, all these people I talked to and see their posts and stuff about how they’re working and work and work and work and work and work and work, work work and trying to find a deal. And, you know, the, in a lot of the commercial space specially like the multifamily, which I think is probably got interest had most of the buzz here for the last, you know, four or five years. There’s a lot of competition in there, you know, and if you’re, you know, you’re, you know, trying to get started, you you, you know, have to get to know the brokers, and then, you know, if you don’t have enough money yourself, you got to raise money, and you got to have all these other you know, connections or vantage points are just, there’s additional pieces to it. Yeah, this sounds to me, like, a guy could get started with almost a credit card, just from the standpoint of the low cost of entry from, from, you know, some of the size of the deals you’re talking about. It’s not like it’s, you know, a big I mean, obviously, it sounds like some of the deals, you’re, you know, $16,000 may be more than what what, you know, somebody might start with but, but you know, you’re talking 250 or $500 purchase points on some of these ones you start with that’s, that’s pretty attainable.

Brent Bowers 38:54

Yeah, absolutely. I mean, we’re doing bigger deals now. Because the way I look at it is we spend the same amount of time doing a bigger deal as we do one of those $300 deals. But yeah, you’re right, that was my initial attraction. I didn’t have you know, tons of money, I couldn’t go out there and make offers on houses or, or apartment complexes because, you know, it takes a lot of money and like the brokers have to believe in you. You know, what was cool as I was just dealing with everyday people that own the piece of land, and Me too, I was an everyday guy with, you know, a few hundred dollars or a few thousand dollars, and then I would just try and turn that money as fast as possible. I that was my initial attraction. It was like, Okay, I can do this. Like, this is easy, like you don’t need tons of money. And you know, eventually people will start finding out what you’re doing and will offer you money at five 6% interest or partner with you all day long. You know, there’s so many people out there with money that one To do something with it besides putting into the stock market besides buying a rental, like I did on my first one that netted me $150 a month, from 2007 to 2019, that something always broke. Like I was never profitable on that rental. But every one of my land deals I’ve been profitable on

J Darrin Gross 40:20

Oh, it’s, that’s awesome. No, it’s it’s definitely a another option and an asset class that anybody’s that’s looking for an opportunity. And, you know if this, this sounds appealing, I mean, clearly you’ve demonstrated that it’s, but it’s something that works. And you’re not alone, I may have talked to other people that that have had success and and I think one of the things you mentioned is lack of competition, although you did say COVID ramped up the the competition, but I’m assuming that’s not from people making a business out of it’s just an actual demand for buyers looking for for land is that

Brent Bowers 40:58

Yeah, demand for land. And I’ve noticed that on some of the the larger tracks because now we’re you know, like I said, people come to me with like 117 parcels, where I was selling those for 1900 dollars an acre, now selling those for $3,900 an acre. So it’s, it’s helped me on my sales, but also on noticing like these, these sellers, aren’t coming off of the property as easily. And I don’t, I can’t say that I’ve got my finger exactly on what it is. But I track my numbers, which is so important. Most people don’t do that. I know that I have to send at least, you know, 250 letters now when I could get away with it with 70 or 80 or 100. Before. Now granted, I’m not doing a sniper approach, as you know, three years back taxes out of state, it’s kind of on the general vacant land for certain areas. But yeah, I’ve seen the pickup and where I’ve had to mail more. So that’s kind of an indication to me, I, I try and run the business off of data. I have some students that say, I’ve mailed thousands of letters, and I haven’t gotten anything, and we break it down. And they’ve really only mailed 800 letters. And they’re offering too little, you know, that’s it’s tracking numbers, data, not drama.

J Darrin Gross 42:17

Yeah. Well, and that’s, that’s, that’s a system, right? I mean, if you’ve got, you know, what your input is you you know, what the output will be based on the system. And, you know, it’s interesting that just the the cycle that you’ve talked about that they call markets, there’s a cycle and and the longer you participate in any market, you’re going to experience the highs and lows of that so that that market, amen. So yeah, just gotta have kind of more of a longer view of it. But hey, Brent, if we could, I’d like to shift gears here for a second. As I mentioned to you, before we we started by day, I’m an insurance broker, and I work with my clients to assess risk can determine what to do with risk. There’s a couple of different strategies we typically consider. We look to see if we can avoid the risk. If we can’t avoid it, we look to see if there’s a way we can minimize the risk. And then if neither of those are an option, we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. I like to ask my guests if they can look at their own situation. This could be your clients, investors, tenants market, you you frame them the reference point. But with that if they can identify or if you can identify what you consider to be the biggest risk. And just again, for clarification, I’m not necessarily looking for insurance related answer. But if you are willing, I’d like to ask you, Brent Bowers, what is the biggest risk?

Brent Bowers 43:57

Yeah, I want to talk about a property we buy. It was late 2017. It was the last vacant parcel of land in a mobile home park. And it was from a lady her husband had died. And he was a builder. And he pretty much he went bankrupt. So long story short, we had to reactivate his his LLC to be able to take ownership of that piece of land. And we went through all these steps and I had a buyer already lined up for $16,000 that I found on Craigslist. So I had about $900 into reactivating this LLC back tax his lawn service fee from the city and paying the seller so the seller really only made like 200 bucks off of this parcel land. Well, when I had sold this parcel for 16 grand to another builder that was going to put a brand new modular home on that title company found out that there was $157,000 IRS tax lein on it. So I did not do my due diligence in the beginning and run, like owners and encumbrances or O & E is what we call it, or even a title search at that point, you know, I was kind of just shooting in the dark. So I was just, I was so sad because I mean 2000 beginning of 2018 at this point like that, that was life changing, like I had just had I had a brand new baby, first first child. And actually, no, that was my second child by then let me let me back up that second child. But that would have been game changer, you know, a profit of 15 grand basically. So what I did was I waited a year I cried a bunch now, continue refining my system continue buying land, but I never took that deed into my name. Like, I never took ownership of that. And this poor lady would call me and never return a call. She’s like, are you ever going to record that deed? Because I’m still receiving calls from the city and blah, blah, blah, I would just ignore because I was scared. I didn’t know what to do. $157,000 IRS tax lien I didn’t want to take on that I was like, Man that would bankrupt us from the very beginning. So long story short, I found a title company A year later, heritage title. They said, Listen, these things sometimes fall off, let’s figure it out. So they cleaned everything up. I still did not take ownership of this. But it was good to go. So like go ahead and sell it, you’re good. It’s dropped off. The IRS drops these things off every so many years. I don’t know how it works, just called dumb luck, or God blessed me I would say it was probably God, God’s blessing, which we you know, you get lucky. The more you do that, the more God bless you. Um, so long story short, I found another buyer I think this time was on Facebook marketplace or buy sell groups, but found another buyer for 35,000. So one year later this I got confidence in myself in my process. So I doubled the price basically, I also got $5,000 down, I only had 980 into the property. So I got $5,000 down and it’s a 52 and a half month term at 534 a month so I’m still getting $534 a month and I will be for another I think two two years two and a half years on this property but that’s the biggest risk not checking the chain of title making sure that if J Darrin Gross leaves this property to Brent Bowers and you leave out Jay we just broke the chain of title so that’s that’s one risk and two is doing your background your due diligence and your title search and making sure there’s no IRS tax liens or encumbrances or city liens. You name it. So there’s my risk story.

J Darrin Gross 47:49

No, that’s that’s awesome. The due diligence gotcha kind of thing. I think that’s really is the, you know, one of many opportunities for issues in real estate, but I think it’s it’s probably the, the one that you have most control over if you do your due diligence. And it sounds like it all worked out for you. You found you found a solution in the process. So that’s Yeah,

Brent Bowers 48:12

thank God, man.

J Darrin Gross 48:14

That’s awesome. Hey, Brent, where can listeners go if they would like to learn more or connect with you?

Brent Bowers 48:21

Thanks so much for asking. Yeah. So like I said, I’ve been coaching students since June, I do have a course. One on one coaching, support calls, go to thelandsharks.com I’ll spell it out. Thelandsharks.com. The land sharks dot com. Schedule a call with me. I’d love to jump on the phone. And if there’s any questions I can answer. This is what I do now.

I love it.

J Darrin Gross 48:53

Awesome. Well, it’ll be listed in the show notes. And Brent, I just want to say thanks for taking the time to talk. I’ve enjoyed it. I’ve learned a lot and I look forward to doing it again soon.

Brent Bowers 49:07

My pleasure. Darrin, thanks so much for having me on the CRE PN Radio.

J Darrin Gross 49:13

Right. And for our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks CRE PN Radio.

Announcer 49:34

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Investing in Midwest Mobile Home Parks with Jonathan Tuttle – CRE PN #289

Jonathan Tuttle 0:00

Allow the big Wallstreet of the biggest private equity groups and sovereign wealth funds are coming into our space because it’s been so resilient and especially this year too. It’s about a 93% collection rate reported by institutional owners but go back to a question mom and pop mostly so that’s another way to add value a lot of these people they’re not super tech you know they’ve had these parts for you know, 40-50 years they’re worth every parks worth a few million if not more, obviously a lot more they’ve you know, the cash flowing few hundred thousand year they don’t really they’re not really super focused on having you know, QuickBooks and, you know, Facebook ads to like bring in new residents. They’re still you know, this is what got me here I’m sticking to it. So when you take over you could bring in some management efficiencies technology efficiencies.

Announcer 0:44

J Darrin Gross 1:03

Welcome to Commercial Real Estate Pro networks, CR e pn radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Jonathan Tuttle. Jonathan is the principal at Midwest Park capital, a mobile home park fund. And in just a minute, we’re going to speak with Jonathan about trends and opportunities going forward in 2021 and beyond, in commercial real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us and we’d love if you would you would do the following. You can subscribe, like and share. And please consider leaving a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Jonathan, welcome to CRE PN Radio.

Jonathan Tuttle 2:24

Thank you so much for having me. I’m excited to be here.

J Darrin Gross 2:27

I’m looking forward to our talk today. Before we jump into it, if you could take just a minute and share with the listeners a little bit about your background.

Jonathan Tuttle 2:36

Sure, sure. Yeah, it’s a pretty extensive real estate background. I grew up in a real estate family. My dad was a general contractor. So he built around 8283 Custom Homes, single family. And so I was a kid growing up, he had the real estate brokerage offices, yeah, three of those. They developed custom homes. And then also he did flips with investors. So basically, as a little kid, I’d be playing with the staplers in the office or being on the job sites. And even as a, you know, as I got grew up, I’d work on the job sites like clean the dumpsters and fill the dumpsters, you know, like all the trash and being all around real estate from the ground up. You. You pick up some things over time. On Yep.

J Darrin Gross 3:21

So you started off on the job site, kind of osmosis, kind of watching your dad and and just taking it in. That’s That’s great. So now I’ve got you down is the principal of Midwest mobile. What was it? Say mid? I’m sorry, Midwest, Park capital. mobile home park fund. What are you doing there?

Jonathan Tuttle 3:49

Yeah, great questions. Basically, we’re acquiring a portfolio of secondary tertiary market mobile homes parks with a focus obviously with as the title says, Midwest we’re also we also like Texas and Tennessee because they have strong growth, growth drivers and great economies. Basically, the goal is to help keep affordable housing for the everyday Americans while also providing a credit investors a nice stable return. So

J Darrin Gross 4:17

Got it. So do me a favor and compare the mobile home parks to some of the other asset classes. That you know, I know, a lot of times it seems like we talked with people about, quote, multifamily, the traditional sticks. You know, one one building kind of thing. Can you kind of break it down for us kind of compare and contrast? How the two are different from an investor standpoint?

Jonathan Tuttle 4:48

Sure. Yeah, that’s great question, because we our closest similarity is definitely multifamily. What’s gonna be like C class apartments most likely. The challenges it’s the same premise, the whole Ideally, when you’re buying a mobile home park, there is a little complications, one of the things that differentiates us is we have a lot of like older laws like grandfather laws, because it’s called legally not legal but non conforming, for zoning. So a lot of these were built in the 50s 60s and 70s. And the laws have changed, they’ve kind of become, you know, some of them have somw stigma. And so suddenly, cities don’t, or towns don’t want parks in their, you know, in their communities. So that’s the one biggest differentiator because harbor buildings, you could pretty much as long as they have the zoning, it’s pretty easy to get approval, comparatively, there’s only about 10, or about maybe 10, new depart developments in the last 20 years. And then there’s some been a few more, they’re kind of under the table, but they’re usually RV conversion, so has an RV component or has a self storage, it has some other but a strictly mobile home park, it’s almost impossible to get the zoning and it’s also not really economically viable. Unlike you know, what the family where you’d actually develop it, you bring in the market, and you fill out the units. And you know, it fills up right away mobile home parks is kind of like building a subdivision if you had to do it from the ground up, because you have to bring in all these, you know, manufactured housing, and it’s not cheap, and that the new the average price of a new mobile home is about $80,000. So you can just imagine if you have two or 300, lots, you know, it’s multifamily. If you’re doing ground up development, it’s a lot better play. But our true value is just buying a park that’s already, which is almost all of them is buying a park that’s already cash flowing. And that’s where you could you know, you’d already know the cash flow. And actually right now, to kind of give you some context, is the first time ever that Fannie Freddie, so Fannie, Freddie, obviously, there’s financing the government backs in the cmbs and traditional banks, but for the first time ever, Fannie and Freddie, they have to allocate about 30 or 35%. Towards affordable housing. So who’s available? 10 years, it was almost impossible to get. Now

J Darrin Gross 7:06

you can you back up just one second, you were the audio broke down a little bit, I just wanna make sure we get this. You were talking about Fannie and Freddie, and you mentioned 30%, but I didn’t catch the balance of that

Jonathan Tuttle 7:18

about 30% is allocated towards affordable housing. So which is a new thing that passed with a, I think was the cares act or when they act in 2017. I don’t remember the exact name. But it’s the first time in history that Fannie and Freddie’s financing terms are better with mobile home parks than they are with multifamily. So we’re seeing high twos, low threes, nonrecourse. And it’s about, you know, I think we’re just a little bit slightly better than multifamily right now. So again, that type of financing so we have those nice spreads. And that’s where you get the cash and cash. You know, if you have a six and half – seven cap, which is kind of what you’re seeing for parks nowadays, depends obviously your market and the quality of the asset, you get that nice teen cash and cash if not a little bit higher. So we’re IRR eventually, too, as well. So that’s another aspect of you know, the zoning, it’s almost impossible to evolve that. And just as you know, a lot of different laws with the city, the city kind of is your biggest challenge, usually because they have, you know, their own preferences of what they want for, you know, type of commercial properties. They want their neighborhood because, you know, mobile home parks don’t necessarily have like the Greatest Name. You know, people kind of have the stigma behind it. But if you’ve driven through some of them. There’s a lot of really nice ones. I mean, most of them if it’s maintained, right, it’s a nice asset.

J Darrin Gross 8:44

Got it. So your strategy is to to go into these markets. You mentioned secondary and tertiary markets. Midwest. Is it a value add play? I mean, I typically I think of, you know, from a value add standpoint, it seems like there’s something you’re updating certain aspects, you know, and, you know, making it a more desirable place to where tenants are willing to pay more thereby increasing the the cash or the income. Can you describe what a value or what is the the strategy is basically just take it over and then refinance or can you break it down a little bit? Sure, sure.

Jonathan Tuttle 9:27

The biggest probably, there’s a couple of key components to really bringing the value of the park and bringing the noi up. The first major is if the water and sewer are of the tenant, if it’s built back to the part. You want to bill it back to if it’s allowed. You bill it back to the residents. So right there, that’s your biggest expense. One of the first ways you could bring it in, obviously doing little a cap x, like the signage, you know, amenities You know the you know the roads, trees depending on where you’re at cutting down the tree is to make sure there’s not a trees falling down on the houses because a good thing would be also like make the park look like you know beautified three obviously raising the rents ethically raising the rents taxes always go up most likely unless there’s some some because they haven’t mostly the assessors Haven’t you know, they don’t have any idea what this thing’s really worth. So yeah, being able to you know, raise the rents you know, ethically and then just a bit better management of the asset so faster like if there’s any vacancies, making sure you get them on you know, market them correctly online and having your manager on top making sure you bring in the right tenants. The average tenant says 14 years this is another competitive you know, on average because typically what happens mobile home mobile home owners in the country they typically own their actual unit so yeah, that tenant like two or three especially like apartment buildings are hopping to the next apartment building or the newer apartment building. So because it’s there’s nothing cheaper than mobile homes. So and then the last

up for the value add obviously at the last moment info loner and Val can

J Darrin Gross 11:30

Hold on, can you hear me? The the audio is breaking down. You said, “the last thing”, what was the last thing?

Jonathan Tuttle 11:36

The infil..

J Darrin Gross 11:38

The infill.

Jonathan Tuttle 11:38

Yeah. So bringing in, sorry about my internet Comcast, give em a little word of mouth.

J Darrin Gross 11:45

No, I just wanna make sure it sounded like is important. I want to make sure we got

Jonathan Tuttle 11:48

Yeah, yeah. So the infill? Yeah, that’s infill. Easiest way to bring it wasn’t easy, but bringing it in empty lots or lots bringing in new units. Because every unit you bring in depends on the valuation the park and obviously the area. It’s 30, or 30 to 50,000 equity to the asset plus the cash flow. So right now there’s a short like everyone’s trying to buy the older units depending on you know, the age of the park and what the homes are, but because you get the homes for so much cheaper. So if you’re buying a new home, it’s $80,000. But if you get for $20,000 houses, obviously that’s a really value add. So,

J Darrin Gross 12:27

Got it in these markets. Do you find that most of the parks are managed professionally or they managed by mom and pops?

Jonathan Tuttle 12:37

Mostly? Yeah, that’s a great question. The industry is about 92 to 93 mom owned, mom and pop and Blackstone, which is the biggest private equity. Paolo, a lot of the big Wall Street are the biggest private equity groups and sovereign wealth funds are coming into our space because it’s been so resilient. And especially this year, too. It’s about a 93% collection rate reported by institutional owners. But going back to a question mom and pop mostly so that’s another way to add value a lot of these people they’re not super tech, you know, they’ve had these parks for, you know, 40-50 years they’re worth every parks worth a few million if not more, obviously a lot more. They’ve you know, the cash flowing few hundred thousand year, they don’t really they’re not really super focused on having you know, QuickBooks and, you know, Facebook ads to like, bring in new residents are still, you know, this is what got me here, I’m sticking to it. So when you take over, you could bring in some management efficiencies, technology efficiencies, like rent rent managers, like an online billing system, which is really efficient and keeping track because obviously, if you’re not keeping track, some payments could slip through. And even though things are getting paid mom and pops, you know, they’re they’ve got their money they don’t really care about you come in as a good more seasoned investor, that’s one of the things you definitely improve upon is the technology aspect.

J Darrin Gross 13:54

guys got it. So when you purchase the park I’m assuming most of the the actual units are owned by the resident’s. Correct?

Jonathan Tuttle 14:08

The ones we go for? Yeah, it’s called like a land lease community. But there’s about 12 million mobile homes in the mix. But the parks we acquire are definitely we want we want to have that offer hands especially to if you’re doing for institutional going back to Fannie and Freddie financing. They will only allow up to like 20 to 25 units to be owned by the park. And that’s an actually that’s another way to acquire Park. Getting those off your books is another great way to add you know the value add. So those are some techniques you could use.

J Darrin Gross 14:40

Got it. And you mentioned that the the communities, the local cities, and they’re not really gung ho on these things. I can see that being an issue and like a primary or a larger city is you find it all the way down and tertiary markets as well?

Jonathan Tuttle 14:58

Yeah, those actually And that’s part of the due diligence, we’re taking over property talking to when we looking at property, we boots on the ground walk in, like we’re our Grandma, our mom’s moving in. So we get a voice for the residents, what houses community like, not just what the owner says, but actually what the residents say, cuz I’ll actually give you a paint a better picture, go to the local police, local government see what their, their viewpoint is. But something if you’re in the tertiary markets we’re looking at, we’re also looking at bigger parks like 75 to 250 units. But if you have like a 30 unit Park and a small town is something small towns think they own, you know, it’s it’s like that saying, we’re here like, like, if you’re in a major city, and you’re driving 10 miles and over their name, you’ll look at you. But if you drive in a small town that has like, 5000 people, and you’re going five miles over, it’s like, that’s their big highlight of the day, you know, the big crime of the day, it’s kind of the same premise with the park industry, the small, really small town a 30 unit park, and it’s somebody on their high horse, and they kind of feel powerful. So that’s kind of that’s kind of what we know, in our industry here. So get rid of that son, it’s crazy.

J Darrin Gross 16:07

So on the the acquisition and kind of the due diligence, you mentioned, you kind of you you know, you do some boots on the ground, you talk with the residents talk with the community. Describe what what are some of the things you look for in a in the physical due diligence, since you’re not really buying the structures, right, what what else? Kind of give us a rundown of what what are what are some critical things you could look for?

Jonathan Tuttle 16:39

Yeah, yeah, I’d still recommend going into the units and trying to see especially if there’s any park on homes, because it might look good on the outside, but you come in the inside and it looks like somebody ransacked it. I mean, it doesn’t cost too much to replace, like an actual, the fixed inside of units like four to 5000. Like top to bottom like that’s, that’s like top notch. But that could be you know, four or 5000 times 20 units, obviously, it’s an extra hundred K. But yeah, definitely like the roads, the potholes and also going back to some some towns or townships, while a lot actually. Like for example, in the Midwest, if you’re by like a you know, if it’s snowing, for example, some communities will actually plow the streets for free and maintain the roads for you for free, or the lighting. It’s pretty cool. Let’s actually, to give you an example our operating expenses are about typically for sure. You mentioned before with multi family, typical operating expenses around 50-55, sometimes 60, the average mobile home park operating expenses, because like you said alluded to, it’s there’s not a lot of structural components mostly land. So you’re about 35-40. I think 42 is for institutional owners. So you have that much lower operating expenses, but the things you want to look for the trees, we can sure if these big old trees I have a huge branch falls down that’s gonna take out a home, obviously, the blacktop, obviously cement is way better, but 95% of time is to be blacktop. So doing just to make sure that the blacktop, you know, how many potholes. The community center. If you get in the old homes that’s Park owned, definitely check those out. Talk to the residents talk to local police talk to the city kind of get a vibe what’s how the park and community is run. So making sure you’re not buying like a like, you know, a meth lab park or whatever. But those are those kind of things you would notice if you drive through and you’re actually boots on the ground. But that’s a lot of stigma. Like the ones a majority, the parks are just everyday Americans looking for affordable housing. And when you live in, for example, in like Illinois, if you lived across the streets, I’m a glare if you lived across the street, and because we have really high real estate taxes and the say it’s $150,000 house in the same town, and you live in a $300 lot rent mobile home park, you’re only paying 10 bucks a month for real estate taxes and across the street, you’re paying $4,000 so at the end of the day, get the same schools which taxes pay for fire, police schooling, everything’s the same, but they’re saving three, three to $500 per year. And it’s kind of like equity, you know, like how people like oh, I’m gonna buy my house and over time and build up equity as I paint my note for 30 years. It’s kind of the same thing with home parks, but they’re doing it through real estate taxes. And that’s another reason why the cities don’t like it because they don’t get they lose money and the tax bases. The park owner pays the majority of it obviously, but the tenant they it’s 10-20 bucks in a lot of these states. You know, obviously it’s, you know, California Oregon, West Coast would be different than Midwest but every it’s going to be significantly cheaper than the surrounding houses. So

J Darrin Gross 19:43

So in property taxes paid by the the park owner

Jonathan Tuttle 19:49

Park taxes, an individual unit has to pay their real estate taxes.

J Darrin Gross 19:53

I was going to ask it based on that. I always thought the mobile home itself given it that it has As a VIN number like, I thought they were like registered with the DMV almost as opposed to do they? Do they also, is there a property tax? Like a residence as well?

Jonathan Tuttle 20:11

Yeah. And it’s like, yeah, 10 15 20 bucks a month, and they have to have insurance. But yeah, you’re correct. It’s just like a, yeah, when you want your titles and your VIN’s, it’s just like, when you’re when you’re fixing them up, it’s kinda like flipping cars.

J Darrin Gross 20:24

Right? Right.

Jonathan Tuttle 20:26

Which makes a it’s like, there’s not a lot of the beauty about it, too, you’re going to have a lot of complication. So even if you’re going to flip a unit or remodel a unit, you’re not tearing down walls and putting in custom kitchens. Right? I mean, can but it’s like, it’s very minimalistic stuff you could do. So it’s not very complicated. There’s not going to be any challenges in that regard, which is a really nice thing about mobile homes. So

J Darrin Gross 20:49

got it. So how many parks do you have in your fund?

Jonathan Tuttle 20:54

Well, we have to individually with a family we had, we had a third one, we just launched the fund about two months ago, okay, we’re going to be acquiring we’re doing a 10 million raise this fund run. And then next year when do 20 25 million raise but we’re looking to add about 2000 units aproximately, because the pricing is actually getting another byproduct of this whole COVID situation is like alluded to before the 93% occupancy rate currently being reported. Everyone’s trying to get into our asset class, because for the last 50 years, we’ve been the most stable real estate based on being data. And then Wall Street Journal had an article this year, that they’ll since the last downturn, there hasn’t been any other real estate as the class has been performing as well as ours. I think Self Storage is very close second, but we’ve been kind of running away with the, just the stability during downturns. There’s 60 million Americans in affordable housing. So we’re going to try to add about 2000 I think that’s kind of a number but the pricing is basically getting the cap rates are going down because it used to be you can see articles like all mobile home parks have such great cap rates. They do but it’s not the five years ago pricing because everyone’s trying to get into space where competition prices, you know, prices go up the sellers like well, I get this for it, I’m gonna just sell it for way more the cap rate 10 cap was big, like 10 years ago, then eight cap was like five years ago now we’re seeing six six and a half for like Midwest. But like if you’re in the coastal stuff like fours, just like multifamily. So the but the other play about it is too it’s it’s its to stability, so you don’t have to worry about you at least rather have a four cap that pays you then a four cap that’s not getting paid, you know, especially if you think in retail, you know, restaurants can open so many states, they can’t pay you hospitality hotels can open so although byproduct of that least we get the four cap and still get paid. And another benefit to I forgot to mention is the taxation. multifamily has a 27.5 year tax, depreciation schedule, which is really, really good. Traditional commercial estates 39. mobile home parks are 15. So the taxes are better for your K ones, because you depreciate the about 75% 70 to 75% of the the purchase. So land improvements, basically, the land improvements can be deducted 15 years.

J Darrin Gross 23:16

So was it basically your blacktop and and signs and you’re community center?

Jonathan Tuttle 23:21

Yeah, exactly. And then you have like you do cost segregation, but they and everything could have some things like 20 years or something and then you personal property is like five and you have your you got your accountant CPA come in, basically. And it’s it’s pretty, it’s pretty fascinating that we have that ability hopefully doesn’t change with whatever happens with the election. So we’ll see. Right? hearing from some investor owners and investors.

J Darrin Gross 23:47

Right. I’m just kind of curious to do. I mean, the things you can see are also like the underground, is that your stuff to them?

Jonathan Tuttle 23:55

Yeah, that’s a key. Yeah, that’s implemented diligence. Yep. I forgot to mention that for that’s when you’re really you’re doing your due diligence for 30 days. That’s the key is the underwater, the water sewer, the lines making sure that’s good. Because sometimes then also making sure I mean, due diligence as a whole, it’s a whole stack list of things that could go on, really in depth zoning, obviously setbacks, because if what’s grandfathered in, because if sometimes these part would go on like this small towns, you acquire a park and all of a sudden they say on the setbacks now is different than it was when you it was really developed. So now, you know, you can’t add any more units because, you know, we need 15 feet, and you only have 10 feet, because it’s like the grandfather rules. So they don’t like to bring in new units or because the older units, let’s say from like the 60s. Now we have double wides and we have a lot of bigger units that’s not going to fit so you have to have a smaller unit in there, which obviously less rent so yeah, but also the main Yeah, underwater, the water, all that electrical all the underground is definitely key to making sure there’s nothing no No hidden surprises, because if you have to replace, you know, all that that can be hundreds of thousand dollars or you know, if it’s water treatment plant things of that nature, usually, I mean, the old school way everyone wants city sewer city wire, because obviously, they maintain it and has the highest standards, but there’s still avenues for some of the other, you know, the lagoons water treatments, depending on a case by case and depending on what it costs, you know, the local city. So it’s not all you know, they will book the books would say, hey, you have to be city water to see store. Obviously, that’s usually best, but there’s also some opportunities, sometimes other water sources on a case by case scenario.

J Darrin Gross 25:40

Got it. So give me an idea on on what space rent runs kind of the What are you seeing what’s what’s, uh, I mean, I’m sure it varies from Market to Market, but just kind of curious if not, if you can even compare to like what, uh, you know, multifamily, you know, space rent, or not a space but a unit rent, or, and I just kind of curious how you assess.

Jonathan Tuttle 26:08

No, that’s no you’re a hundred percent on the money with that question. That’s one of the best ways to evaluate because do you, typically a mobile home is about one third of a single family home or half the same an apartment building. So I would say the house is 1500. And the apartment is $1,000, then you want to be like $500, they need to go up to that it still makes sense. Market a market, Midwest and they did a survey for economics professors as I bought two years ago from Duke. And it said if mobile home parks, a lot of these, like I said, alluded to in the beginning is a lot of these parks that are 60s and 70s developed. And some of these people are second third generation, they’ve got millions of dollars of equity. And you know, they’re making 300 – 400,000 revenue a year just from cash flow. So they sometimes they don’t raise their rents, because they already have as much money that they need. And especially if you live in like a small town in America, and you have like $400,000 coming in a year, you’re doing pretty good. So a lot of times they’re saying that for the going back to the Duke professor, he was saying their lot rents than say the early 60s are 50 50 bucks approximate across America, that would equate to about $500 today, and today’s you know, with inflation, but we’re seeing if you don’t include you’re in Seattle, correct, like washing problem for that same same thing. Seattle, California, the whole coast up there is that it’s crazy compared to what we see in the Midwest. So Midwest, we’re seeing a lot rents depends on market three to 400. If it’s closer to a bigger city, five to 600. Same with like Texas and Tennessee, but California, Oregon, and some of those states are seeing high like seven 800. In California, obviously you have the park in Malibu when Matthew McConaughey lived and Pamela Anderson, that thing was like $2,000 a month. But you’re right on the beach in Malibu, and the houses across the street are like $30 million. So yeah, see, it’s all across the board. But on average across the country about 350 to 425. It’s kind of like the number you proximately. See. So it’s still below what it should be if you’re doing it based on inflation, according to that Duke study.

J Darrin Gross 28:20

But even even with those numbers, you’re able to I mean, they’re trading it like said, anywhere from a six I mean a six cap, is that kind of acheivable based on? Yeah. So I mean, it’s easy to get caught up in the big numbers opposed to the rate of return, which is really at the end of the day. That’s, you know, what, you’re what you’re looking at there. You mentioned financing. You know, typically you think of like, you know, I guess a you know, a larger Freddie or Fannie property you can get by more often I think we’d like 20% down. How is that? In your experience with with a mobile home parks? What’s kind of the Down Down Payment requirement?

Jonathan Tuttle 29:05

Yeah, it’s actually for us. It’s about we’re seeing about 30 35% right now. And then reserves have gone up from about six to 12 months, and sometimes up to 18 months depends on the asset. They hold it for about a year. So obviously, what the the basis, the 10 year Treasury were like historic lows, it’s just it’s, it’s it’s a no brainer to get these things financing right now, because we’re about 100 basis points less than last year, this time last year, and they were kind of expected to hold for this next two years, kind of to provide stability for investors and they’re kind of you know, mentioned that, but about 30 35% down cmbs it’s pretty similar. And then like I said, two and a half or 2.753 and a quarter rates non recourse great. 10 year 10 to 12 year terms, mostly 10. So your most common. Local banks is your biggest curveball because if They’ve had a relationship with the other Park owner, like they were collecting the rents and they saw the revenue, they might take it over, because they just know they’re familiar with the asset class. You could run into issues like in a small town or even like a secondary market, like oh, yeah, we love mobile home parks. Yeah, we’ve heard so much good things about them. And then they go on the, you know, they go once you’re about to close, they’re like, Oh, we went through our board. We’re not comfortable with this.

J Darrin Gross 30:27

Oh, really? Have you had that happen?

Jonathan Tuttle 30:33

sloshed Rania their backs down and like, it kills deals? Not us. But I knew a lot. I’m not alone. Yeah, no, not for us. We haven’t had that happen for us. But I know people have had that issue with the banks. Definitely just backing out at the last moment. So and the rates are higher, they’re about five, five and a quarter, five year terms. So they’re not, they’re not as attractive. And usually, if it comes to that, and if you have relationship with the seller, see if they do a seller carry for a few years, then go back, improve the park and make it appealing to Fannie Freddie. As long as it has the visual appeal and you hit their you know, their checkmarks thing go back to Fannie Freddie like here. I know you guys have a 35% whatever quota for affordable housing, I got this great asset personally managed by me. Can you do? You know? Can you do a loan on this?

J Darrin Gross 31:20

Got it. You were talking about the expense ratios? 35 to 42% kind of a range? That includes third party management are you guys manage it yourself? Or how do you take care of that?

Jonathan Tuttle 31:35

Yeah, that’s including that’s why it could be in number 42 is like using what third party management? Yeah, but we have the biggest property manager or the ones we own personally and we do it ourselves. They’re they’re smaller parks, so it doesn’t need as much but and we’ve we found still is when you’re buying parks, the bigger is easier. It’s more operational efficiencies and 75 and above, that’s why we’re focusing on that 75 or 250. For our fund. We have a third party manager which is the biggest third party management in the country, they have 32,000 lads they manage including Apollo groups and they’ve 35 years experience so we have that plus we train the management that in place in 80% will stay but we’ll have them we have certain criteria what they have to do and we’re going to bring in technology efficiencies over each other management call rail, everything to make sure we’re monitoring them like trust but verify Ronald Reagan, but still provide best practices but we’re on top of everything.

J Darrin Gross 32:31

Got it. okay. So describe for us what a an ideal just you know, I’m a fat pitch looks like for you guys something that would be just something you would love to have

Jonathan Tuttle 32:45

pretty much everything right now for Parks. It’s a four or five year run, in our opinion to acquire. It’s, it’s because you can’t remember, you can’t develop new ones, it’s almost impossible or it’s not economically feasible for four or five years before you can start breaking even. So right now and that’s why you’re seeing all these, you know, other institutional players coming in they’re building portfolios, and people are just trying to build portfolios to funds or, you know, high net worth families and these mom pops are getting these huge paydays. But if you build a portfolio, we want to build a big portfolio and then sell it later. Right for in terms of acquisition, like Tennessee, Texas, Midwest, six and a half cap and above, depending on like, I mean, there’s not just cap rating, obviously, there’s other factors like what’s the property manager, like the shape of the property and the underlying issues, but just to clean Park, senior parks love SR products, they do extremely well. Obviously, they don’t, you know, they stay forever, then they’re great tenants, they’re cleaning their yards and maintaining it and like we have one of our parks is senior Park, you have a former military guys kind of like the police. You know, the sergeant of the parks have any suspicious vehicle drives by he’s out looking at it. So drives away any issues like senior parks are phenomenal. Just like pride of ownership because they come in they it’s their their pride of ownership live in this park. So those are great, fantastic. And then anything we’re the expenses are a little bit in the high 30s low. Anything below 40 is great. So because it’s comparatively if you compare it to multifamily or other asset classes in the 30s. I mean, your your expense ratios is so much cheaper. So

J Darrin Gross 34:26

No that’s awesome. I appreciate sharing them. Hey, Jonathan by day, I’m an insurance broker. And if we could, I’d like to shift gears here for a second. One of the things we do with our clients is to do some risk management, we kind of try and assess the risk and come up with a strategy. And there’s a couple different strategies we typically look to the first as we look and see can we avoid the risk. If we can’t avoid it, then we look to see other ways we can minimize the risk and when Those aren’t necessarily options. And we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests, if they can look at their own situation, it could be your, your way you invest your clients, the market, interest rates, the economy, however you want to identify or, you know, focus on what you consider to be the biggest risk. But I, you know, I’m just trying to get a range of risk. And for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Jonathan Tuttle, what is the biggest risk?

Jonathan Tuttle 35:46

Sure, sure. One thing we try to do as mitigate risk, and that’s one of the reasons we call ourself as the safest risk adjusted return in real estate. I mean, we’ve, it’s historically been really low. But the biggest challenges are like, could be the city if it’s a small city and not allowing you when you’re purchasing making sure that they don’t allow to not allow you to basically transfer ownership of it, or you can’t bring in new units, which I mentioned with the setbacks. We’re not we’re not doing coastal. So we have to worry about hurricanes, and flooding and things of that nature and making sure you’re not in a flood zone. Because even though you’re you know, 30 to 36 inches off the ground, you still want to be in a like next the Mississippi River and it goes over the house. In California, obviously, we’re trying to be away from California with the fire. So we we’d like to Midwest we don’t have as many challenges. It’s usually more snow related stuff. And that’s, you know, it could be accidents, you know, cars driving through. But, and our industry specifically has a lot of insurances really tight. Like you can’t even have certain dog breeds, because or pools or trampolines they’re really stringent and like what could be allowed in a park before they’ll even do insurance on the park asset because like a dog bite or, you know, kid falling off a trampoline or break his neck, it’s, you know, the park owner has multimillion dollar asset, they’ll get money off of that, obviously. The other challenge, I guess would be to, it could be rent control. We’re fortunate enough to be in states that really don’t have rent control, and we identify that but long term and even like multifamily or any real estate, investing, rent control, is going to be a big issue because people have to look at two ways then when the investor comes in. Taxes always go up, maintaining things, just think of anything you buy anything after you have it 10 20 30 years, your car, your house, your each fact goes out your roofing goes like breaks down your car, engine, whatever your breaks, there’s always routine maintenance. And if you can rent raise your rent in accordance to a) inflation, b) to also maintain the capital expenses that need to be put back into the asset over time it’s going to the perks are in real estate, it’s going to quality is going to go down the park owner or the real estate owners be like, I can’t even make a profit on this. If I can maintain rents to pave a) to keep up the inflation and b) to maintain this asset. There’s going to become slumlord. So that’s kind of like an issue. It’s kind of how I find that happy medium. The rent control could be a big issue where I know because you guys did something but it was like eight or 10%. Right? It was like percentage, and then it was a percentage above inflation. They factored it in I forgot exactly what it was or eight or 9% I think Oregon, but which is which is fair for both sides. But because that’s still the average mobile home park. rent increases like 4%. So it’s basically a little bit above inflation. So it’s not like the big issue is some people here the private equity comes in, and they buy some mom pop, they’ve had it for 30 years. And like I said they haven’t you know, care, because they have millions of dollars of bank, they have three hundred lot rent, and private equity, Wall Street comes in like, well, let’s charge 600 because we can. So then that goes around and then the local governments like all you raise the rent double This is not fair, which Yeah, I mean, we try to do you know, 25 50, whatever is reasonable, and also put in improvements. They come in and like double it, it gives a bad name. And then then of course they have these huge returns their investors. That’s why you if you Google, some of the articles like manufacturing, mobile home parks have had crazy returns because people have had the assets for 30 years. It’s supply and demand, you can’t develop them. And then you have you control the price of like what you want to charge for rent because there’s nothing cheaper. So that’s fine, that happy balance. And I think that goes back to the whole risk is like as long as governments don’t come down on rent, because rent is the biggest driver of the noi. So that’s the biggest risk for shurearing his future regulation.

J Darrin Gross 39:52

No, I appreciate you sharing that the that whole rent control thing here in Oregon. I know it was if you look at historically It was basically one year, where the rent actually increased beyond, you know, on a percentage basis, whatever this I forget what the percent was. But historically, it’s always been like three to 4%, ya know, what people have gotten. And basically it was it was a function of you had a lot of people losing their homes, and the demand for rent rental properties far exceeded the and so what ended up happening was, you know, you just had this influx, kind of a market thing, which was, so it’s kind of funny how they, they blame the landlord on that, but but you’re right, though, I mean, with with the the fear of, you know, some of these big wall street funds coming in and in buying it and not being sensitive to how you can do that. You could throttle it up so fast that it draws attention, and kind of sours the whole thing. I think that’s, that’s a, that’s a real risk. So I appreciate her now. Hey, Jonathan, where can listeners go? If they would like to learn more connect with you?

Jonathan Tuttle 41:05

Sure. Sure. Yeah. So the fun is called MidwestParkcapital.com, or if you’re looking to see the ppm, which is like the private placement, which actually breaks down the company in depth, go to Midwest Park, capital, fund.com, everything how sounds are 833MHPfund.com somehow got that. So that’s kind of for somebody wants to find more about mobile home parks. The good thing about the fund aspect is you get a taste of the industry get the tax benefits. We do all the heavy lifting for you, you get quarterly payments distributions. And you get a nice stable, you know, sleep a night return without all the risk. And it’s a way for people to get in without putting down to even buy your own small park and have to put in five times seven times just the down payment. And you have to do diligence and you have to run it, we do all the work for you. So MidwestParkcapital.com, or my Facebook is a Jonathan Tuttle official. So those are the two best ways.

J Darrin Gross 42:05

Got it. Well, those will be in the show notes. And, Jonathan, I want to say thanks for taking the time to talk today. I’ve enjoyed it and learned a lot, and I look forward to doing it again soon.

Jonathan Tuttle 42:18

Sounds great. Appreciate it. Thank you.

J Darrin Gross 42:20

For our listeners. If you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 42:39

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Senior Living Multifamily with Vinney Chopra – CRE PN #288

Vinney Chopra 0:00

My investors in multifamily for the last 13 years have been wanting to get cash flow from day one, I close on the deal, and I start paying them cash flow every quarter from the day of the closing. Right? So I should come up with a better plan to tell them first year it’s dirt. So I’ve been using the word Dirt, dirt, dirt. And they understand that and say no, don’t worry about it, because we give you a monthly review of what’s happening with your money with the ground being broken and bulldozers and drone footage of you know foundation and everything. So we got it all planned, where people can go log into their our Appfolio website, they could see everything happening with their money. Then second year, they get not 7% return, giving them 10% or 11% return cash flow because we build it in 12 months!

Announcer 1:03

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast . Whether you’re an investor, broker, lender, property manager, attorney or accountant We’re here to learn from experts.

J Darrin Gross 1:23

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide your experience and insight to help you grow your real estate portfolio.

Today, my guest is returning guest Vinney Chopra. Vinney is a real estate investor. He’s a syndicator. He’s an author. He’s gone full cycle on multiple syndications. And in just a few minutes, we’re going to talk to him about the new venture he’s invested in, which is the senior multifamily living and why Senior Living multifamily is so essential. But first, if you like our show, there’s a couple things you can do to help. One you can like, share and subscribe to our podcast. And if you’re inclined, please consider leaving a comment we’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that on welcome back my guest, Vinney, welcome back to CRE PN Radio.

Vinney Chopra 2:48

Thank you. Thank you so much. Darrin, it’s such a pleasure. I’m so tickled. We are on the show again. And thank you for inviting me. I know you have done quite a few really great shows last year also we did it and even a year before. I’m back with you. I’m so glad. Yes.

J Darrin Gross 3:05

And we have actually if the listeners or viewers are interested if they go to YouTube, there’s actually I’ve got a playlist that’s got all the Vinney interviews we’ve done and we’ve covered a number of topics over the years. We’ve we’ve gotten into multiple topics on multifamily. We’ve done how the numbers work syndication, buy sell agreements. Operation I think the list is extensive. And it’s it’s definitely an educational platform. I encourage anybody to go check out. But today you know, you’ve been very, very busy. I mean, we were just talking before I push the record button. Here we are. We’re recording this today. It’s It’s October 14 2020. We all know that 2020 has been a humdinger of a year as far as all the challenges with COVID in that. But you while sitting in your your home area. It’s your I mean, you virtually not traveled at all,

Vinney Chopra 4:09

Not at all, zero.

J Darrin Gross 4:10

But right before COVID You are like a globetrotter you were like I mean, I remember seeing pictures all over the globe. You were weren’t you? Weren’t you traveling all over?

Vinney Chopra 4:20

We were in Ecuador. You’re right Darrin, and also Amazon and Galapagos. And thank goodness, my wife and I, we love to travel, we had six trips planned this year yet, you know, after our Amazon travels, because it’s our 40th wedding anniversary. So we started planning this year to be the best year in travel. every two months we were going to be gone away, right? But we did get one trip in and as soon as we came back, we had to cancel them because of COVID-19. But you know, my life. I always believe whatever is happening, it’s going to happen. So never fret about it. Never think it’s second you know that What if? You know, so even our children were going to go with us this year Neal and Monica in several other trips, and we are paid a lot of monies and everything, but you know what, we’ll do it next year or the year after watching who cares, right? So right, that attitude that, you know, hey, we are here, let’s make the best of it. That’s what it really got. Well, and I, you know, started two new companies. I also did the branding company, and then we got the hospitality and then the senior living, which we’re going to talk about it today.

J Darrin Gross 5:33

Yeah, I was gonna say, just but you know, while maybe the world has been in a little bit of a pause, you’ve had the accelerator to the floor. I mean, you’ve literally been tearing it up. And let’s talk a little bit about what you’ve done here. You mentioned you you’ve done how many syndications Have you done. This year,

Vinney Chopra 5:52

I’ve done 33 so far. So I did 28 as of last December, many of you might know, then I did one more just recently bought a $35 million deal in Austin, which was very good 308 units with my partner, actually, the son and his team, I love to work with them were in part 50 million last year, and then 35 million in December, but then our new partner Shahe them wrong, who is a very good partner and in senior living, that we have been talking and now we are drilling, you know together. So I did four syndication for that. So that’s why it is 29 plus four is 33 syndications.

J Darrin Gross 6:38

Wow. So let’s talk about your senior living. What you’re doing in senior living?

Vinney Chopra 6:44

Surely, I didn’t actually, I’ve been thinking about senior living for the last three years, three years, because when I read lots of articles, I read a lot. By the way, I listened a lot, read a lot. Look at where the trends are the big ship book game, and I started reading it, how everything is merging down south into, you know, Florida’s and Arizona’s how the population there is silver tsunami going through USA, and the world, which really caught my attention is 10,000. Baby Boomers like me, are turning 65 every midnight, every midnight 10,000 of them. And that’s like almost 60 some million, you know, a baby boomer at 65 Plus, right now, in 30 years, they’ll be hundred million. Hold on. So everybody’s aging in USA now. 85. and above. That’s another statistic, almost five or 6 million are right now. They got to grow to 20 million.

J Darrin Gross 7:52

So if you’re saying there’ll be 20,000,that are 85

Vinney Chopra 7:55

85 plus 85 Plus!

J Darrin Gross 7:59

Wow!

Vinney Chopra 7:59

20 million in the next 30-40 years. I mean, it’s tremendous that it’s so much demand is going to be there in real estate. See, we are in real estate. So we need to really look into the forward looking forward looking. Where is the demand coming? Where are the demographic shifts happening? Why you know we should be in this market is because they be so much shortage of housing in the senior with the 85 plus and 75 plus and 65 plus. So that’s why we decided I’ve been sending messages out in the universe. Let’s just say that, I believe in law of attraction, the secret and everything manifestation. And then I find John Lewis and my good buddy, and he’s brother of Joshua Roosen, and he joined my VP of the Academy. And I said, John, I really want to get into senior living. He says, Vinney, you’re going to talk to my buddy, I went to school with, Shahid Kahn. He’s been building senior living in luxury kind for the last 10 years. I said what? Here I never knew Shahid at all, he comes in my lap, and we do few zooms. And his passion is to build the best of the best of the best for such a reasonable price. And look at that. rest is history. So we have started already within few months 100 million dollar worth of senior living ground up hundred million

J Darrin Gross 9:37

Ground up. So this is this is a little different than just buying something that is existing product and and adding value to it. You’re starting from raw this piece of dirt and you’re going through the whole process

You saw. So right there. So essentially what I’m learning right now and I’m a student of anything, I mean, I believe believe that, you know, when I study when I don’t learn, I die. I that’s my thinking is I’m you know, so essentially you’re right. It’s like buying a land trust a lot of studies, find out where the needs will be where seniors are going, what’s the population of 85 plus 80-85? Then find out what’s out there in that marketplace, right, like market comparison, very similar multifamily. Like I buy those, right. But the biggest thing I love in this market is I don’t have to go out to jobs, jobs jobs, which I’ve been chasing for 14 years. If right whose job I have to give concessions or delinquencies, I mean, we have turnover a lot of things that are happening right. But in the assisted living when we build it ground up, it’s Class A plus. It has zero deferred maintenance, it got everything brand new appliances, everything new air conditioning, youJunaid right. And no turnover, no delinquency and no concessions. And the rents are four times Hold on. So expenses there because we have a commercial kitchen in all our facilities. We have two chefs, we have Restaurant Style dining restaurant style, five star restaurant, in the place in the place. We have movie theaters, we have spas, we have a salons, we have meeting rooms, we have billiard rooms, we have got pianos, I mean, there is a night life right in that multifamily for seniors there one story, there are four to six courtyards hold on courtyards, where people can go out and really enjoy the fresh breath there. No elevators, seven acres of land for only 88 units, seven acre. So we are just building this Taj Mahal, in all these different communities where people have very old, stinking, you know, very old style 2 3 4 story buildings, and our residents are not getting the same kind of service and the food and everything like we do. And we have our own transportation, buses, everything, um, you name it.

So you are also not, you’re This is not just a quote landlord, you are the operator, which you mentioned the the kitchen facility, but is there any care that’s built into that as well?

Vinney Chopra 12:35

Yes, it’s total care. This is assisted Senior Living luxury, and memory care. And memory care.

J Darrin Gross 12:42

Vinney Chopra 12:43

So about out of maybe 88 or 92 units about you know, 68 or so are or 73 is 68 are regular assisted living. Then we had a memory care also right in the same building. So that because when people are that old 80, 85 you know, they will probably be our average stays 2.4 we manage all our communities also. Just like we’ve been vertically integrated in my life for multifamily. You know, we have the same procedure here. Care givers, we have 55 caregivers for 88 residents Hold on,

J Darrin Gross 13:23

Oh wow.

Vinney Chopra 12:36

55. It’s a three shift. See, it’s a around the clock. And it’s caregiving. And it’s like the bathing and medicine and you know, all those, but it’s not acute nursing home. It’s not rehab center. There are no doctors, right. So we have had zero COVID effect and zero deaths in our facilities, which Emraan has built and we manage seven of them right now. Seven of them. He has built 21 of them, you know, so he’s really done this over and over again. He’s got the general contractor’s He’s got the whole recipe, right? So it’s just my good fortune that I found him through John. And now we are in partnership together like anything. I’m the money raiser, we can raise hundreds of millions of dollars. Next year. My goal is $100 million to raise. And we’re going to be building six to 10 of these facilities every year for the next 10 years.

J Darrin Gross 12:36

Wow.

Vinney Chopra 12:36

Yes, yes.

J Darrin Gross 14:28

That’s awesome. And we’re all are you doing this where you mentioned the Sunbelt kind of thing where?

Vinney Chopra 14:33

You’re right see because as the age groups you know, that 80 85 or 90, gravitation is that the seniors have a better lifestyle in the warmer climate, warmer climate. So that’s why we are going in Virginia, in Florida all over the place, Texas. We’re going big time in Texas. It’s hot there, and Arizona, even coming up here in the Bay Area. We’re in my backyard. And then coming to Washington where you are Portland in Washington, because a lot of seniors are retiring, you know, and my partner based in Michigan, because he’s from Michigan. So if anybody wants to check us out Hampton Manor, just google it Hampton Manor is our brand. And Michigan just say Michigan, you will find there are like 17 different towns in Michigan, where there is a Hampton Manor in every town.

J Darrin Gross 15:31

That’s fascinating. So now is this are your plans to build and hold build offering the holder? Is this a like a sale? Is there an exit date? Like in a traditional syndication?

Good point. Good point. Darrin, I’m an engineer, right? I always think and I see, okay, how I’m going to sell it to my present investors, right? I have the grace of God, I saved hundred 68. Now I have 207. I think I just saw a list going like crazy through click funnel and branding and everything. So we do three point contact and meet with them. And then in the future, when the deal comes we offer right, just like syndication is done. The good part is that we I knew that it’s a ground up construction, my investors in multifamily for the last 13 years have been wanting to get cash flow from day one, I close on the deal. And I start paying them cashflow every quarter from the day of the closing. Right. So I come up with a better plan to tell them first year it’s dirt. So I’ve been using the word Dirt, dirt, dirt, and they understand that and say no, don’t worry about it. Because we give you monthly review of what’s happening with your money with the ground being broken and bulldozers and drone footage of you know foundation and everything. So we got it all planned, where people can go log into their our app for your website, they could see everything happening with their money, then second year, they get not 7% return, giving them 10% or 11% return cash flow. Because we build it in 12 months, we build it and then we start managing it. Actually we are 50% occupied the day we open, because we have a marketing arm that goes in advertises locally, and everything and we get executive directors hired and everything marketing starts. And then by the time we do ribbon cutting for opening, we have 50% already leased pre leased, which is unheard of By the way, within nine months, we are 100% full hundred percent full.

Wow, that’s awesome. So the the target market you mentioned 85 to 90 is that’s kind of the the age of the occupants is that the

Vinney Chopra 18:06

It is. See what happens during this to your audience to assisted senior living as the Word says it’s not independent living, it’s not living in your own home, right. You know, if you don’t need assistance, you could live in your own home, right, as long as whatever age, but if a spouse passes away, we find that the degradation of the life starts to happen. You know, people need that somebody significant, you know, somebody they could talk to, and live with, and you know, get to know and have a social life, there’s the word right social life. And then if they cannot cook, or that’s another trouble, you know, and then if they cannot take medicine and properly and all that, or if they had a slip and fall. Wow. So then families get together and they say you know what mom and dad, you’ve got to get into assisted living. So they start looking for within the 20 30 mile radius where they’ve been living to see where is a good place to go. Right. So that’s the what we do. In our case, we don’t take any medical, any Medicare, no nothing because our facilities for regular people. We don’t charge $7,000 $10,000 a month at all. It’s luxury at a budget, we call it because we charge only 3,800 to 44 or 4,500 depending on the level of service, which includes three meals, snacks, and the use of in of course all the utilities paid their linen, their laundry, everything is taken care except the cell phone. That’s the only thing. Entertainment, ADL says activities of daily living all that done. Care giving is all included in their transportation is all included in there in that price. So that’s what we provide to the our seniors. And they have to do the due diligence, we have to check their health, full health, because we had zero COVID effect, because we are so particular and be locked out. Even the families could not meet their parents, we made ait sure, because we didn’t want anybody to die, you know. So they have been doing this birthday’s through the window, hold on, through the window through videos and all that. So we’ve been very, very particular now we have done quarantine, one segment of our building, we somehow planted where it’s an independent unit with kitchenette and everything. So we are able to put plexi glass and the families have to show 14 days of negative to see their family to their mom and dad. And we would even notice by governor of Florida hold on cutting edge. So on our side, we were the first one, Cape Coral, if you google us, Cape Coral of Hampton Manor of Cape Coral, we were in the news. And then we did the same thing in Michigan. So we got recognized because we are on the cutting edge in making sure that we are able to follow the CDC guidelines, lockdown, zero deaths, zero COVID effect. So we are just very, very particular. Because this age is like that. And our residents live in our communities for 2.4 years average. So it’s not the working class who come in and out turnover is so strong, right? In our case, they come in, then they are there for life. And when we want them to live for five, six years, even their families tell us that Oh, my mom and dad have gained 10 pounds. Yeah, good thing, which is because we are very particular about the five star dining, five star dining. It’s not the same food, which is made for everybody. And everybody gets it. No, no, it’s made to order made to order.

J Darrin Gross 22:13

That’s great.

Vinney Chopra 22:13

The head chef and the junior chefs and all and served in a beautiful dining. They know I just sent to that movie of the place. So you will see that right the whole movie put together we’re putting it on YouTube soon so that he could share with the world. Yeah.

J Darrin Gross 22:30

Well, it’s it’s fascinating from from being more of a an apartment operator with the the general population where you’re like said, You’re constantly chasing jobs, where are the jobs where the jobs are the job? Now your view is totally different where the seniors, right I mean, we’re where’s the

Vinney Chopra 22:47

I don’t need any jobs, I mean, I’m in communities and the lakes and very good lifestyle, and we’re the seniors would like to move, and you know, there is need to be there, you know, so we do captivate, want to share that capture rate is because our product takes six to nine months, sometimes 12 months to pass the ordinances to get the permits to get architectural drawings. So and then we take about a year to build it. So we are coming, looking into the future two years from today, to bring a product out. So we have to be very careful with our millions, that we spend our own millions to do all these things, you know, so, I mean, you know, it sounds easy, but it’s not that easy. I just want to mention everybody, but the good part is the rewards out there.

J Darrin Gross 23:39

No, that’s that’s fascinating. And and I think the thing that I’m most impressed by is just the all the success you’ve had with multifamily syndication. And now you found this new kind of a vein of opportunity with the senior living and it sounds like it’s even, you know, that much more based on way, you know what you have available or what you are working with.

Vinney Chopra 24:02

while you’re working. So true there and then it’s good for next 40 years, I wouldn’t be alive. I’m 68. Right? So I’ll be hundred eight. Maybe I’ll be one in

J Darrin Gross 24:13

See you in the dining room.

Vinney Chopra 24:14

You know our goal, play bridge and cards and billiards and so we’re putting pianos we’re putting all these great things, movie theater, right inside this place, salons and beauty, you know, and the small dining places and just you know, sitting down in the cafe and the Bistro, and going to the swimming pool and putting green, every single one has putting green also, and waterfall functions and everything so that they could really enjoy the life. Our motto is to spoil the generation that has spoiled us. So

J Darrin Gross 24:53

That’s great. That’s great. Well, just the the numbers I mean, you mentioned You know, two and a half years average stay the I’m just thinking about the the type of tenant I don’t imagine they’re too tough or rough on the property, the ability to, you know, the need for touch up or whatever, when we do have somebody move out. I mean, I can’t imagine being here.

Vinney Chopra 25:18

minimum.

J Darrin Gross 25:18

Yeah, yeah,

Vinney Chopra 25:20

you’re right there. And, you know, these are specially designed communities that we build with, you know, high ceilings, right. And also, the doors are wider, everything. And within the apartment, you don’t need too many doors, because they are so frail, in the age group is at 8485 to 90 to 100. So they just should be able to go in and out, as you can see in the movie. So we have just perfecting what it should be, you know, and they love it. Yeah.

J Darrin Gross 25:55

That’s, that’s great. I’m, I’m so happy for you. And congratulations on all your success, sir. That’s, that’s awesome.

Vinney Chopra 26:02

Thank you. And we’re coming up with the book too, by the way, you know, your audience know, this book did really well. And if you have not seen it, please do go and buy Spanish, you know, partners and readers, please go ahead and look at Spanish version of the same book. And then my other book came out, which is the Positivity Brings Profitability. Again, please look at my third book is coming on Investing In Senior Living Made Easy. So we’re really teaching everybody what senior living is about why we feel so compelled that we want to be in this market, along with others. So I have about four businesses right now. Five, six. Anyway, it is buying apartments, which I’ll keep on buying B class B plus, in good growth areas, just like I’ve been chasing that. The other thing is my hospitality, because we’ll be buying we just bought Hilton Garden Inn may be buying Marriott’s and Comfort Inns, we’re looking into now with COVID, we’ll have even better deals come on our table. So we’ve been buying them, you know, when my partners, then my other business is Senior Living ground up, ground up. So that is the one we just share. And it’s a three year hold and everything. We are not selling any securities. But if you’re interested, just reach out to Darrin or myself, you know, and so on. Third one, is we becoming a REIT. What is that? Because Emraan our partner was selling after all this hard work and running the operation and everything. Guess who was buying them? REITS. Or some big fund or something? Then he sat down with them two months back, I think they said, Ron, we want to make you a partner with us. That’s what he said. He said, Really? Okay, how does it work? He realized quickly, he was going to get peanuts, just like 10% in the whole REIT. Here he could that whole hundred or 50% with me if 50/50 right. So he said Mr. Chopra, we’re gonna sell nobody nothing, we could achieve them ourselves. So that’s what we are doing now. So we’ll be buying everything we have building will cashing out our investors. After three years, so two and a half years, get new investors in for the next five to seven years. And then flip it again, get another LLC, the exciting part is there, you’re ready. You do cost segregation every single time when you sell a new in new entity, right? New entities brand new and you do cost segregation, then flip again, sell it yourself for another entity do cost segregation again. And this way I can give my investors so much money back. And then they could even do 1031 so never have to pay any taxes at all ever. They just keep on going from one to next to next next.

J Darrin Gross 29:09

That’s That’s awesome. You keep figuring out the ways to make the money rain. That’s awesome. That’s great. Hey, Vinnie, before we wrap up here, I always like to ask people about risk. You know, the I think you’re one of the first guys I asked it, but it’s been a while. So I’m going to see if you if you don’t mind, I would like to let people know that by day. I’m an insurance broker. And we assess risk. That’s what we do with our clients. And we look to see if we can, what we can do to manage the risk. And there’s a couple of different strategies we look at we first looked to see if we can avoid the risk. Yeah. If we can’t do that, we look to see if we can minimize the risk. And then if neither of those are an option, we’ll see if we can transfer the risk and that’s what an insurance policy is. And I like to ask my guests if they can look at their situation, whether it be their clients, their investors, their tenants, the market, however they want to frame the answer. But if you can identify what you consider to be the biggest risk, and, you know, just for clarity, I’m not necessarily looking for an insurance related answer. But if you are inclined, Vinnie, I would love to hear from you. What do you Vinney Chopra considered to be the biggest risk?

Vinney Chopra 30:30

You know, I’m so glad I mean, you know, I’ve raised $140 million I was just counting in my wife. My wife is my Investor Relations. As many of you know, our daughter, Monica is now VP of operation, and we just grown so much. But the key thing is, as the investor gives you money, you know, Darrin, they want to know, Vinnie, what if you die tomorrow, right? So we have to really as business owners, and I highly recommend everybody listening to us to really sit down with Darrin or anybody who can really change you and tell you, what are the risks involved in your business? You know, it could be your death, it could be your transferring of the wealth, right? It could be like, we’re into ground up construction, what are the different risks involved, when the GC runs out, or runs away, or doesn’t have or slip and fall and, you know, anything, fire is there or wrong, mechanical, you know, systems are put in. So those things are very, very important. Of course, buying the multifamily, the renter’s insurance is so, so huge. Not only that, also the property has to be properly insured. And the lawsuits and the directors insurance, I mean, I got, I had three or four lawsuits in the last 12 years, and I cleaned up, I totally didn’t have to pay with $3 million lawsuit was going on with me, mediation came and the insurance setting for 500,000 I think I have to pay zero money. Zero money. If I had really said, Hey, I’m totally bankrupt, you know, I wouldn’t be bankrupt. But the thing was, I just didn’t let it bother me. I just kept on going kept on going in my thing. I knew my insurance company’s gonna take care of me, right, you know, so it’s very important that we get the best of the best. And, you know, like the GL general liability, right? umbrella policies on every property, I’ve had 6 million to $10 million, even the smallest of the smallest properties, because I believe paying that small premium is well worth the nighttime sleep, which I like to have really good sleep. And then it takes the risk of a you know, I can racial discrimination lawsuit. I got mechanical lien on property. So things like those happen right there. Yeah.

J Darrin Gross 32:58

Yeah. No, they do. They do.

Unknown Speaker 33:00

Yeah.

J Darrin Gross 33:01

I appreciate you highlighting the the the insurance aspect of that that’s always there. And, you know,

Vinney Chopra 33:08

thank you so much. It’s a pleasure to spend time with you. And I hope if anybody would love to find out more about senior living, investing, and so forth through Darrin, please call Darrin and we touch base together.

J Darrin Gross 33:23

And Vinney for the listeners where where can they go to find more learn more about you? You know,

I have actually on over the internet, I don’t do nothing. I just get up in the morning. I’m all over with the posts, because by branding company, you know, I pay them some money in to name India, then you’re using them. And they do all the things for me, but just Google me Vinney Chopra. I have three websites now. One is Vinneychopra.com. Vi nn, e y ch o pra chapra.com. Monealinvest that kid’s name Monica and Neal invest.com. Then my third website, which is getting this for many great great investors is Senior Living investing.co Senior Living investing dot CO or senior living investing Made Easy, the new book that we are coming out with, we have taken the website domain on that one also.

Awesome. I will list all those in the show notes. And I appreciate you doing this thing. I always enjoy the opportunity to talk to you and learn. You always come with great lessons. And I look forward to doing it again soon.

Vinney Chopra 34:45

God bless you, your family and stay healthy, stay safe. You know this COVID is going to pass but let’s just use this time to grow our businesses and to learn more and be more passionate about life because I can spend more time Time What a great thing with lunch and dinner and, you know, breakfast with my wife and kids and do the kind of things we always wanted to do. And that can be right now. So God has given us an opportunity. It’s the silver lining in the dark cloud, we should always look for.

J Darrin Gross 35:18

Oh, amen to that. For our listeners, if you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate pro networks. cr e pn radio.

Announcer 35:39

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On Demand Affordable Legal Counsel with Johnny Merritt – CRE PN # 287

Johnny Merritt 0:00

Started with them just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls in the front. Like, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this this relationship actually encourages the clients to call the attorney and frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same thing.

Announcer 0:51

J Darrin Gross 1:10

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Johnny Merritt. Johnny is an equity partner of Hajjar Peters LLP. He’s an attorney with over three decades of experience in complex corporate and real estate matters. And in just a minute, we’re gonna speak with Johnny about how a on demand fractional General Counsel relationship can work for you. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do. You can like, share and subscribe. And as always, we invite you to leave a comment. We’d love to hear from our listeners. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel at Commercial Real Estate Pro Network on YouTube. And while you’re there, please subscribe. With that I want to welcome my guest Johnny Welcome to CRE PN Radio.

Johnny Merritt 4:05

Thank you so much for having me. It’s it’s exciting for me to be here. excited for me to talk to somebody from Austin to Oregon. What, what great, great opportunities we have to share information.

J Darrin Gross 4:18

It’s gonna be good. Looking forward to it. Before we get going, Johnny, if you could take just a minute and share with the listeners a little bit about your background.

Johnny Merritt 4:29

I’ve been an attorney since since the late 80s. As you can probably tell from my gray hair and I graduated from law school late 80s wanted to be a transactional lawyer was focused on being a transactional lawyer and I graduated and accepted the job of the transactional law firm and the savings and loan crisis hit the light 1980s. And shockingly the federal government hired the law firm I was going to work for the handle directors and officers liability cases all over the nation. And so for the first 10 years of my practice, I went to a transactional law firm and did litigation for 10 years. And but I’m not a litigator and transactional attorney. So after 10 years, this was between 20 and 25 years ago, I decided to stop doing litigation and focus entirely on the transactional work. Since that time, I’ve done corporate work, done a lot of real estate work, and and has served as a outside General Counsel for $1.5 billion company, which, which frankly, showed me the value of relationships between attorneys and their clients. So the last 25 years, I’ve done real estate corporate work, and kind of been the go to guy for businesses who need help with their transactional work.

J Darrin Gross 5:59

Gotcha. That’s an interesting introduction into the legal profession there the the crash, and go in and litigating the directors officers type claims. You know it’s funny,the, it’s just trying to think of as you were saying, you know, your background wanting to be transactional, but yet ended up litigating, is it not? Kind of a thought that if you don’t have your your transactional paperwork set up properly? That are you I mean, one of the reasons to have the transactional paperwork, and all the contracts set up is to avoid the litigation? Is that not?

Johnny Merritt 6:45

I think, I think that’s absolutely correct. I mean, one and we’ll talk about whenever you’re ready to fractional General Counsel of one, one reason I want to do that is because I want to encourage communication between myself and my clients. And and certainly to the extent that we can help clients in setting up their transactions and or reviewing contracts we do, we can help avoid litigation. But I will say this, I was speaking to a group of Baylor Law students a couple of weeks ago and about and asked them the question the class, what do you want to do? And then I explained to them, what you probably will do is whatever comes in the door, and and then explain my experience with with becoming a transaction that litigator in spite of the fact that I wanted to do transactional work, but you’re absolutely right. We, the goal, frankly, after being in litigation for 10 years, I don’t like litigation. And so my goal is to help clients avoid that, and frankly, at all cost, if we can.

J Darrin Gross 7:51

I would think also, having had that experience, like you said, wanting to help people avoid that it would give you some insight as to, you know, ways it can be avoided is that did you find that to be the case?

Johnny Merritt 8:06

I do. And and through the through the 25 or so years, as a transactional attorney, there have been lots of instances when I wish a client would have called me beforehand, so that we could have avoided problems and and and but but it does, the other thing that it does is as I’m reading a contract, or as I’m setting up a company, or as I’m thinking about the structure for a specific deal, it’s my first 10 years of practice is always on my mind. And I’m always trying to avoid those. What litigation is a lot of times it’s transfer of wealth, I think from from the the disputing parties, frankly, to the attorneys. And so to the extent that we can avoid that we tried to do that.

J Darrin Gross 8:57

No, I have a few clients that would concur with that. I have I’ve, I’ve seen it. And I think that, you know, like any industry, there are those that deserves a reputation and others that that basically are, you know, fall to the reputation of others kind of thing, but just that notion of that, you know, the attorneys are in it to, to, to get paid, you know, and to, to keep it going as opposed to seek a solution kind of thing. So, but like I said, there’s no there’s reputations in in all all different fields of work. There are some some, you know, good ones and some bad ones.

Johnny Merritt 9:43

Well, there’s, there’s no question a lot, a lot of the reputation that attorneys have are well deserved. And, and but, and frankly, at my age, I’m 59. So it made you reflect back on your career and I’ve had the opportunity to look back on the history The law profession and and and have studied where the law profession came from. And it’s unfortunate the way that that that the law profession has has, has become perceived. But But listen, I’d be your listeners would turn me off if and turn the program off if I didn’t acknowledge that the reputations in lots of instances well deserved,

J Darrin Gross 10:28

R ight? Well, and again, I don’t mean to count cast a broad brush and insurance we have the same kind of a challenge sometimes. But let’s talk about, you know, legal representation and and you know how a traditional relationship might work as opposed to kind of your fractional on demand model?

Johnny Merritt 10:57

Well, what I’ve noticed is that attorneys are really compensated in two ways in a very traditional sense. One is the, what you typically hear of is a contingent fee case where, you know, the McDonald’s coffee is spilled, and the attorney sues on behalf of the person who was injured, and they get between 30 and 40, sometimes 50%. Well, and that doesn’t work very well for a business model. But the way that that that transactional attorneys typically bill is by the hour. And what I’ve found through the years is that that creates a natural conflict, if you will, or perhaps conflict is too strong a term but perhaps not. The hourly fee, I think discourages calls the attorney, the businessman who are looking at their bottom line, they want to save money, they want to budget for things and and as they look at this contract, they think to themselves, I can call my attorney, but they’re they’re there, they’re going to start their clock and their clock going start taking and for what seems like a minute or two call, I may get $150 bill and, and and frankly, attorneys, particularly in the real estate arena, we don’t provide sexy drawings with the things that architects provide or, or plans where they they set out things that are the real estate person loves to see, what we’re doing there typically is just an expense. So I’ve started I started thinking many, many years ago, how can we change the paradigm? How can we make put the attorney on the same side if you will, with the client. And and as I said at the beginning, I’ve been essentially an outside General Counsel for $1.5 billion company for over 20 years. And and so I started with them, just charging them a monthly fee. And and for that they we have an engagement letter that sets out what typically an in house General Counsel would do. And so the business can budget for that. And then then frankly, we encourage calls. And in the front, I think about the old cell phone example where you have free minutes, you know, they’re not actually free. But But what we found through the years is that this, this relationship actually encourages the client to call the attorney. And frankly, if the attorney wants to promote the business, and so I think in a very simple sense, it just puts the attorney in the business more in a partnership arrangement where they’re working together to accomplish the same things. So that’s that’s kind of a general introduction of what what we we are doing.

J Darrin Gross 13:55

That makes a lot of sense. I know. You know, there are those things that that I’m resistant to do. And I know others you know, just like you’re saying the budgetary concerns are just the unknown. And in a lot of times in legal things, if you sit on it or wait on it, it’s not going to get better. And I’m assuming that that your model is allowed you not only to build that relationship but also to kind of nip things in the bud before they kind of fester and and become something that’s a little bit more challenging is that Do you find that to be the case,

Johnny Merritt 14:37

you’re you’re you’re directly on point at the end and you use the word that that is is is just critical and that is relationships. In this type of concept we deliver we we develop long term relationships with our clients, we get to know their businesses. We get to know what they like and and free Legal issues are just a small part of the formula for success of a business. And so although we partner with them, we also have to understand how to stay in our lane. And we also understand that ultimately, we may give them our clients advice on what the consequences of certain actions or decisions may be. But ultimately, it’s up to the client decide what what’s in the best interest of our of our operation going forward from a legal standpoint. So yes, we were able to nip things in the bud were able to assist in in structuring things and putting puzzles together. So it’s the business operates properly. And the other thing I might say is to the extent we do something, and we operate for a while, and we determined You know what, this has created a little too many headaches for the CFO of the business, we can then go in and alter things and make things work better for the business.

J Darrin Gross 16:06

So that’s always a good thing. So let me ask you so that the the historical model has been a call the attorney and then get the bill based on the time spent, and like you said, it always felt like you had a two minute call, but you’re not totally aware of all the time they spent, after you hung up kind of thing. And what shows up on the bill, your model, I’m assuming just kind of, can you explain how you come up on the pricing? Because I’m assuming if you got a a smaller firm, versus a larger firm, is there a kind of arithmetic, or some sort of a formula there for how you determine whatever that raterate would be?

Johnny Merritt 16:49

We do. We do. We still keep every week, we record our hours, just as if we were billing per hour. Let me digress for a minute and say one thing that I love about the this system is the hours aren’t always the best measure of good lawyering, for instance, I was working on a corporation the other day that involved a professional entertainer. And and so I wanted to put that make some changes to that that corporate agreement that would be more appropriate for that professional that your listeners would know if I were to tell them but but the fractional allows me flexibility to spend more time to do things. But to answer your question specifically, we still keep our hours. And every month, we send a statement that that includes time entries of everything that we’ve done. And and and then there’s a flat fee at the bottom. And what we have found is that the the clients, I like it better when the clients are getting a better deal, when they’re when they’re actually getting a discount. But what we have seen through the years as in this is it’s it’s I guess it’s to some extent, it’s selfish, but it just works this way. As, as the the clients understand the value of the service we provide, they use us more. And so what we do is every six months, we audit the each of our clients accounts, we tell the report to them where they would have been had they paid us an hourly fee and what they have paid. And historically they they got a very good deal. But we we asked for adjustments not to equal the hourly fee, but just just because they’re using this more so so very transparent. So that the clients know exactly how it compares to what they would be paying if they were paying the hourly fee.

J Darrin Gross 19:00

So kind of like thinking on I think it’s maybe our gas bill or something like that we have that kind of a level pay kind of a thing where you get the right, you know, the year end, remember the first year we bought a house and the winter months came and the heat went on and the bill would, you know, through the ceiling kind of thing and we called and got on quote level pay was like some, you know, something was spread out a little bit more and it adjusts annually. I know kind of thing. Right? So but I think the important thing that I I recognized and sounds like you’re you know you’ve you’ve touched on Is it just the ability to budget for that and not have that. That reluctance to call the professional that can help you navigate something before it becomes something that shouldn’t have.

Johnny Merritt 19:52

That’s that’s exactly that’s exactly right. I mean we we lot of our clients have been big transaction. It takes a lot Time that month, they’re going to get a really good deal. And, and, and frankly, I like that in, I don’t care what business you’re in, you want those people who are interacting with you to feel that they’ve got a good deal, they’ve got value. And I love that. And so the fact that we’re, we may be substantially less and less on what our monthly routine what our hourly fee would be. Frankly, that doesn’t bother me, it thrills me, because that just shows we’re providing good services to our clients for good value.

J Darrin Gross 20:34

Right. So let me ask you with the way you’re set up, in talking about relationships in that in, I guess it would be kind of like even a value kind of a question. The law changes, it seems like it’s constantly changing. Are you able then to communicate this on a more regular basis to your, your clients to, you know, advise what the changes are? How they will affect them? Or what, you know, is that part of this as well?

Johnny Merritt 21:15

Yes, once once we if we see a development in, in in the law, for instance, only give me an example, the PPP loans, when the when COVID hit, and the PPP loans became available, I read that that’s that legislation very, very carefully. And because I wanted to see whether that was something that I should recommend to my clients, and, and frankly, we sent an email to all of our existing clients relating to the advantages and disadvantages of that, that loan, and that loan program. And frankly, we wanted to do it very quickly, because as as your listeners will recall, the first amount that was authorized, was used up very quickly. And and so those people that moved quickly, that that needed, or felt they needed that loan was was were able to I don’t know what any of my clients that were unable to get it if they wanted it. And so that’s a good example of the services we try to provide to the to our existing fractional counsel clients. Yes. Good question. Thank you.

J Darrin Gross 22:31

Well, and even with that, he is a recall there was a question about taxable non taxable, or I don’t remember, there was some, I remember there was the the the Hurry up, like you mentioned there, but it seemed like there was something that changed in the way it was presented versus the the backside of that, I don’t know if that was like on a condition of the way you use it or something. But I, but I would think certainly the COVID has given you guys an opportunity to keep your clients informed on the changes and potential consequences of actions based on all the just crazy things that COVID brought.

Johnny Merritt 23:14

I think COVID has has really given us an opportunity, because iOt covered scary. I mean, you know, we can all put a brave face on and we should and we’ll get past COVID there’s no doubt in my mind, but but there has been an impact in the real estate market, particularly of COVID. And having the opportunity to have an existing relationship with an attorney for an amount that’s budgeted is I think, is has been very helpful. I guess the proof would be in the pudding that the real issue is what am I What are my clients saying? But I think that they would say that, that, that, that having that relationship, one of my biggest clients is in the food industry. And and, gosh, we were trying desperately to deliver food to grocery stores. And and I was I wrote an article in there’s, as attorneys, we don’t often get to say very specific things. There’s always issues, but I was able to say write a sentence that for the first time it was absolutely true. And and what that was was on this specific COVID issue is a 30 year plus attorney and I have exactly the same amount of experiences every other attorney in the state of Texas. And so but I think those existing relationships are helpful.

J Darrin Gross 24:42

No, no, that’s that’s, that’s fascinating, just how you like said that the situation changes. And, you know, is the and I think the other thing that I this this applies to is just the realization of how the laws are formed. They’re, they’re conceptual, when they’re passed, but they’re not really tested until they get to the court or whatever. I mean, is that right?

Johnny Merritt 25:11

Well, and again, I got that great, very good question. Another, that’s another time I bring up the PPP loans. You know, the PPP loan, the statute said was very specific on who was eligible for those loans. And then after the statute was written, a lot of the politicians became concerned about some of the uses and some of the some of those businesses that were eligible, frankly, under the statute. And so we were able to provide our counsel our clients, I think, very good counsel, on on, you know, that not only what the law said, but then the politics that followed that. And, of course, everything’s exaggerated in COVID. But, but, again, I think it provides a good example of the type of services that we like to provide to our clients, thank you for asking that.

J Darrin Gross 26:08

So, you are based in Texas. Are you limited to Texas real estate type clients, or do you have clients all around? Can you speak to that?

Johnny Merritt 26:07

Well, we, of course, I’m only licensed in Texas. I do have clients from many, many other states. But for the most part, we limit our legal representation to relating to Texas legal issues and to the extent we need experts there are attorneys in other states we’ll call in other people.

J Darrin Gross 26:50

Gotcha. In the real estate market, in Texas, I mean, I always think of Texas as kind of its own entity as far as economy and, and size and just the ability to kind of be its own market. Any lack of activity going on in Texas right now?

Johnny Merritt 27:12

Oh, gosh, it Have we got six hours of this program. The it’s fascinating, what’s going on? Is is fascinating, it’s disturbing, it’s great. It’s all I would say in a, from a residential standpoint. Talking to an appraiser the other day and he said for the first time ever, he he seen a both a seller and a buyers market, he’s never seen that. And that’s because the prices are high, but interest rates are low. So as a result of that, that is promoting sales. Here in Austin, we’re seeing it’s kind of turned on its head. Before COVID, Everybody wanted to be downtown. Now everybody doesn’t want to be there. Nobody wants to be downtown. So there’s there’s an exodus from the urban areas. On a commercial standpoint, it’s it’s, you know, the, the point where I think we’re gonna see a pretty significant change because people can work from home. And but those, the office leases are typically more long term, and so that we’re having a lag to see how that’s going to impact retail, of course, has been horribly impacted. Unless you own an industrial building, like Amazon, or Walmart. And so, the sexy buildings now or the interest industrial buildings, whereas used to retail strip shopping, and then also finished with this. The anchor tenants in the retail shopping centers, they faltered used to it was the retail stores that carried those centers, that’s the service stores, the the the the nail salons or the the the healthcare facilities, and those are curating those retail shopping centers. So but but right now, the economy is very strong. I think it depends on what’s going to happen within employment. It depends on what’s going to happen with politics. And and it depends on what’s going to happen with more government assistance, I think. But there’s a lot of balls in here on that on real estate in in Texas, and I frankly frankly think that’s nationwide.

J Darrin Gross 29:48

Yeah, definitely some interesting times, Johnny, if we could, I’d like to shift gears here for a second. As I mentioned before we got started recording by day I’m an insurance broker. And as such, we do risk management with our clients. And there’s three strategies we typically consider, we first look to see Is there a way we can avoid the risk. And if so, then we we eliminate the risk. If we’re unable to avoid the risk, we look to see if there’s a way we can minimize the risk. And if we cannot avoid nor minimize risks, and we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests if they can look at their own situation. This could be their clients, investors, tenants, the market, etc. I let you identify what you consider to be the biggest risk. And for clarity, I’d like to make it clear, I’m not necessarily looking for an insurance related answer. And if you’re willing, I’d like to ask you, Johnny Merritt, what is the biggest risk?

Johnny Merritt 31:10

Very sincerely in this comes from my relationship with this $1.52 billion company that I’ve represented for over two decades. I think the greatest risk of business has is not having a good relationship with an insurance person. There are a couple of, as general counsel, what what you what you’ve learn to do, is you, your’re a generalist. You provide those services that the the business typically would need. You review contracts, you you attend board meetings to you. You look at real estate transactions. But then then you get calls on for instance, intellectual property. But that’s when you call them the expert. They’re all there are a handful of people that I that I rely heavily upon. One is accountants. And you need to be able to call your accountant. Another one again, for my clients, I have a great IP attorney and intellectual property attorney. But I also have a an insurance broker, that, frankly, I am in constant contact with. Weekly is probably an exaggeration, but it’s over four times a month, it is I believe strongly that that you that every business needs to have a relationship with somebody who understands can they can recall and rely upon. And in frankly, this comes from experience, we represented an entity that did not have enough insurance. And in it, we found ourselves with a substantial liability, they had not allocated the kind of using your formula did not evaluate the risk properly. They had not and then they had not allocated or taken care of. So I it sounds like it’s so self serving in your favor. But it’s just the truth is is having just like having a great attorney, and having a great accountant. You need to have a great insurance person who you trust to who you understand is not just out to sell insurance, but is there to help you protect and minimize your risks.

J Darrin Gross 33:52

Johnny I really appreciate you saying that it’s I mean it’s something we try and do our best to communicate with our clients. But it’s always nice to hear it from some someone and I appreciate you saying that. Johnny before we wrap up where can listeners go if they’d like to learn more or connect with you?

Johnny Merritt 34:17

Johnny Merritt, johnnymerritt.com is I have a website they’re also the law firm is hajjaessentially our h h h a r Peters or Johnny Merritt in Austin. We the websites probably the easiest, you can get our phone number there, it’s easy to remember, it’s just my name dot com and we’d be thrilled to visit with any of your listeners to that. Let me also say if some of you listening to our attorneys in Oregon or elsewhere that that this concept sounds like something they would like to consider. I’d be thrilled to talk to them. As well, I really am interested in changing the paradigm altering the view of attorneys, instead of just being an expense and a hardship. We’re actually partners with our clients.

J Darrin Gross 35:13

Awesome. Johnny can’t say thanks enough for talking today. I’ve enjoyed it. I’ve learned a lot. And I hope we can do it again soon.

Johnny Merritt 35:24

And we appreciate this, this opportunity to speak to you and to listeners and, and hope that what I’ve provided is somewhat helpful and we, we’re gonna make it through this COVID and they’re exciting times.

J Darrin Gross 35:43

For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.

Announcer 36:04

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1031 Exchange Sell – Defer Tax – Reinvest with Dave Foster – CRE PN #286

Dave Foster 0:00

The end of the year when my accountant called me and said, here’s the tax bill. And I went holy crud, who knew that I ended up getting a silent partner named Uncle Sam, who’s gonna make more than me on this deal. So real quickly, it became clear that that was going to take quite a bit longer if we had to go that route. Now, this was right about circa 1996. And right at that moment in time, there was a huge court settlement that had just come to be between the IRS and a guy named Starker, who did a new way of using what was called the 1031 exchange. He sold a bunch of investment property and bought a bunch of investment property, and he did not pay the tax on the capital gains in the middle. And he won that case in 1996 ish. And the IRS had come out with their new RECs. And all of a sudden, that opportunity was now available to everybody.

Announcer 0:45

J Darrin Gross 0:59

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Dave Foster. Dave is the founder and CEO of The 1031 Investor. Dave is a degreed accountant and serial real estate investor, who is a Qualified Intermediary and consultant for tax saving strategies such as the 1031 exchange, and the section 121. Homestead Exemption.

And in just a minute, we’re going to speak with Dave about when and why to use the 1031 exchange. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do. You can subscribe, like and share. And as always, we would love to hear from you if you’d leave a comment. Also, if you’d like to see our handsome our guests are, be sure to check out our YouTube channel. And you can find us on Youtube at Commercial Real Estate Pro Network. While you’re there, please subscribe. With that I want to welcome my guest, Dave, welcome to CRE PN Radio.

Dave Foster 2:55

Darrin, it is great to be here. And I understand that you and I are on opposite ends of the day. I’m looking at five o’clock, and you got a long ways to go.

J Darrin Gross 3:05

Yeah, no, we’re just getting started here on the west coast. But no, we and then as we just before we started recording, we’ve got a little bit of a similar path there. We’re both Kansas natives. So that’s kind of a fun, fun orientation there. But Dave, before we get started in our talk, if we could if you could share with the listeners a little bit about your background.

Dave Foster 3:30

Sure, well, I said I’m a Kansas farm boy, that had ocean and his blood. So from my earliest memory, I have always been fascinated by the sea. And so I grew up trying to figure out how I could go to Kansas State University and major in oceanography. And for some reason, it just never seemed to work. But fortunately, through a series of life events, which include going further in and spending 20 years in Denver, where I met my wife, we actually ended up settling on real estate and real estate investing as a profession and actually moving our portfolios around the country, always in search of the perfect sailboat water.

J Darrin Gross 4:18

Well, that’s definitely a quite a story considering the the start in landlocked Kansas, and, you know, ended up on the ocean there. So that’s kudos to you and, and keeping your dream alive and make an app and that’s awesome. So let’s, let’s talk here a little bit. You mentioned your path as an investor. And I’m assuming you did some exchanges along the way to move your portfolio. Is that fair?

Dave Foster 4:50

Yeah, that’s exactly I think you’d you would almost call me the accidental exchanger. It wasn’t something that was really in my vocabulary or anywhere else, anybody else’s vocabulary at the time, we were simply looking for a good avenue to let us break from the corporate world and start to follow our dreams. And we quickly decided, like a lot of people have, that real estate was going to be a great avenue. So like everybody else, what do you do? Let’s go buy a house and fix it up and sell it. And so I did that. And it was awesome. And the until the end of the year when my accountant called me and said, here’s the tax bill, and went holy crud, who knew that I ended up getting a silent partner named Uncle Sam, who’s going to make more than me on this deal. So real quickly, it became clear that that was going to take quite a bit longer if we had to go that route. Now, this was right about circa 1996. And right at that moment in time, there was a huge court settlement that had just come to be between the IRS and a guy named Starker, who did a new way of using what was called the 1031. Exchange. He sold a bunch of investment property and bought a bunch of investment property. And he did not pay the tax on the capital gains in the middle.

And he won that case in 1996. ish. And the IRS had come out with their new Rec’s. And all of a sudden, that opportunity was now available to everybody. So I mean, really thinking about that, instead of having to pay tax on that real estate deal. If I could have kept it and use that to go buy more real estate, how powerful that would have been. I had some really good friends at that time. And Darrin, you know how you can tell your best friends are until they’re the ones that didn’t feel free to mock you at any moment. Yeah. They called me. Oh, look what you had to pay. Dave, we’re starting a business to help people do this do you want in? I said, Absolutely. So at that moment, not only and I set on a course of wanting to do the 1031 exchange for myself, but we started doing them for others. And over the course of the next 25 years, it’s been a really crazy, fun ride, to not only see what we’ve been able to do personally, by not having to pay real estate gains tax, but also watching the impact that that’s had on my clients and investors know how we got to start.

J Darrin Gross 7:47

That’s awesome. That’s awesome. It’s funny that Starker, I think he was an Oregonian, I think it was a Timberland things. I’ve talked with other local investors, and they’ve called it the star Starker exchange. I was like, wow. And I think I’ve not read up on this, but maybe you would know better, but something about some forest land he bought and sold. And, and I don’t know the details.

Dave Foster 8:12

That’s exactly right. It was actually he and his son. And they were amazing guys, because they separated their court cases. So that if one lost in one district, the other one after case going, and they just jump back and forth until finally they won. Ultimately, crazy story. It was a lot of money that they spent, I can tell you that.

J Darrin Gross 8:37

Oh, sure.

Dave Foster 8:38

Oh, but we’re benefiting from their legal expenditures for sure.

J Darrin Gross 8:43

No, that’s awesome. So So tell me so you had the the you were flipping right. And that’s when you realize the the tax situation that that came up? Because I just had to distinguish a think there’s a lot of people that tend to put all of real estate investing in one bucket. But my understanding is that real estate, if it’s if it is kind of flipping, it’s considered more of inventory type thing that if you’re doing it within 12 months, that you’re purchasing, doing the fixing, and selling, are you able to exchange that on a regular basis?

Dave Foster 9:20

Yeah, it’s not that there is a statutory holding period of the year, two years, you know, you’ll There are all sorts of numbers being bandied about what it is, though, is that your intent way, if you want to do a 1031 exchange, must have been to hold that property for productive use. And if your intent was to hold that property, then you can sell it and use the proceeds in a process to go buy other investment real estate that you also intend to hold. So you’re at the end, I have to pay the tax. You’re absolutely right. fixer flippers would not be able to do 1031 exchanges, because their intent is not to hold that property. They’re simply wanting to buy it, fix it up and get rid of it. So their intent is resell.

But the 1031 investor simply as a different intent. And one of the ways that you can demonstrate that, of course, is how long you hold the property. So that’s one factor. It could be how you use the property, it could be your correspondence with your professionals. There’s all sorts of things that go into establishing your intent.

My favorite story of all time comes from this year, I had a client call me up. And he had owned a property for 30 days. And he wanted to sell it into a 1031 exchange. I said, Well, you know, it’s really only for people whose intention was told he goes, by the end the purchase and sales agreement, I do agree to honor the lease with my tenant. Because I meant to hold it. I said, Well, okay. But then why are you selling it? And he said, Well, it was because the tenant moved out. I said, why would the tenant move out? If you had already agreed to honor their long term lease? He said, it was when the bear took up residency at the trashcan. She didn’t want to live with the bear. So she moved. And I don’t want to deal with a bear. So what was his intent? To hold the property? And a bear gave me excuse, so he could do the 1031 exchange?

J Darrin Gross 11:37

Hmm.

Dave Foster 11:37

So you never know, what kind of accidents are gonna happen?

J Darrin Gross 11:41

Right?

Dave Foster 11:41

They can. But they keep the whole thing though. Darrin, is. You’re absolutely right. He oriented has to have a longer time horizon. But what most people don’t realize is that the tax burden between simply fixing and flipping is massive compared to simply holding property for your big capital gains, let alone if you hold the properties, and then sell it do the 231 exchange. So what I tell a lot of potential investors and clients is tweak your model. Instead of buying properties and fixing flipper, buy a property as an investor. And the instead of buying it, fixing it and selling it, buy it, fix it, and rent it. And then evaluate it periodically, to see if it’s time to sell. You do slow yourself down a little bit. But you just changed your tax burden for maybe 30 to 40% to zero on a profit. That’s a huge model shift. That just takes a little bit of patience. And one of the things that people can do in the meantime, if you’re, I confess, I’m a little bit of an adrenaline junkie, I do love the deal. So I do like to buy and sell sometimes. But if you can do a refinance of that property while you’re holding it, then that lets me get my excited little fingers on cash. And I can go and do whatever I want to with that, while keeping the integrity of the tax deferred. So my model looks like buy, fix, rent, refinance, you use that cash to go do something else, and then evaluate that property when I need to sell it and do a 1031 exchange.

J Darrin Gross 11:44

No, I love it. So that the I think there’s a line and I’ve been trying to figure this out. And maybe maybe you can help identify this because I think that the 1031 exchange, I think from from where I sit, it seems like it’s most apropos or appropriate for for somebody who’s got kind of a longer vision of investing in real estate. I think there’s a lot of people that whether they invest passively or just or are looking just for a quick return, they view investment across all options as the same and that like just get the return get the return to the return. Not Not as much like what I view a lot about or one of the benefits about real estate is actually building equity. And I mean there’s there’s there’s cash flow, which we all want, but the equity is really what’s kind of the muscle behind all of that. The the ability to create wealth, and I wonder if you can talk a little bit about that or if you can help clear that or make it more distinct as to you know, where that fits or how 1031 can help or be a benefit to somebody that that’s an investor.

Dave Foster 14:58

Yeah, you’re absolutely right. It is Really, in one sense, it’s it’s a factor of patience, and the power of what patients can do for you to remember the old example of the, the guy that offers his son $1 a day. And you’ll give him $1 a day for 30 days, or I’ll give you a penny. And I’ll double it every day for 30 days.

J Darrin Gross 15:27

Right?

Dave Foster 15:27

Right. It’s billions of dollars of difference by being patient, now. And so I tend to look at people falling into one of three buckets really, there are those people you’re talking about that are really interested in building the equity. So it’s future benefits, future cash flows, future income, built off of the infrastructure that I built. And then there are those people that are all about cash flow, which is a spin off of that, where I am buying real estate, to generate cash to live off of the income coming in. And so that’s a step down, those people that are all about equity, are willing to forego money now, to get much more money tomorrow. Those people that are into cash flow, are looking for money to live now. But they also want to build equity. So they’re doing both. And then there is what I call the deal flow, cash flow people. And those people, we hear a lot of those are the true fixer flippers, because they are trying to finance a lifestyle that is based totally on the real estate activity. So they can’t just live off of rents from a property, they can’t leave those rents in the game, to generate future equity, because they need to live on the now. So that’s their business model. They are in essence, in the business, of buying and selling real estate. And that’s okay, there’s nothing wrong with it. But there’s a cost of doing that.

And the cost is you pay much higher taxes, you can’t do the 1031 exchange, and 20 years from now, you’re still going to only have your effort to bring in the money. Whereas if you do like what you’re talking about thinking of the longer time horizon, you are building up assets over time, so that in 20 years, you have cash flow that’s coming totally apart from your work. And if you’re the 1031, investor type, a large chunk of that cash flow that is now coming your way through no effort of your own is coming from the income off of the deferred tax. In other words, the government is letting you have the benefit of all the tax, you would probably have paid over the years. And that’s a huge, huge number.

J Darrin Gross 18:12

And I think, you know, the the if we could, could we talk just actual numbers? Can you give kind of an example there just kind of walk through? Pick a number and just the tax consequence? Because I think it’s one thing to talk like the it’s a big number. But I think when you get into actual numbers, it’s really, it really magnifies the power of the 1031.

Dave Foster 18:39

Yeah, absolutely. You know what, let’s see if we can do something here. This will be a great experiment, because I’m the least technologically savvy person you’ll ever meet. But let’s see if I can share a screen I’ve actually got actually, can you can you enable screen sharing? Let me see if I can do that. Yeah, this is hilarious. This

J Darrin Gross 18:58

is the blind lead, the blind participant can share at a time yours, okay, multiple participants. That’ll do the right button here. Let’s see, oh, here, uh, no. Advanced, maybe I took in the advanced options. Here are

Unknown Speaker 19:16

what I can do, I just pulled up a series of slides on my screen that I could use, just so that I could give you examples. I’ll give you the right numbers. But I like to use an example of two investors that start with the exact same property. And then we make this example it’s really just an Excel spreadsheet. But we make the example where they’re making the exact same appreciation. They’re selling for the exact same about the only difference is that one of them does a 1031 exchange, so they defer the tax. Now remember, the tax doesn’t go away, it’s just deferred. The other investor pays the tax and so they’re not going to leave taxed at the end of each transaction. And we do this if they sell a property for $100,000 in gain.

J Darrin Gross 20:08

Hey, Dave.

Dave Foster 20:09

Yeah,

J Darrin Gross 20:09

Check real quick. See if I tried to make you the host here, see if you are able to share your screen now.

Dave Foster 20:15

Let’s see if we can do it all the time. Look at that. Come on up share.

Do You guys have it.

J Darrin Gross 20:27

I got it perfect.

Dave Foster 20:28

Holy that that’s awesome.

J Darrin Gross 20:29

Hey, we figured it out. All right, yeah, let’s, let’s let’s back up here. And let’s

Dave Foster 20:34

Yeah, let’s dive into. So these two investors A and B, investor A is the only difference is going to be investor a does a 1031 exchange. So at the end of their first transaction, you see that far right column, they owe $20,000. In tax, investor B, does not do a 1031 Exchange, they pay the tax. So at the end of the transaction, they don’t owe any tax. But look what happens with their available money to put as a down payment. Investor a could use all hundred thousand dollars, whereas investor B only has $80,000. So they can put 20%, down on a 500 and a $400,000. Property respectfully. Now, here’s what happens after five years, those that property appreciates. Investor A is going to sell, they naw have a gain of 138, they’re again going to defer that tax. So look at how that deferred tax column is adding up. Because they’re doing the 1031 exchange. Investor B again, just pays the taxes they go. But now, investor A is able to purchase a little more than a million dollars in real estate, whereas investor B is only able to purchase, you know, 800,000 or so. Because investor A is using deferred tax dollars, for their own purposes, 10 years, now you start to see it really diverged, don’t you, investor a is controlling almost twice as much property as investor B, simply because they’ve used that $130,000 of tax to buy more real estate using the 1031 exchange.

And then if you take this example, all the way out to 20 years, which is a pretty healthy investing career for anybody. You can see that simply by using the 1031 exchange. And having a patient, long time horizon. investor A is controlling, almost $12 million in real estate. And they still owe almost $500,000 in tax. Now that’s a huge chunk, you would think, but how much are they making monthly on a $12 million real estate portfolio? If they’re making 10% of their money, they could pay that tax it just four or five months of income, couldn’t they.

J Darrin Gross 23:19

yeah.

Dave Foster 23:21

Investor B doesn’t owe a penny in tax. They’re called in. But they only control four and a half million in real estate. So the difference in what you can accomplish is really vast. And it all really just boils down to what Albert Einstein called the eighth wonder of the world. It’s compound interest. Making money on the government’s money, and then making more money on top of that, that just takes patience and runway.

J Darrin Gross 23:51

It is a fascinating thing when you especially when you apply the timeline to it, I think it gets a little simplified when when people think it was just a transaction a one time event. But as you do the math and you you know, extrapolate it out, you know, multiple years like you’ve done, and what was that three transactions or four transactions?

Dave Foster 24:14

Yeah, that was just for four

J Darrin Gross 24:16

transactions. Yeah. So I mean, if you average once every five years, your, your, you know, buying or selling, and, you know, changing up there, then that’s, that’s how you you know, can really multiply that.

Dave Foster 24:31

Yeah. And it’s really interesting that you mentioned five years. Was there a reason for that?

J Darrin Gross 24:37

No, just on what I saw you said 20 years for okay. So yeah, so,

Dave Foster 24:42

because here’s what the National Association of Realtors tells us that are the average the American lives in the house that they buy. So they live in their primary residence for between five to seven years, on an average. So there’s another application There’s a rule that falls into the five year period. And that is the 121 primary residence exemption that lets you also take money out tax free.

J Darrin Gross 25:12

You know, if you don’t mind, let’s talk about that a little bit. I don’t know. I mean, typically we focus on investing, or in, you know, an investment property, which would be the 1031. But I haven’t had anybody yet speak about the the home exemption or the we call it the 121.

Dave Foster 25:30

Yeah, refers to Section 121 of the IRS code. And it’s basically the opposite of 1031. To 1031 deals with investment property, what do we what is your primary residence, and what it says is that if you live in a property for two out of the five years, prior to selling it, that you can sell it and take the first 250,000, or if you’re married 500,000, in gain tax free. And you could do that once every two years. So basically, if you’re staying in a property for five or six years, over the course of your lifetime, you’re gonna have seven or eight or nine opportunities to sell a house that you live in, and take up to $500,000 in profit, tax free.

J Darrin Gross 26:25

And that’s a gain from purchase to sale, because your is a residential not depreciating that, right?

Dave Foster 26:30

That’s correct, you’re not depreciated so that that’s not a factor in it. But here’s what’s really interesting during and what we discovered, and used for ourselves. And that is that using the 1031 exchange, remember, you’re selling investment property, and you’re buying investment property, and you intend to use that property for investment uses. But after a year or two, it is perfectly allowable to convert property from investment into primary residence, or vice versa.

So what we did was we started in Denver, and we would we positioned our investment properties, using the 1031 exchange, where we were going to move next. And so we got rental properties in Stamford, Connecticut. And then a couple years when we were ready to move, we simply moved into one of our former investment properties. So the gain in those was tax deferred. And then we moved into it, which did not create a taxable event they did a couple years, we then sold those properties. And we would get we got a sizable chunk of that tax free. And we simply did a daisy chain of those from Colorado to Connecticut, to Florida. And at each time, the buy the boat bank account was populated with the tax free dollars for the primary residence sales. So at the end of 10 years, we were able to buy our sailboat to go live on it for 10 years and raise our four boys using combination of the 1031 exchange and the 121 primary residence exemption.

J Darrin Gross 28:25

And are there any said it’s once every two years that you can do that are

Dave Foster 28:30

correct.

J Darrin Gross 28:32

So you buy a rental property, you sell your residence. And you you win on the as long as you’ve been there to the last five years. If you’re married, you can take up to 500,000 gain, and you move into your rental. And you have to stay in there assume two years.

Dave Foster 28:54

Yeah, if you did a 1031 exchange to get it, you have to live in it for two years, you have to have a home did a total of five years. So that that’s how you demonstrate your intent is you would use it for rental for a couple years. And they live in it for two or three. Or vice versa, whatever works out. And once you’ve owned it for five years, lived in it for two, you sell it and you get to prorate the game tax free versus paying tax based on how long you actually lived in it. So if you live in it for three out of five, you would get 60% of the gain tax free.

J Darrin Gross 29:32

Oh, gotcha. So if you live in a for at least five then you get to the full gain or is that

Dave Foster 29:39

you would still use it for investment for a year or two. Oh, so let’s say you moved into it for for lived in it for four and used it for investment for one, you would get four fifths. Okay, gotcha.

J Darrin Gross 29:50

Gotcha, gotcha, gotcha, gotcha, gotcha. Okay. So it’s still appropriate thing. So, if you’ve been if you have had long term rentals, it’s still a 1030 one’s probably a You know, as opposed to moving into something, if you’ve held something for 20 years, and you move into it for two, you’re not exactly going to win big on that.

Dave Foster 30:10

Because you’ve got depreciation issues and that sort of thing that

J Darrin Gross 30:12

Yeah, yeah, yeah.

Dave Foster 30:14

But think about those people that are wanting to change locations. Yeah. So let’s say someone, well, you and I were talking about how beautiful Sarasota is. So what if someone wanted to sell an investment property in Los Angeles, and go buy a Siesta Key vacation rental, you receive the 1031 exchange, and they were nearing retirement, after a couple years, they could say, you know what, I think I’m gonna move in to that property. And as long as you never sell that property, you’ll never have to pay the tax. So I have people that will use this as a retirement plan. Sure, for 10 15, 20 years, till they absolutely have to move.

J Darrin Gross 30:58

Sure. And at that point, when you when you’re no longer around, and your heirs would have to step up in basis and, and wipe that clean.

Dave Foster 31:07

That’s exactly right. That’s exactly right. So that’s just another way that you can strategically package to 1031 exchange, so that you could use it in both your personal and your professional life to get out of it.

J Darrin Gross 31:24

So let me ask you this, this is something I think that I think people, people are familiar with the word 1031 exchange. They don’t always understand the mechanics of it, they understand the benefit, they don’t understand the the, you know, how do we get from I own an investment property to I’ve exchanged into another property? Can you walk us through that?

Dave Foster 31:49

Sure. Well, and actually, the most beautiful thing about that is, you as the investor won’t do anything different. It is a process of selling and buying, and you use all of your normal professionals. So if you were going to sell an investment property, you would list it with a realtor, you’d have a title company you work with, you’d have your own normal vendors, who are going to fix up the property or whatever. The difference is the add on of an unrelated third party, called the Qualified Intermediary who sole role is to document the 1031 exchange, and hold the proceeds in between the sale and the purchase.

So you sell the property just like you normally would the Qualified Intermediary documents along with the title company, and the proceeds, go in your exchange account because you can’t touch them? That was one of the things that they really did not like about Starker is they wanted to see that the money wasn’t in his control. And then you will go shopping, to go buy your new investment property, same thing. And again, the Qualified Intermediary will document that sale. They send the money into the closing, and voila, you’ve got a 1031 exchange. It’s really that easy.

Now, the real bugaboo is in the timing, and a lot of people get caught up, because the timing is pretty constrained, from the day that you close the sale of your property, you only have 45 days to identify your potential replacements. So you’ve got to be really focused, because after day, 45, you can’t add properties to your list, and only the ones on that list will count. You have a total of 180 days to close on your new property. But that’s usually not so much of an issue. It’s that first 45 that will get you every time. So that’s bugaboo number one is the timing. So you’re going to do your normal process, just like you would here to use a Qualified Intermediary, you’ve got the 45 to 180 day window, whoever it is who’s selling the property is going to have to buy the new property title needs to be the same. And if you want to defer all tax, you simply have to purchase at least as much as your net sale and use all of the proceeds. So if you sell a property for 320,000, and there was 20,000, in closing costs, your net sale is 300. So you have to purchase at least 300,000. If there was $100,000 mortgage on that, then you have 200,000 in cash that goes into your exchange account. So your goal to defer all tax would be to buy at least 300,000 in real estate, using all 200,000 in cash.

But the cool thing is you can allocate That cash in any way that you want. So let’s say you found a property for $150,000, that you wanted to buy for cash, you could do that and use the $50,000 as a down payment on a $300,000 property. So you just got yourself two for one, you just sold one property, you purchased two, one of them is debt free. So you did have a had a think there, I call it defensive investing, you just took a part of your equity, and you protected it from debt risk. But meanwhile, on the other transaction, you’re still getting the benefit of the arbitrage of leverage. And that’s one of the greatest applications of the 1031 is the ability to sell one and buy multiples, or to go the opposite direction, sell two or three and combine them to buy one bigger investment. You could go either direction.

J Darrin Gross 36:06

And I like the the the flexibility of it, I think the the going from one to many is probably a little bit easier than going for many to one based on the timing there. But nice to have the flexibility there.

Dave, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I work with my clients to assess risk, and determine what to do with the risk. And there are three different strategies we typically consider. We look to see if we can first avoid the risk. If that’s not an option, we look to see if there’s a way to minimize the risk. And when we can’t either avoid it or or minimize it, then we look to see if we could transfer the risk. That’s what an insurance policy is as a risk transfer vehicle. And I like to ask my guests if they can look at their own situation, whether it be themselves their clients, investors, tenants market, however you want to look at the question. But if you if you can assess and identify what you consider to be the biggest risk. And, again, for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. But if you’re willing Dave Foster, I’d like to ask you, what is the biggest risk?

Dave Foster 37:39

What a great question. You know, I like to think of risk as having been a coin that has two sides. And on one side, I think the greatest risk in both my life. And in my investors, life has been the risk of inaction. We want we had a goal of moving on to a sailboat and living and living out here raising our boys. And oh my gosh, that was the greatest period of our lives. But boy did we have to overcome a lot of naysayers, and a lot of fear, to take that risk. But the risk of inaction had far greater consequences than the risk of actually doing it. And that’s something that Mark Twain actually said it 20 years from now, the things that you regret are not going to be the things that you did, they’re going to be the things that you didn’t do. So I see that risk of inaction has been huge. But the other side of that coin, is that with the 1031 exchange, and with what to build wealth, the greatest risk you’ve got is not exercising patience, and let your money work for you. Everybody talks about passive income, but passive income doesn’t happen overnight. It happens in stages over time. That’s my coin of risk.

J Darrin Gross 39:11

No, that’s true. You know, it’s funny, you mentioned 20 years, and it did just flies by Yeah, I still can think back. You know, further than 20 years. I’m always shocked when people go well, that’s old. I’m like, What are you talking about? I can remember that like yesterday.

Dave Foster 39:29

To true.

J Darrin Gross 39:30

Definitely. Dave, Where can the listeners go if they would like to learn more connect with you?

Dave Foster 39:37

Yeah, best place to catch us for all your 1031 needs is going to be www.the1031 investor.com. And we have a whole set of like I said, I think it’s 34 and counting videos on how to Stroud to strategically use the 1031 exchange. There’s a primer and review paper that you can use That goes into more detail of all you and I talked about, and just a lot of resources for you. And you can catch us through there.

J Darrin Gross 40:08

Awesome. All that’ll be in the show notes for anyone that’s not able to write that down. But, Dave, I want to say thanks for taking the time today. I really enjoyed our talk. Learned a lot, and I look forward to doing it again soon.

Dave Foster 40:25

That sounds awesome, and you of all, people will understand EMAW. Every Man A Wildcat! Right?

J Darrin Gross 40:31

There you go, especially right now. Go Cats Go! So, all right. Well, for our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 40:56

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio.

Cash Flow Investments Make Financial Freedom with Chris Miles – CRE PN #285

Chris Miles 0:00

That’s the goal is that how do we get you to actually create income streams? You know, how can we actually create passive income where you work because you want to, not because you have to. And that’s the kind of thing like that that’s where I have like countless experiences like that over and over if people were, were actually building that passive income. Now, you know, I’ve got some clients that were able to retire within the first year, because maybe they don’t have a huge overhead. Maybe they only need an extra 2 3 4 thousand a month to live. And, you know, a lot of them will do that within a few years. You know, others most of my clients use one of these 10,000 20,000 a month which, by the way, like I said, you want 10,000 a month if you’re fighting against inflation, that number keeps growing. It’s hard to hit when you’re trying to save. It’s like a Dalmatian chasing a firetruck it’s hard to catch up to it right like that’s what happens when you’re doing the mutual funds. Well, you can do in real estate or things like that, where you can create quick cash flow and create acceleration of your money. It’s amazing what you can create and accomplish.

Announcer 0:56

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 1:15

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Chris Miles. Chris is the cash flow expert and anti financial advisor and is a leading authority teaching entrepreneurs and professionals how to get their money working for them today. He’s an author, podcaster podcast host of the Chris Miles Money Show. He’s been featured in US News, CNN Money, EO Fire and has a proven reputation with his company Money Ripples for getting his clients fast life altering financial results. In fact, his personal clients have increased their cash flow by over 200 million in the last 10 years. And in just a minute, we’re going to speak with Chris about how to create an Anti Financial Plan.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. I dare ya. Go ahead. And also leave a comment. We’d love to hear from our listeners. And also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Chris, welcome to CRE PN Radio.

Chris Miles 3:07

Thanks, I appreciate it. What was in total have a radio voice. So maybe they don’t want to go to the YouTube channel. Maybe this is just safer for us not to have them go there.

J Darrin Gross 3:16

I don’t know. I guess we’ll have to see if they know that they want to check it out. I have to just go and check it out. But, Chris, I appreciate you doing this. Before we get into our talk today, if you could take just a minute and share with the listeners a little bit about your background.

Chris Miles 3:35

Yeah, you know, almost 20 years ago, I started out as a traditional mainstream financial advisor, right, like the type that you’ve always seen that, you know, wears the suit and a tie. That’s way too short, or the belly sticking out and all that kind of stuff, right?

You know, I was basically the salesman in a suit. Did that financial visor for four years, I wasn’t my intention to go into financial advising. Funny enough. I actually was planning to go into business consulting. But I figured if I was going to go into business consulting, I should have real life business experience. So I actually dropped out of college, went to financial visor because that was the first business that I realized I could do. I didn’t realize it took anybody off the street as long as you could pass a license and a test, right? That would take people but I started doing it and love being an entrepreneur and actually stayed dropped out of college never went back when it but when I did that for four years, I started to see patterns, right? I’m always the kind of guy that likes to see patterns around me sometimes people don’t always see. And the pattern I started to notice was even people that had financial advice for, you know, decades, right, even for 2030 years. They still really weren’t financially free. But, you know, part of me wanted to deny that because, of course, you know, like if you’ve been trained in that industry, they always show you the numbers they show you the stock market’s average, you know, 10 or 12% since 2000 BC, right? And they try to try to convince you that mutual funds is the way to go, you know, and and so it’s basically what you know, insurance license and I was securities licensed.

But I started to see that the real numbers, I started running real actual numbers, not the averages, which is a half truth, right? But real, actual yields of returns, I started realized that like, for example, up until last week, the 30 year average of the stock market was almost exactly 8%. Like the real return, but the last 20 years was 3.88%. Right? We started put those numbers in, and then you start to realize, Oh, well, inflation is actually higher than the government tells us because they’re trying to save money for themselves, and you start to realize that they’re still taxes, and they’re likely to go up, it starts to become, we have a dismal conversation. And after about four years, I was trying to hang on with my heart at war, right? Like, the heart was saying, hey, maybe this isn’t the best thing, while the brain was saying, you know, actually, this is where how you make money, what are you gonna do, right, like, you know, do just find a middle ground or whatever. And so I was mortgage, I was mortgage license, you know, Life and Health Insurance license, as well as security license, I eventually dropped the securities license. And then there was a friend that I had trained in the business that left, he and his father would decide to partner up to do real estate investing, right? And it was that at the end of 2005, we started a conversation I thought, Okay, he’s probably gonna be broke. He’s gonna want work with me again. Well, no, it was the exact opposite. He told me, he said, Chris, like the last four months have been awesome. He only quit for four months, get this right. Four months have been awesome. My dad, who’s a professor, local university has now doubled his income with passive income from his investing. And I said, Come on. And this is the type of thing you hear people say all the time, even to me sometimes is, that’s too good to be true, right? And he’s like, No, I’m dead serious. Like, it’s amazing what we’re doing right now. And we got in this debate about what’s better stocks or real estate. And he finally stopped me and say, Chris, listen, how many of your clients are actually financially free where they don’t worry about money? I’m not saying that was a retire, but the ones that are actually free? I said, Well, none, because even the retired ones, watch CNN, and you can never be free when you watch CNN, right? This better not be a CNN syndicated show, because we think

J Darrin Gross 7:11

you’re safe.

Chris Miles 7:13

Good. And then they said, Now the second thing, question, Chris. All right, since your clients haven’t been free, how about you guys, because it’s fun as financial advisors, you should have figured out better than anyone on the planet. So of you guys how many of you are financially free, not off the Commission’s that you’re earning from selling this stuff, but actually from doing the investments you’ve been recommending? And I thought about it and thought, and I said, none I make maybe there’s just one guy my office that might be and I found out later, he wasn’t either. And so none of them were including myself, or anybody, even people have been in the business for 30 or 40 years. They weren’t financially free off their investments, either. He said, Chris, there’s your problem. I said, well give me the answer. He said, I’m not gonna give you the answer, because I don’t think you’re going to be open to it anyways. And that just made me want it more. Right. He just took it away from me. So I ended up saying all right, fine, what what is it? He’s like, Alright, if you’re really serious, go get this Robert Kiyosaki book not Rich Dad, Poor Dad, cuz you’ve read that a couple times, Chris, but read, Who Took My Money?, which basically just rips into mutual funds. So he’s like, go get who took my money. And then and then go, listen, this radio show this local am radio show was going on here in Utah. It’s like, Listen, these guys, these guys are real estate investor, you should listen to what they have to say. And so I did, and, and this was like, January, I started to do this. I went through the Kiyosaki book pretty quickly in one day. And then and I said, Listen, this radio show, and after about two months or so, they had a little, you know, live event at a hotel nearby, and, and they basically start ripping on financial advice, you know, like high risk rates, high returns, they say, Well, what is a 90% chance of losing create a 90% chance of winning, right? So if you’re in the insurance world, you already know this, you know, you you can’t, you can’t really, you know, mess up the numbers, right? You can’t take higher risk to get higher returns, it doesn’t happen. Because if that’s the case, we should all go buy lottery tickets right now, because we have the biggest chance of loss. Right?

J Darrin Gross 9:06

Right.

Chris Miles 9:07

So that doesn’t work for creating wealth. And they start talking about things like you’re, you’re in it for the long haul, well, how long is the long haul? Or you know, how about, you know, insurance is a necessary evil, they’re like, you know, that’s just insurance company trying to get you to quit your insurance if you’ve already paid them for years, right before you use it. Right? And all that kind of stuff. And, and he was going on about the stock market and what the real returns are, and average versus actual and all this stuff and blown up my entire island. And I was like, yeah, who teach this junk? And then I realized, it’s me. I’m that guy. And they even asked, they said, even at one point, they took a break. They say, Hey, sorry, like if we’re offending any financial visors, are there any financial advisors in the room? I was gonna raise my hand, but when I realized I would be the only hand in that room of 100 people, I quickly brought it down. I was like, do not point me out. And my friend, of course, laughed because he knew that that was me.

That weekend, I quit. I said, I’ll never To go back to financial advisor, again, I will just be a mortgage broker and I’ll teach ballroom dancing. Because a little known fact, I was one of the nation’s top amateur ballroom dancers. So I was going to just do that. And but the thing is, I wanted to know what they knew, I want to know how they’re creating wealth and retiring in their 20s and 30s. You know, I was 28 at the time. Well, I started learn from them. And lo and behold, within a matter of months, but that summer, I found out, I was actually out of the rat race, I was able to, essentially stop actively working. And so, so it kind of blew my mind. And I thought, well, this, this was way easier than I thought, I thought I have to save up $2 million in live on, you know, 60,000 a year if I was lucky, right? If it would not last me, you know, or I wouldn’t Outlast my money, right? But, but I was like, wait, it’s all about cash flow. Like I just started, things started to click. And that’s when in 2007, I kind of came out of retirement started teaching, you know, really about, you know, doing the opposite, essentially, how do you get out of the rat race and that kind of thing?

J Darrin Gross 10:59

Wow, so that’s quite a turn of events, on your financial career there from being the disseminator. And the know, you know, the average rate of return 8% kind of thing, as opposed to the real, the real real rate of return, and then recognizing that it’s, it’s not working for people. And I think the other thing that that your friend is asking is how many, you know, financial advisors, do you know, that that are actually able to, to retire or financially free? And that’s,

Chris Miles 11:31

that was the second question. Yeah,

J Darrin Gross 11:33

yeah, I find that to be concerning, and also revealing, you know, that, that, you know, so many of us are taught to, you know, get a good job, get a good education, get a job, you know, participate in the 401k. And over time, everything works out.

Chris Miles 11:56

Right.

J Darrin Gross 11:57

And, you know, that that’s something, I mean, because you may, it may work for you, and you may get to a point where you get to the end of your working days, no, maybe you don’t have your health, and maybe you have all the all the money or as opposed to making the money work for you. Early. So you don’t have to be tied to this illusion or fantasy or, or, you know, just the, the story we’ve been taught.

Chris Miles 12:26

Yeah. You know, essentially, you bring up the 401k, right, because that’s the one that people think is like the answer, you know, I get a lot of people say, it’s even worse if they’re business owners, and they’re setting up their own 401k. And they pay their own match, right. But for those people that are even employed, where they get the match from the company, you know, I just did a podcast, I just barely released about the 401k, how it’s impossible to retire with it. Because if you think about it, I mean, you get it, if you I did an example. So who makes 140,000 a year, they max contribute the 19,500 a year, plus, they get a 6% match from the company, which most of us don’t even do that much. But I was playing devil’s advocate against metal point, right. So there’s like almost 28,000 a year going into their 401k. But the actual when you factor in even a low rate of inflation, the actual yield after 35 years of Max funding every single year of your 401k was the equivalent after taxes about $14,000 a year after inflation. So you save up, you know, of your own money almost 20,000 a year to live on. 14,000 a year, right. And if you want to retire in 35 years, on 100,000 year lifestyle, you got to be putting away $150,000 a year into these because the returns aren’t great, the taxes aren’t wonderful either. And they really just don’t keep up. It’s really just impossible to comfortably retire and be free. just rely on a 401k

J Darrin Gross 13:50

You know, a few years ago, I guess I came to the realization that the 401k is basically a forced savings plan.

Chris Miles 13:59

Yeah.

J Darrin Gross 14:01

Because while you are many times invested in the market in some way, shape, or form, usually mutual funds, what you you’ve cited, based on the real rate of return as opposed to the average. You know, I love it when you do the math if you if you put in you know 10,000 or if you have 100,000 and the markets up 10% this year, so then you go up to 110,000. But then it goes down 10% you’re not done. You know if you go on two years or whatever, you come back 10% you’re not you’re not back where you started, you’ve you’ve essentially lost

Chris Miles 14:40

thousand dollars.

J Darrin Gross 14:42

Yeah, yeah,

Chris Miles 14:43

Exactly.

J Darrin Gross 14:44

And, you know, and how that average rate of return if you and I forget what it is if you if you’re up 16 or if you’re yeah up 16 one year down eight the next year. You know, the average, right? And I’m not thinking clearly on the numbers. But if you if you get an average, you will get that average 8%. But the reality is that that real rate is substantially lower. When you actually look at the real numbers. There’s

Chris Miles 15:14

Yeah, once you put it once you put a negative number, the average and the actual numbers are different. Right? Right. Like you’re saying, for example, and I remember first learning this in, I think it was 2004 2000. It was 2005. I remember now is 2005. So this is a year before I quit, right? A guy came to office and said, All right, everybody say you have $100,000. If you lose 50%, how much do you have? And we all said, $50,000. Right? He says, All right, so what rate of return you need to get back to 100%. And all of us said 50%, right? Because you lose 50%, get 50% your back even. He said, That’s wrong. He’s like, because if you make 50%, on 50,000, that’s only $25,000, you’re only at $75,000. He’s like, you have to double your money after losing half, you have to double it. That’s 100% rate of return. So he’s like, look at this guy’s like, take no 100% minus 50, that equals 50 divided by two years, that’s a 25% average return per year, even though you just got back to breaking even. He’s like, oh, and of course, there’s no cost to come out. So maybe you’re left with 98,000 after this cost, then you refactor that and return. So you actually have less after having it, you could actually lose money with a 25% average rate of return. And that’s, and that’s the big difference is that when a company, they don’t want to lie, they never want to miss state anything. But if you have the choice, if you’re a company selling investments, which one or which number are you going to show the average is always going to be higher, or the actual yield, that’s going to be lower every time because if there’s a negative year, they’re going to be different. And of course, that’s always the case, right? You lose 10%, you need to gain 11.1%. To get back to breaking even you lose 2025, you lose 33, you need 50%, you lose 90%, like in the Great Depression, you need 900% to break even. Which by the way, that’s why every stock chart that you see that shows averages over time, always includes just before the Great Depression, right? What better way to show the average than to include something where the market dropped 90% had to get 900 to break even. And that just made the averages go astronomical, you know, right. That’s what happened in last year with COVID, too, right? The market drops 30 about 35% in these about 50% return to get back to breaking even. So you have financial advisors out there saying, hey, you’ve made 50% return on your money 40% return on your money last six months, why would you get out of the market?

Well, why would I want to be in something so bipolar that I have no control? And that’s the real question.

J Darrin Gross 17:45

Right Right? No, I it’s it’s, it’s, it’s almost scary when you come to the realization, especially if you’ve got any time spent doing this thinking that you’ve got it all figured out? And then you come to the realization of that you how much time you’ve spent doing this. Yeah. And how much? how little time you have left to try and try and correct the situation. So let me ask you the topic. Anti Financial Plan? Yeah. I think everything we’ve been talking about thus far, would be kind of similar to what a you know,

Mainstream financial planner

would would think of a as a financial plan, you know, yeah, the education a job and you go get the 401 K. So how, what is your view? Or what’s your definition of the Anti Financial Plan?

Chris Miles 18:44

Yeah, I like this quote, you know, Jerry Seinfeld from an episode of Seinfeld, right, where he talks to Georgia stanza in an episode called opposite George, where George actually becomes a winner for the one on one episode. And, you know, he said, Well, if every instinct you have is wrong, then the opposite would have to be right. And, and that’s basically the Anti Financial Plan is, it’s like saying, What if we went away from what financial advisors offer, because if you really dumb it down, they really only just offer mutual funds, and then certain types of like annuities or insurance type based products, but that’s it. Like, it’s, it’s really just Mexican food. It’s, you know, it’s a tortilla, with beans, rice, meat, you know, veggies and things like that, right. But whether it’s a burrito or taco or tostada, they all have the same ingredients, you know, it’s just taking the same stuff and repurposing it, right.

Anti Financial Plan says, Hey, we’re gonna go do the opposite, instead of focusing on accumulation of money, which is the slow and really the guaranteed way to not create wealth that the poor middle class have been taught, let’s do the Certain Way that’s worked for the wealthy class, right, which is going for alternative investments, things like real estate, whether it be residential, commercial, whether it’s things like, you know, it could be oil and gas, potentially, right. It could be doing things where you become The bank and you’re lending money and getting better returns than then they get, you know, on different deals where you might get backed by security things that actually have real assets behind it. Especially right. You know, you invest in mortgage notes, there’s, there’s a variety of things you can invest it, right? A lot of it usually more certain stuffs going to be real estate based, you know, which is why we’re here today, right? That’s the big thing. And, and so, like, for example, I had a client where he was actually on a good track for most people. He was in his his early 30s max funding his 401k, aggressively paying off his mortgage doing everything that a good boy should do, right. And but the thing is, I said, well, let’s project out let’s extrapolate the numbers, what does it look like? And even by the time you’re 40? Well, he would actually have his house paid off, right, that would free up about 2500 a month, he would probably have built up pretty darn close between savings and his retirement plan, almost a million dollars, because the guy was just packing money away. Well, I said, as a strategy with him, I was working with him as a client, I said, here’s what I would look at instead is why don’t we instead do this one, we do a cash out refinancing your mortgage, don’t make it 15 year make it a 30 year, which creates some defense to in case there’s a bad times that come upon you like, you know, pre COVID, this was when I advised him on this. Now with COVID, he’s probably grateful for it was like let’s do a 30 year mortgage, create a smaller payment just in case something goes wrong. So we have a good defense, but we have a good offense to by taking some of this cash, we can go and invest it. And then the other savings you have as well, we can invest in by actual real estate. So he went and he bought real estate properties, turnkey real estate, so he doesn’t have to manage it or anything like that. Well, lo and behold, he went from trying to remember for about 2500 a month on his mortgage in you know, about eight years to already from the first six months, creating an extra $4,000 a month of passive income. Now, here’s the key, taking that 4000 month that 50,000 a year right? Taking that reinvesting it and buying more assets, and again, kind of create what I call an income avalanche, which just gets bigger and bigger and bigger. By the time he’s 40, he’s going to have well over a $10,000 a month passive income stream, versus just trying to save 2500 a month paying off his mortgage, and then having this money is locked of his 401k that he can’t touch for another two decades. Right? And that’s the goal is that how do we get you to actually create income streams? You know, how can we actually create passive income where you work because you want to, not because you have to. And that’s the kind of thing like that that’s where I have like countless experiences like that over and over if people were, were actually building that passive income. Now, you know, I’ve got some clients that were able to retire within the first year, because maybe they don’t have a huge overhead, maybe they only need an extra 2 3 4 thousand a month to live. And, you know, a lot of them will do that within a few years, you know, others, most of my clients, usually at least 10,000 20,000 a month, which, by the way, like I said, you want 10,000 a month, if you’re fighting against inflation, that number keeps growing, it’s hard to hit when you’re trying to save. It’s like a Dalmatian chasing a firetruck. It’s hard to catch up to it, right? Like that’s what happens when you’re doing the mutual funds. Well, you can do in real estate or things like that, where you can create quick cash flow and create acceleration of your money. It’s amazing what you can create and accomplish.

J Darrin Gross 23:18

I have come to witness at myself, I mean, just the you know, I think you mentioned it the the mindset shift of asset, you know, creating or accumulating assets versus the cash flow. Yeah. And I think that the beautiful thing about real estate is it allows you both, you know, you can get the the cash flow which you seek, but also it’s tied to a real asset that is appreciating, you know, presumably appreciating depending on you know, what you’re what you’re doing or, you know, or if you are in some sort of a commercial property, perhaps you’re even able to force the appreciation. And, you know, whether you hang on to it and collect the cash flow or you roll out roll into something different multiple streams, but just a little bit more more control for your, your clients that you work with. Do you have any kind of a a benchmark, or can you cite, kind of the average what they were experiencing as far as their rate of return with they were doing it to the traditional way as opposed to what they’ve been able to achieve? Going to alternative? assets?

Chris Miles 24:39

Oh, yeah. All the time. You know, I’ll give you one example. I had a client who he had max funded his 401k since the mid 80s. So he was one of the first early adopters of being you know, typical Middle America to use the 401k, max funded it for what would have been it would have been I mean, this is 2010, he had max funded every single year only had $400,000 in it, thanks to the recession, everything else, right? Granted, if he would have kept doing that he might have built it up to, you know, pretty close to a million dollars by today. But here’s the thing that 400,000 he was able to buy about a million dollars of real estate, that he was now certain to cashflow dramatically, right? Because remember, 4000, even if you had $400,000, in your 401k, the thing is that a good financial advisor, right one that’s more up to date, that says, hey, I recognize that the 4% rule, the speed that back in the day, 20 years ago, they’d say, hey, you can live on 4%, whatever your money is to let your money last. Well, that was true based on numbers they ran in the 1970s. Right? Completely different today, because we live longer. And the rates of return on those more stable investments, like bonds, and treasuries are much, much lower than they’ve ever been. Right. So now that number is more like 2%. So if you have $400,000, that means you’re only living on $8,000 a year, right? It’s just ridiculous. But I mean, I’ve had several clients where they have $400,000, we’ve turned it into over 4000 a month of cash flow, you know, with real estate specifically, again, passive that’s net profit, after they’ve paid a property manager after they’ve paid their mortgage payments, their taxes, insurance, possible HOA fees, or whatever else, they still come out with at least, you know, 45 to $50,000 a year from their 40,000 or 400,000. Right? very different than 8000 a year that you’re trying to pull out from the market. So I get that kind of conversation a lot. You know, someone tells me they’d said, hey, my goal is 100,000 a year passive income. If they come to me, and I know they have about a million dollars, I’ll say great, possibly this year, if not this year, we’ll probably accomplish it by next year or two. Right? Like it’s just, it’s really just math. I mean, if you can make at least 10 or 12 or more percent a year, doing various types of investments and depends on which investments they do, right? If you buy real estate, you have a much higher option there on a cash on cash return. If you’re buying, you know, if you’re more buying into like you know syndications, right, like maybe you’re doing commercial real estate, maybe you’re buying two apartment complex, you might get more, but it might be more of a growth strategy, you might get eight to 10% return cash flow, before you get the big growth on the back end, right. Everything is different. And so that’s why every person has their own recipe of how to get to that number and where that and how, you know what they want to do with that money. But it’s, it’s, it’s really not hard. Like I just tell people like, hey, if you can earn at least 10% a year, do the math like or if you if you know, you can make 10% a year, and your goal is 100,000 a year you need a million bucks, right? Just for passive investments, you’re doing more active investing, you can do it faster, but most of my people are usually coming to me asking to do passive stuff, because they’re already busy working as professionals or business owners already, they’re looking for something that they don’t have to babysit a lot, you know.

J Darrin Gross 27:57

So let me ask you. So if the people who have been doing the mainstream financial plan are coming to you, yeah. And you’re, you know, coaching, working with them to achieve cash flow right now? are what what are the steps? Are you are you going into a self directed IRA? Are you? Are you cashing out of the IRA? Are you doing these investments in, in a tax deferred vehicle? How are you? How are you achieving your, your success?

Chris Miles 28:30

It depends on Yeah, it does depend on their age, their goals, like if someone says, hey, my goal is to retire by 50 within the IRA is not a good option, right? It’s actually because that’s not the only you have a penalty to 59 and a half and you stuff to pay taxes down the road anyways. And part of the question we have now this year is after the Trump tax plan is gone next year, you know, because 2020 one’s the last year, it’s in effect, what’s going to happen? You know, are they going to reset back to what they were before where the tax rates would go back up again? You know, there’s a lot of uncertainty, right. So it always depends upon their goals, their objectives, and really their situation, right. So I’ll give you another example, I had a chiropractor in San Diego, he’s 4045 46 years old. He’d done a great job saving money he’d saved up several hundred thousand. A lot of it is in IRAs, right. Some of it in savings. He also been aggressively and this was his main goal, aggressively paying down his investment property he had there and his own house. And so his whole focus was just yeah, I’m going to save money in these plans. But I’m aggressively trying to pay off my houses, right. So I’ll be free and clear. in about six years. He’s on target for six years, that would free up about $4,000 a month for him if he did that. Instead, I said, let’s see if you can invest in property California, I can already tell you the numbers stink. You know, if you’re anywhere in the western half the United States, your real estate probably isn’t good for cash flow. And I was right. He was making $200 a month on a property that had a half a million of equity in it. And I was like, Listen, we can sell that for Get that equity out, put into other real estate to make a lot more than that, you know, again, even if it’s 10% a year, we can make easily, you know, 40 50,000 a year off that. I said, and let’s do a cash out refinance, your mortgage payment will go up about $500 to 1,000 a month, but we’ll get another 400,000 out of it for just that small cost. So net of cost after getting all invest that’s over 800,000, almost $900,000 to invest, that would generate a net of about 75,000 a year, year one right? Now keep reinvesting that same 75,000, don’t even add more to it, you know, he could add more, obviously, but not even add more to it, that would actually increase it to over 10,000 months by five years out. So the great thing is that he could be at 10,000 a month in five years versus six years paying off his mortgages to do it in that time. Now, his big question was alright, with IRA money, what do we do with it, I was like, well, that’s another source, we could self direct it. And we could invest in certain types of things, we don’t want to buy property with it there, that’s a bad use of that money, you lose the tax benefits. And it just you just never get favorable returns. But I mean, there are different syndications out there, right, there’s different ways you can lend money as easily as 10 plus percent a year, you know, so if you want to grow it, we can do that. There’s tax liens, I have somebody that does taxes, or they pretty much always do a target of about 14 to 18%, a year, great place that you can potentially put your IRA money in, let it grow and build. The thing is, though, he wants to retire before 59 and a half. So then it’s like, how do we get the money out? You know, without paying a you know, buku bucks in taxes? Well, you know, one thing to do is if we can get, you know, not just him or get his wife qualified as a real estate professional, you know, because he’s already full time in his practice, right? But his wife can be a real estate professional, we do that I forget some properties, we can get all these deductions in depreciation and cost segregation we can do even on single family homes as well as multifamily. Right. And the next thing, you know, we’re offsetting the taxes, we pull off an IRA, and there’s very little tax and penalty on that money. And so we’re able to keep more than money to invest and create more with it. Again, it’s always case by case I don’t recommend I’m not securities licensed anymore. I dropped that in 2005. But, but I definitely look at those options, say, all right, what’s your goals? Right? If you want to keep using your IRA, the thing is, that’s not going to get you there if your goals before 59 or 60 years old?

J Darrin Gross 32:27

No, no, I appreciate you diving into this, the think the realization that I’ve come to also with having older parents and a chance to become more familiar with their financial situation, and how, when you can take the money out of a 401k, as opposed to, you know, if you’re going to keep thinking it makes it bigger and bigger and bigger, and a bit more and more and more money into it. It’s, it’s, you know, it’s eye opening, when you see how you’re how the money comes out. When you I mean, because now you have the tax on it. And you have to your minimum Was it your minimum distributions I can require Yeah, rmds. The, how, you know, that accelerates and they’re looking to get the tax, they want the tax on your, on your 401k there. So as opposed to if you’re working outside of that, how you have the ability to create that asset and let it grow, and just collect the actual the cash flow, which was in my mind, that’s always what the retirement goal was, was to create a big enough nest egg that it just earned money for you kind of like a dividend kind of thing. But yeah, that doesn’t I am I’ve yet to see that work in the 401k. world.

Chris Miles 33:50

It Yeah, it’s it, they don’t really make it work well, right. You know, it’s really tough to do with IRAs and 401k’s, you know, even even if you do an alternative investments, and you’re self directing it, still, it’s not favorable, right, like, now maybe if we move it to a Roth, you can curate some tax free income. But most of my clients, usually what we end up doing is a strategy, especially for them the the growth phase, where they’re trying to build the assets to create that cash flow. You know, we thought about getting your investment money to pay you twice, right? So I use what I refer to as like this max ROI bank, right? a tax free supercharged savings account, where I use a life insurance, I use a whole life policy specifically run the money through we have very minimal cost. So we run the money through right back out to go to investing. And what happens when you use that strategy, where you put money into a savings account, you withdraw it, you’re not making any money on the interest on the money you just withdrew right other than in the investment, you know, but the money you withdraw out of your savings now the same is depleted. You’re not earning much interest. Plus, let’s be honest, if you were lucky to earn point 1% in the bank account right now, that’s pretty amazing. So you’re not making much and then you get taxed on that point. Nothing percent right. But if I use this strategy will flow it through the life insurance, I’m getting tax free money in there, at the same time while making money inside those investments. So I’m actually able to make money in two plays at the same time. So if I make 12% cash on cash return on my real estate properties, the cool thing is if I run it through my life insurance and then back out, and I take the cash flow, flowing it back into the life insurance again, I actually end up making a net about another 4%, on top of the 12% I’m already making, so I’m able to make more money faster, which allows me to have more money to invest faster to,

J Darrin Gross 35:29

okay, run them by me one more time. So you buy the buy the whole life policy, which has a cash value, and you borrow against that.

Chris Miles 35:38

Yeah, and it has to be a very specific type, right? Don’t do the traditional whole life that like people do. Not all are created equal. And most insurance agents will never do it for you, right? Because the truth is, you got to cut for an agent to do it, you got to be with the right companies, any other catchy commissions back about 75 or 80%. And make it work, right. Not a very popular idea among the insurance industry, or among insurance companies. But the cool thing is like whole life, usually it’s front loaded. Usually, if you put in for the first two years, you have almost no cash value. In those first two years, it goes all the costs, the way I design it, those first two years usually have about 85% of your money in cash ready to use, right? So you know, you put in 25,000, a year for two years as 50,000 usually have, you know, 40 to 43,000 bucks, and you can use versus nothing or 1000 bucks, right? So low costs, higher returns for overfunding, these policies to put in more cash, but we’re keeping very low on the cost side. And then what we’re doing is we’re taking that money, we go and invest it. Now when you when you use a life insurance policy like that, especially if it’s whole life, you can’t do it with universal life, because the the numbers change on you, right, they don’t let you compound money when you’re borrowing against it. But with whole life, that’s unique, because I can actually earn compound interest in that full amount of money. So say they have $100,000, I have in cash inside this whole life policy that’s built up there. Now that hundred thousand if I borrow 50,000 of it, right? Normally, if you withdraw 50,000, the same discount, you’re only earning interest on 50,000, because you just lost 50,000 out of there. But with whole life I borrowed from the insurance company directly, they gave me like this line of credit that has no minimum monthly payment, there’s no commitment, they just charge you 5% a year, right. But the cool thing is, at the same time, my money over here that full hundred thousand is earning compound tax free interest. So what I’m doing is I’m using this line of credit for an insurance company, again, this private line of credit, using that to invest that 50,000, but put as a down payment on a property. So it’s a duplex, I took the cash off and I duplex it’s 500 bucks a month, right? I take that cash flow, I’m following that to pay down that credit with the bank with the insurance company. Now as that’s paying down, of course, the interest charge gets less and less and less, right. Just like when you do any pay on a normal loan, like a mortgage or a car loan, the more you pay towards the principal balance, the less and less gets charged interest every month, which is why your payment has less and less interest. Same thing happens here. The difference though is that now the money is still over here, compounding by itself, it far out earns the interest, you’ve been charged on alone, netting you depending on your age and health, at least a three or 4% return on top of whatever you’re earning on your investments. And that’s tax free returns to. So you double dip, you basically earn money in two places at the same time. But that same dollars you would have used, you know, give the example I showed somebody just yesterday with one of my clients in Washington State. She was trying to understand the concept and I said let’s look at your number. She’s in her mid 40s. Okay, health, very, very average if if average health, so not great numbers compared what some people will get. But I ran the numbers I said, Look, if you use your savings account, earning point 1% right. Here’s the problem is that, you know, your money would build back up over these, you know, five years to 176,000 Mike but if we use your life insurance, same money, your your money builds up to 196,000 in those five years. So you make 20,000 more in five years using this versus just using your stupid savings account that, again is taxable. It earns nothing. And by ways exposed to lawsuits and creditors, that’s another cool thing of the life insurance in most states, hundred percent protected from lawsuits and creditors. Even if you have millions of dollars in there, they can’t touch it. So there’s that, as you talked about with risk and asset protection. That’s a big thing. Especially when my real estate investors, they’re saying wait a minute, well, if I borrow from the insurance company and use that as a down payment on my on my property, and I get a mortgage from the bank, does that mean it’s 100%? leveraged like, technically, yeah. So can they make claims on it? No, there’s no equity. There are very little equity they can attach to if they do win a lawsuit right? So they’re scrambling trying to find ways to put a lien against it when they can you know, it’s it’s just so cool when you start to see what’s possible.

J Darrin Gross 39:53

That’s fascinating how you can I mean the tools that are available but are not necessarily considered connected. And people kind of like that. Does that work? But I think we’ve all, you know, at least saw the news story about President Trump’s taxes and stuff. And I know my friends that are non real estate, you know, people are all frustrated, but the people that are real estate oriented go

Chris Miles 40:19

Who’s his accountant? That’s what they’re asking.

J Darrin Gross 40:21

Yeah. Well, that’s that’s kind of a that’s the Option G Yeah, opportunities that exists. That’s great. Hey, Chris, if we could, I’d like to shift gears here for a second. I mentioned you before we started that, by day, I’m an insurance broker. Yeah. And I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider. We look to see if we can avoid the risk. We can’t avoid it, we look to see if we can minimize risk. And if we can’t avoid nor minimize the risk, we look to see if we can transfer the risk. Yeah. And that’s what an insurance policy is. And I like to ask my guests, if they can look at their own situation. Consider your clients investors, your situation tenants market, etc, however you want to frame the, the answer. But if you can take a look and consider what you what you or take a look and see what you consider to be the biggest risk. And for clarification, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Chris Miles, what is the biggest risk?

Chris Miles 41:41

I think the biggest risk and this would apply to me or my clients, or anybody really, is ignorance? Right? Like, I always tell people, if you think education is expensive, try ignorance. You know, ignorance is seriously the most expensive thing in your life. I mean, that’s really this whole conversation about you mentioned Trump, right? You know, people are mad about his tax turns. That’s ignorance, you know, like, it’s, it’s what you know, and what you can do that actually creates the most money creates most protection, people can say, Hey, I don’t need that insurance, right, like that protection. But if they’re ignorant to the risk they’re already taking, it doesn’t matter what they think it doesn’t matter how positive thinking you can do. That risk is still there, you know, you stuff to manage, and figure out what to do with that risk. And so I think that really is the biggest risk is just ignorance is what what you don’t know is what hurts you. And also what you don’t know is what keeps you being hurt. It keeps you living a life of struggle and lack. And if you can find the answers, if you can find out the information you need and act upon it, not just know it, but act upon it. You now you become somebody who’s actually more unstoppable doesn’t mean you don’t have risk in your life. But it just means that if you’re always in the mindset of, Hey, I’m ignorant about something at some time all the time, right? You’ll start to realize I need to keep learning and if you keep learning, you have a much better chance of success than those that think they know it all. They think that whatever they’ve been told, that’s the truth. And that’s, to me is the biggest risk.

J Darrin Gross 43:07

That’s Well said. Definitely then a lots of truth in that. Chris, Where can the listeners go? If they would like to learn more connect with you?

Chris Miles 43:18

Yeah, I mean, you’ve already mentioned the Chris Miles Money Show, I always invite people check that out. I mean, it’s great free information you can watch on YouTube or even, you know, on iTunes or whatever, right? You can definitely check out the show there. And then you can check out my website moneyripples.com that’s m o n e y r i p p l e s dot com or I’ve got some great information there, too.

J Darrin Gross 43:38

Awesome. Chris, I want to say thanks for taking the time to talk today. I’ve enjoyed it, and learned a lot. And I hope we can do it again soon.

Chris Miles 43:49

Such a pleasure. Appreciate it, Darrin.

J Darrin Gross 43:51

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 44:11

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Asset Protection Trust with Brian Bradley – CREPN #284

Brian Bradley 0:00

Piercing the corporate veil, just as a real estate investor is two easy arguments that work on nine times out of 10. An extension of yourself, you’re holding that real estate as a holding company, you know, the real estate and a holding company, it’s not doing business, it’s just a holding company. For an asset you own right there, that’s going to be a piercing the corporate veil argument that wins nine times out of 10. Then the next one is commingling of assets. Most people do very, very poor accounting. And so you’re bringing business money in to your operating company or that LLC. you’re transferring it incorrectly into your personal account your personal account into that account, you’re commingling money back and forth. You’re using that business as a personal extension of yourself. So just making those two arguments right there. I’m going to pierce that veil and most young attorneys can make those two arguments without even thinking about it.

Announcer 0:49

J Darrin Gross 1:08

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Brian T. Bradley Esquire. He is the leading educator and nationally recognized asset protection attorney for high risk professionals, entrepreneurs, real estate investors and ultra high net worth families. Brian’s goal is to give you peace of mind knowing your assets are protected. And in just a minute, we’re going to speak with Brian about asset protection, the risk real estate investors face and what you can do to protect yourself.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome our guests are, be sure to check out our YouTube channel. And you can find this on YouTube at Commercial Real Estate Pro Network. While you’re there, please subscribe. With that I want to welcome my guest. Brian, welcome to CRE PN Radio.

Brian Bradley 2:40

Thank you very much for having me on and putting the whole podcast and everything together and is a really important topic. And I hope that the concepts that we talk about help your listeners and you know, we’re definitely going to be blowing up the status quo. And you know, all the misconceptions out there.

J Darrin Gross 2:55

Cool. Well, I’m looking forward to it. Before we jump in, if you could take a minute and share with the listeners a little bit about your background.

Brian Bradley 3:04

Yeah, like you said, I’m an asset protection attorney and I got into asset protection from the litigation side of the law and having clients being sued and their live shows turned completely upside down with a false sense of security thinking, Well, I have insurance and I can just rely on that, you know, I don’t need anything else or, you know, sticking all their assets into a revocable living trust and thinking that that’s going to protect their assets from lawsuits and then finding out that that’s not going to do anything for them.

And you know, by being in the legal system, the sad thing is, is that the legal system is broken. It’s not about justice any longer, you know, in the US for a Sue Happy Nirvana. We have more than 40 million lawsuits filed every year in the US and you know, litigations just become over $400 billion business with a B. And so what we do is provide peace of mind for clients. And we keep in mind, really, the overall goal of asset protection is lifestyle preservation. When the client calls and says, Hey, Brian, you know, like, I want to talk to you about asset protection. What they’re really saying is, I just want some peace of mind, I want to get rid of some stress, and I want to preserve my lifestyle in case something bad happens. And it really just comes down to more importantly, how collectable you are. And we do this by placing different legal barriers between your assets to the proper uses of you know, LLC is LPs, different types of asset protection trust, which are more flexible. And what my firm specifically does is work with, you know, higher risk professionals and investors who genuinely have around 1 million net. And with our bridge trust or a quantum living trust for those below 1 million on we’ve collectively protected over 4 billion worth of assets now.

J Darrin Gross 4:44

No, that’s great. And so if I heard you, right, you came from the trial side of things?

Brian Bradley 4:51

Correct. Yeah. I came out of law school right when the recession started 2008 2009 was about to, you know, have a hand given job to prosecutor’s office. And then there was hiring freezes across the whole state of California where I was at. And then I ended up getting into civil litigation. Same thing, but no money in that industry. You know, no, no one was able to pay bills are, you know, clients weren’t able to pay. And so I literally just work for free, you know, no joke. For three years, I went to different state agencies and said, Look, you have a lot of people who need representation, I need to get into court, I’ll do it for free, you cover the court costs. And I did that for three years. And just, you know, you think about how many people want free representation at that time, you know, you’re in any time and I ended up building such a big name and experience for myself in the trial world that in three or four years, I had more trial and litigation experience than most people with 25 years of practice. And then that trickled down into, you know, becoming a legal janitor, of essentially, hey, we’re stuck in this trial, we don’t know what to do or how to do it, we have no litigation experience, can you come in and help, you know, and be a miracle worker. So I started getting hired case by case and built up to like $40 million cases. And I just got tired of seeing people come in after the fact. And that’s when I wanted to transition my practice to being proactive and helping people protect their investments protect what they have all that hard work and energy you put into building your portfolio and legacy before something bad happens. And specifically, also, because I’d like to invest in myself. Last thing I would want to see as everything I’m working hard to pass on the my kids and my grandkids down the line be completely wiped out, and nothing I can do about it.

J Darrin Gross 6:37

That’s your experience there? I’m sure is, you know, one that not every attorney has. And you know, I’m kind of curious, he, he, in your experience kind of being the hired gun there to come in and work on on trials in that? Do you have any sense of how many attorneys actually get experience in in the courtroom as opposed to you know, more just legal work?

Brian Bradley 7:06

Not many, and even just trial work, not many, because there’s a different you have transactional attorneys like real estate, business, stuff like that. And then you have litigation attorneys. Most litigation 99% of it settles, it’s in both parties best interest to settle as a matter of how do you force that settlement. And that’s a big play of what asset protection is, is if you have systems that are created really strong, and they’re seen as impenetrable, you are now in the position of strength, you now have the legal negotiating leverage to force a case to go away or to settle it very, very cheap. And I really wanted to incorporate that into my practice, but 99% of cases I get filed, they’re just getting filed for a settlement, you just have to go through the expensive litigation process. So most even litigators don’t have a lot of trial experience. So they wouldn’t know how to run a trial if they needed to. So I really focus in the beginning on how to run a trial, how to talk to a judge how to talk to a jury, you know, jurisprudence, how to pick a jury on how to create arguments and triangles, that you would need to prove a case. I’m not many people actually have that type of background and experience. And so it was even hard to find mentors and really good mentors. So I reached out to just like the best of the best, you know, Friedman, David Ball on Gary Spencer, and these guys, and just said, like, these are the best of the best of this, I’m just going to copy success. And I always made a point to where I don’t care if cases are going to settle. I always take a case two cases to trial every year just to keep developing those skills. I just pick really interesting cases now that changed the law on the state because I was able I’m able to cherry pick now.

J Darrin Gross 8:48

No, that’s awesome. I appreciate you sharing them. So let’s talk about asset protection. Now, you mentioned that, you know, people were coming to you kind of after the fact as opposed to I mean, when when essentially they could couldn’t do anything they were it was too late. What can you you know, I mean, there’s multiple levels of asset protection. I mean, as an insurance broker, like to think that we participate in an asset protection as one of the easy, you know, options. But can you kind of break down the different, I guess levels or the different types of asset protection that are available?

Brian Bradley 9:32

Yeah, absolutely. And I think you know, like a good starting point is just understand like, What even is asset protection, like we hear the word I don’t think very many people even understand what it is as basic conceptual level. And it’s just modern estate planning, fighting modern wealth destroyers, you know, like we’re not talking about taxes, death, taxes, destroying wealth, you know, and what we’re really talking about are predatory lawsuits large and out of control legal Little system, out of control, legal costs, divorces, these are the things that destroy your wealth while you’re alive, you know, living wills, revocable living trusts and stuff like that only come into effect once you die, so there’s no protection that’s going to be coming out of that.

So we’re placing a legal barrier between your assets and your potential creditor before it’s needed, it has to be done before you’re under a gun before you’re being sued. Because if we start transferring assets after the fact, after you’re sued, then we have, we’re going to be looking through fraudulent transfer arguments. And so of course, like asset protection done before you’re being sued, because it’s preventative, just like insurance is preventative. That’s it, it’s like a safe that you would put, you know, your gold or your guns or your watches or other valuables in anything of value as an asset wise, you also want to put behind the legal barrier or legal safe out of your personal name, so that it’s not easily attached with a lien, you know, or reached with a judgment. Like we have a saying, we want to make you as ugly as possible to a creditor, which is kind of against human nature, because we all want to, you know, look good take care of ourselves. When it comes to litigation and lawsuits, you want to be seen as unattainable, very ugly to collect on and very expensive and difficult and not worth anybody’s time to attack. And we do this through different layers. And the general layers would be, you know, in an LLC, limited liability company, and LP, a limited partnership, and a variety of different types of asset protection trust. And you know, there’s lots of different flavors of trust. And we can break all these concepts down when, you know, in a little in a little bit.

And like you said insurance is an entry base level layer on you got to have insurance, but I think most people just need to understand. When it gets into litigation road of things. There’s things called insurance defense teams, whose job is to create legal separation from you and not pay claims. So you should have it you should have it for you know, as much as you can afford. But you also understand that you know, insurance doesn’t cover you for fraudulent acts. They don’t cover you for intentional wrongdoings. And in litigation world. That’s what the insurance defense team are going to start implying is intentional acts and wrongdoing arguments to create wiggle room for large judgments to say, Hey, we’re not going to be able to cover this because of an intentional act, which can be as simple as you sending an email because a judge will look at that email and say you wrote this. Writing is an intent, now that just transition that whole case into an intentional potential wrongdoing. And that’s now the legal separation and trial that an insurance legal team is going to use to pay down less of a claim.

J Darrin Gross 12:40

And just for clarification, this insurance defense team you referred to that’s essentially the insurance companies working to protect their assets. Is that is that correct?

Brian Bradley 12:52

It’s the insurance. Yeah, it’s the insurance, legal team, looking at a case and deciding Are we going to pay this claim, or we’re going to pay this claim in full, um, and insurance as a business make money by taking premiums and not paying out large amounts of claims? So they’re going to look at a case and say, here’s a million dollar claim, potentially? Are we going to pay this or not? Where’s the legal separation? And they’re going to protect their own interest?

J Darrin Gross 13:19

Gotcha. So you mentioned multiple things, I mean, layers LLCs, LPs, and trust? Yeah. Can you go into each one of those and share kind of what the construct or what the protection they provide? And I don’t know how deep you want to go. But but just some sort of a way to explain that for the listeners to kinda identify and recognize what what each one can do?

Brian Bradley 13:55

Yeah, absolutely. And so we’re just going to call it you know, the key concepts and tools of asset protection, and like you said, you know, LLC, LP and an asset protection trust. And so I think the best way to conceptualize it is to think about winter. You know, when it comes to asset protection, we have different layers. I’m from the mountains, I’m originally from Lake Tahoe, we get lots of snow. I also lived in Michigan, it was freezing out there. And so we learn how to dress in layers. You know, the first layer is your base layer is generally made from merino wool, and it sits on your skin that’s going to be like your LLC, and your insurance. And then you want a mid layer which is usually a little bit thicker and it can be synthetic wool, that’s going to be like your limited partnership. And then you want an outer shell layer or waterproof layer, this is going to be your asset protection trust. You know, this keeps you nice and dry and warm when the weather is you know, really cold and bad. But by layering you’re now more flexible. When it gets hot and you’re skiing or your ice fishing. You know, you can take the outer layer off the inner layer off the middle layer off, you can adjust and make yourself more comfortable. And the same thing applies with your asset protection.

And so to break each one of these layers down the base layer, like I said, is your LLC and is holding, for example, your real estate, your mid layer is going to be, you know, the limited partnership. And you generally will be looking at that mid layer to be in a good state that has some good protections like Arizona, Nevada, Wyoming, Delaware, all the base layer LLCs, you want those k ones to be able to flow directly through to the management company. And so we want those to be single member layers, as long as members as long as you’re using that mid layer, limited partnership. The problem generally is that most clients come to me with 15 LLCs. And they’re all single member LLC, but they’re also on that clients personal name, because they had their CPA create them or someone who doesn’t know much about asset protection, create them, or they created them themselves. So the problem with this is that courts have a tendency to fully disregard single member LLC now. And so they’re basically worthless, what you want is that single member LLC that’s holding your real estate to them be held and owned by a multi member Limited Partnership, not you personally. And so by doing this, what you’re not doing is properly layering your asset protection system. And then people really do have a lot of confusion on where to set these up, you know where to set these LLC up? And because they’re thinking about charging orders, but they don’t really understand the concept of this.

So do you go to Delaware, Wyoming, Texas, Nevada, you know, when you hear about the states are really good, you know, they’re really good about protecting the LLCs. And some of the states have privacy. So people say like, Oh, it’s better to do that. So I’m going to go do that because I read some blog, or my CPA told me about this, but my CPA is not a lawyer, but I’m just going to do it anyways. It really comes down to an issue of just what are you holding? So let’s say for example, as California real estate you’re holding, and you set up a Wyoming LLC, because somebody on the internet or your CPA told you that it was better to do, and you go ahead and hold a key piece of California real estate in it, you’re also a California resident, and you’re paying California franchise tax, what you’ve done is just convert your Wyoming LLC to a California LLC, because you’re doing business in the state of California. And not only are you going to be paying the California franchise tax, but if you ever do have liability, you’re like meaning you’re being sued. A California judge isn’t going to care, you know, like about your Wyoming LLC, the law that’s going to be applied is the law from California because that’s where you reside, that’s where the injury reside. That’s where the property is. That’s the jurisdiction. And the same thing applies for any other state. So general rule of thumb is that for your real estate, you want to create the LLC in the state that the asset is in because that’s where the lawsuits coming from, those are the rules that are going to apply. That’s where the jurisdiction is going to be. All you’re going to be doing by using states in another state is doubling your maintenance cost. And so just remember the rules, you know, the laws don’t transfer.

And then I hear a lot of confusion about series LLCs. And so the big misconception with series LLCs is that there’s not really any case law around them. So with no case law to rely on the only fuse, there’s only a few states that have series LLC statutes. What this means is that if you live in a state that doesn’t recognize series LLC, you won’t get the benefit that’s intended from them. So just realize I only use and recommend series LLC structures for clients that reside in a state that has series LLC legislation and the assets in a state that has series LLC legislation. Otherwise, it’s not going to be recognized. So you got to remember what states are you in

J Darrin Gross 18:38

Real quick? states? You said there are some that do recognize that can you identify those states? I mean, I’ve heard this term and didn’t.

Brian Bradley 18:45

Texas is a great Texas has series LLC legislations I believe Ohio does. And there’s some more that do. But most states don’t. For example, the entire West Coast California, Oregon, Washington, they don’t so California, for example, and I’m gonna probably like people like why is this guy bashing on California so much. It’s just an example. There’s so many people there are a lot of money there. And California will not recognize a lot of type of entities. So that’s why I use California as an example a lot of what they’re going to do is just say great, I’m glad you created a series LLC structured with children LLC is underneath it. We don’t recognize that we don’t have a series LLC structure, we don’t have series LLC statutes. So your children series are not going to be recognized is just going to be seen as one LLC, any asset that blows up bleeds into all the other ones, and they’re still going to charge you the surprisingly enough the franchise tax on each single cheer series LLC that you made. So you’re paying the franchise tax on each one of those subs LLC, but you’re not getting the benefit of it. So you really have to look at where your residence at where do you reside, where’s the liability going to come from? Where’s the asset in and see what works in those states and so on. is a really big thing that you need to go through legal analysis to find out what works.

And then yeah, and then the next big misconception with LLCs that I get is the term anonymity, you know, and the thought that you can just create an anonymous LLC and that you just disappear and can never be found like this is just completely false. When your LLC is sued, you’re going to be legally required to appear and defend and defend it. If you don’t, a default judgments going to be entered against you, then the complaint will simply be amended. And you’re going to be named personally. And also, the simple reality is that once the lawsuits filed, the discovery process begins, and you’ll be subpoenaed and forced into court. And what’s even worse is that if you want secrecy, you know, anonymity to even work. This is also known as lying under oath. And so that’s a one way ticket to jail. And so an example of this is that very shortly after judgments going to be entered against the debtor, meaning you, the creditor has the legal right to demand information about the assets that are owned, and by you and the courts and forces very, very broadly and taken very, very seriously. So at this point, in litigation, the only way to keep an asset anonymous or a secret is to lie about them and commit perjury. And so that’s why we don’t advocate for hiding, we just prefer to have full disclosure of proper at you know, of assets and just have a proper asset protection plan that’s in place. And so to do that, that’s this is the first two layers, like you have an LLC, and then you have limited partnerships. The Limited Partnerships are just a step up of a class of an LLC, that limited partnership would own your LLC sees those LLC s would own the assets as holding companies. And then you bring it together, and it works best together when you add a Bridge Trust or an Asset Protection Trust to it.

J Darrin Gross 21:54

Gotcha. What’s interesting, all the LLC stuff there. I mean, I know I’ve heard the series LLC, and you know, finding the state, far and wide that charges the least and like you said, If you live in the state and the properties in the state of the the, you know, suit is in the state. You know, nice that you had that LLC and that. I think Wyoming is one that I’ve heard people like a lot but you know, the the the court doesn’t care. I mean, they’re going to find out like said even with discovery, they’re going to find out who you are. And I also wanted to go back to you mentioned that the single member entity or the disregarded entity that the courts basically are I mean, is there no protection with that i mean is it is it give you any protection?

Brian Bradley 22:52

It gives you some it gives you a base layer level of protection, but like all LLC is like the very first word limited, they don’t hide the fact that LLC are not created to be a magical, you have no liability, it’s just all going to go straight into the corporation. It’s very limited. And then you pierce the veil. Some states have good charging order protections, you know, like Arizona, Texas, Delaware, Wyoming, the strength of it is like are you resident of that state, and is the asset in that state because I’m not going to be transferring charging orders from my home in California. So that’s the importance of multiple layers. But to get to the question of, you know, the single member LLC, the piercing the veil is completely destroyed the strength of the LLC. And it is now so easy to pierce the veil, especially for real estate investors that this is the importance of having multiple layers of protection. And then depending on where you get in the net worth of the sliding scale, a really strong Asset Protection Trust, which will bring next, but piercing the corporate veil, just as a real estate investor is two easy arguments that work on nine times out of 10 an extension of yourself, you’re holding that real estate as a holding company, you know the real estate in a holding company, it’s not doing business, it’s just a holding company, for an asset you own right there, that’s going to be a piercing the corporate veil argument that wins nine times out of 10. Then the next one is commingling of assets. Most people do very, very poor accounting. And so you’re bringing business money in to your operating company or that LLC. you’re transferring it incorrectly into your personal account your personal account into that account, you’re commingling money back and forth. You’re using that business as a personal extension of yourself. So just making those two arguments right there. I’m going to pierce that veil. And most young attorneys can make those two arguments without even thinking about it. And depending on the state that you’re in the wind all the time. And so that’s why the single member entities are just essentially becoming worthless. It creates the level of the separation which you want is an entry point. Got to have something is better than nothing. It’s just going to cost a little bit more money for the person suing you to pierce that veil.

J Darrin Gross 25:07

So we talked about the the base layer being the LLC midlayer, being more like a limited partnership. And you said that the limited partnership then is the, the single member of the LLC.

Brian Bradley 25:22

So yeah, so the limited partnership, you broke up on your question. So I’m assuming you’re like, what’s the role of the limited partnership. And the limited partnership is the managing member of the LLC is the owner of the LLC. And then you would be the managing member of the limited partnership and your spouse can be and we you can set up succession planning through that limited partnership. The great thing about Limited Partnerships is they have two classifications of ownership, a general partnership and a limited partnership, the general partnerships is going to be owning all that LLC sees like if you have pasos syndication shares are going to go into that, you’re going to be doing your receivables through there with your bank account that’s going to be doing the management, the business end of it, the face part of everything, all those separate LLC will be owned in that general partnership, which makes all those separate k ones flow straight through one tax filing, cleans it up, you know, your CPA will be happier about the number of hours, but not so much because his billable hour rate will go down on that. So you know, it makes your system cleaner. But then the second great thing about Limited Partnerships are the ownership interest is separate. So that’s where the asset protection trust comes in and owns that limited partnership. You’re the beneficiary of the asset protection, trust, and Asset Protection Trust are very special because they’re called Self Settled Spendthrift Trust, this means they’re created by you for yourself as your own beneficiary, and then you can create them in two different areas offshore or onshore.

J Darrin Gross 26:56

So you can you can literally go offshore, and basically, then that another layer of tax estate, is that a tax strategy then? Or is that more of a legal?

Brian Bradley 27:07

No, it’s a pure strength, strategy, strength, yeah, it tax, we don’t asset protection, the work, it needs to be tax neutral. If you call them like, hey, I want to lower my taxes and start, you know, putting money overseas, I would say go talk to a CPA or wealth manager guy about that. Asset Protection needs to be done tax neutral, not for tax avoidance, because that’s fraud against the law, or for hiding assets, or, you know, from knowing creditors. But the reason that you go, we’ll just break down like asset protection trust, and and kind of answer the, you know, question itself. So the jurisdiction, you can go offshore, the Cook Islands, they created asset protection trust about 40 years ago, in 1984, you know, the famous Cook Islands. What jurisdiction means and why it’s so important is that the laws and rules that govern you and trust and business entities are different, you know, from one jurisdiction to another, meaning one country from another one state from another, even one county from another.

You know, think about criminal law movies, or old westerns where a body falls on the county lines, like there’s my jurisdiction, now, there’s my jurisdiction, they’re just trying to figure out and fight over who controls the laws for what’s going on. Um, you have two options. When you create asset protection trust, like I mentioned, you can go offshore, or you can do them domestically. On the Cook Islands, I prefer just because they have what’s called statutory non recognition. That’s why an offshore for Cook Islands asset protection trust is still the global gold standard after 40 years. What this means is that a US judgments completely worthless in the Cook Islands, you have to start your case all over from scratch, you’re going to be facing the highest legal standard in the world, the murder standard beyond a reasonable doubt to prove a civil case through the plaintiffs have to front all the court costs and flying a judge from New Zealand. You can’t take your US attorney with you there. There’s no contingency fee attorneys there. And if you lose, you pay, and we don’t have that type of system here in the US. So just the barriers to entry are almost impossible. And there’s only a one year statute of limitations.

But like there’s pros and cons to everything. To be purely foreign. You know, not everybody needs that level of protection. For most, it’s just overkill. And honestly, to be purely foreign. It’s a hard pill for a lot of people swallow because of the cost, you know, generally like $50,000 or more, and there’s extra IRS reporting and disclosures that have to be done. So what happens is most clients will just settle on a domestic Asset Protection Trust. They came about 10 years later and interesting enough, the Cook Islands, creators of the Asset Protection Trust came to the US to help create our Asset Protection Trust of all places, Alaska started first and then you know, Wyoming, Delaware, Nevada, like once one state does it, they’re going to get in on the game. So now we have over 20 states with domestic asset protection statute.

The problem with purely domestic Asset Protection Trust is that they fail on effectiveness. This is because of the US Constitution, the full faith and credit clause. And so now we’re seeing a pattern of Domestic Asset Protection Trust being pierced in court, for example, California doesn’t have asset protection statutes. And so what you have with a lot of California residents is going out of state to Nevada. So they create an out of state Nevada asset protection trust. Well, there’s a case kill Cobra still in 2012 said, hey, you’re a California resident, we don’t have that statute here, we don’t recognize them. So we’re not going to recognize your out of state asset protection trusts. So he created an asset protection trust, five years before he was ever sued, completely disregarded. California still went in and then created a 10 year look back period. So this is the issue that we’re starting to see domestically. And so what you want is to create a hybrid is called a Bridge Trust, it was created about 30 years ago. And what it does is it combines the best of both worlds, it creates a fully foreign asset protection trust, you know, in the Cook Islands registered from day one offshore with the foreign trustee, and the secondary position from day one, and then it’s built back to the US like a bridge. That’s why it’s called the Bridge Trust, just connecting two countries together. And the way we do that is by maintaining IRS compliance with the IRS codes, and we’re just maintaining compliance with USC section 7701, called the Court Test to Control test. So what this does is it classifies your foreign offshore trust as a domestic offshore trust. And then that means is going to be cheaper and costs generally around $30,000 to set up is going to cheaper on maintenance, generally around $2,100 to maintain an annual fees. And you still have the St. Germain protection, which is an anonymity, you don’t have to add any really disclosures at all on what’s held in that trust. But the benefit is, once you get sued, and we declare a state of duress, we drop the domestic compliance, the trust is automatically within two days of fully foreign asset protection trust with the statutory non recognition of the Cook Islands, and then we just if we have to transfer the equity out, now you’re fully protected. So you’ve got the benefit of both

J Darrin Gross 32:17

Got it. So you mentioned the cost, I mean, 50,001 way versus bridge being 30,004. For somebody that’s more domestic, you know, investor that has multiple domestic assets. You know, maybe they’ve got as far as just setting up LLC is, is there a map? Are you able to work with what they have to strengthen it and make it more impenetrable. And if I said that, right. Unable to penetrate the, the protection.

Brian Bradley 32:55

Yeah, so what you do is you just look at where you are on the sliding scale and your you know, your liability wise, and realize those systems, it’s scalable, flexible, and you grow. So when you’re starting out, you shouldn’t be looking at a bridge trust or a foreign asset protection trust, that would just be a very expensive solution for something that doesn’t carry much liability. So if you were to call and say, Hey, I’m just starting out, I want a bridge trust, I would say no, you don’t, you’re not ready for that yet. Um, you would be starting out with an LLC, and insurance. Generally, you know, $1,000, you know, give or take law firm for an LLC for asset protection, then you get insurance. After you get to about 250 $500,000. net worth, that’s when you really should be looking into cleaning up your system, because by that point, you probably have a couple LLCs, two to four LLCs plus a couple, you know, four to six units, your liabilities, expanding your passive incomes, expanding your your visible target and need to clean up your system and add a second layer of protection. So around that 250 500,000. net, you know, worth mark, add the limited partnership, when you hit about 1 million net worth is when you want to start looking into adding the asset protection trust for a bridge trust. And then if you’re under 1 million, you’re like, Hey, I really want an offshore component, I just don’t have a million dollars net worth. There is a trust called a quantum living trust, which is about $14,000 you know, with an asset with a limited partnership. So that’s like $8,200 just for the trust on what they generally go for. What that is it gives you offshore components. It’s just not fully registered offshore from day one. So it’s a it’s called a quantum trust because there’s a sub trust that’s created domestically. But that secondary trust relies on the quantum trust force offshore component. And then you can quickly change out once you hit that million dollar net worth mark, the quantum trust for a bridge trust, but that’s a good entry point for someone who wants offshore protection but can’t isn’t ready yet for a bridge trust.

J Darrin Gross 35:00

Got it. And for somebody that I mean, the word trust gets thrown around a bunch. And I don’t know that people have a deep understanding of that. We’ve been talking about here is Asset Protection Trust. Yeah. How does that fit in with with somebody that’s doing? Like a personal trust? You know, for for when when they die? Transfer of assets?

Brian Bradley 35:34

Great question. So, trust, there’s a lot of different types of trusts, you know, an estate planning trust, like a revocable living trust is not an asset protection trust, you still will need one of those, you don’t have to have one, but you should have one on the way that those would work with asset protection trust is they’re named in the asset protection trust, and then when you and your spouse died, then the assets would be distributed per who you named as the, you know, the beneficiaries of the assets in that trust. And so that is very flexible, they work together, irrevocable living trust would wouldn’t own the assets, they would just essentially be your medical directives, your financial directives, naming your beneficiaries, and then you would have your assets and you know, the structured tiered up system, LLCs, LPs, and then the asset protection trust, and then when you die, the assets would be distributed per the revocable living trust. But just remember, revocable living trust aren’t asset protection trusts, they’re just a state planning to avoid probate, which means avoiding the courts telling you where your assets go, and death taxes and, you know, death taxes have been increased, I think it’s like 24 point 1 million. So for most like, the only really affects is 0.01% of people in society. So you’re not talking about losing your wealth, you know, because you died on generally you’re talking about lawsuits. And but you do want to avoid probate because you don’t want a court telling you where you’re at, you know, where your assets are going to go. You want to direct where your assets go and have control over that.

J Darrin Gross 37:06

Got it. I appreciate you kind of distinguishing between the two there and kind of explaining how they work together. Like I said, trust is a word you hear a lot, but not always understanding that, that there’s a difference, and how they work together. So that’s good. Brian, is there anything more you wanted to cover under that? If not, I was gonna ask if we could shift gears here for a second.

Brian Bradley 37:33

No, I think we we covered a lot and without frying all your listeners brains, like

J Darrin Gross 37:40

It’s definitely a heavy load there. But I do appreciate you going in depth in it. And just kind of the simple model there of the, you know, comparison to going out and playing in the winter, you got your base level, a mid level, and then your you know, your outer level, I think makes it’s a great analogy. It’s easy to understand. And I think you did a good job with that. I appreciate that. So if we, if we could, I’d like to shift gears for a second. As I’ve mentioned, by day, I’m an insurance broker. And I work with my clients to assess risk and determine what to do with risk. And there’s three strategies we typically look at. The first is we ask, can we avoid the risk? If that’s not possible, we look to see if we can minimize the risk. And when neither of those are an option, we look to see if we could transfer the risk. And that’s what an insurance policy is a risk transfer vehicle. And I like to ask my guests if they can look at their own situation, whether it be clients, investors, tenants market, etc. How, however you want to frame it, I invite you to do so. But if you can take a look and identify what you consider to be the biggest risk. And again, for clarification, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Brian Bradley, what is the biggest risk?

Brian Bradley 39:21

I think the biggest risk is not thinking that you have any. And I think ignorance is the biggest risk because I have a lot of clients who call ventures like why did you wait so long? You have $20 million, you know, of assets that are unprotected. And they had no clue where their risk even lies, because they thought, Well, I’m I have heavily mortgaged and so I didn’t think that I needed to protect anything, but then they have, you know, a lot of equity and that I think equity needed to be protected. So I think it’s just a matter of looking at your whole life structure and talking to a professional like yourself and myself and saying, What’s your day job? What’s your normal life like? What are the age of your kids Whereas the liability just in your general life, where’s your liability in your professional businesses, and where’s the liability and the things you own and how you own them, and then get a good assessment and knowledge based on that. And once you understand where all the risk and liability comes from, then you have the knowledge to start thinking, What do I do about this and mitigate those. But if you don’t take the first step to even analyze where your personal life and liability comes from? That I think is the biggest thing, because if you think of it like a pie chart, no, there’s things I know, there’s the things I don’t know. And then there’s the things I don’t know that I don’t know, if most of your liabilities and things that I don’t know that I don’t know, you’re in for a rude awakening. So I like to shrink that piece of the pie first, and start educating people to where once I know, I don’t know this, I can ask the questions and start solving that.

J Darrin Gross 40:51

No, that makes a lot of sense. Unfortunately, there’s a lot in that pie a pie graph there of the risk. I don’t know that I don’t know. And that’s kind of ever, ever changing. Brian, Where can the listeners go if they’d like to learn more connect with you?

Brian Bradley 41:10

Yeah, they can jump on my website, www.BTBlegal.com. I have lots of educational information, lots of frequently asked questions, sections, media, educating seminars that we go and talk to. So it’s a great place for resource a lot of like, I love case law. So I have a whole legal resource case law library on there for people to actually go through and see case law of asset protection and how things play out and work out in real world trials. But it can email me Brian brian@BTBlegal.com. And I’m on LinkedIn. I love LinkedIn as a way to stay connected and educate people on.

J Darrin Gross 41:56

Awesome.

Well, Brian, this has been been a great opportunity to learn about asset protection, I really want to say thanks for taking the time. I’ve enjoyed it. learned a lot. And I look forward to doing again soon.

Brian Bradley 42:14

Yeah, thank you for having me.

J Darrin Gross 42:16

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Multifamily Syndication Depreciation Appreciation Leverage and More with Feras Moussa – CREPN #283

J Darrin Gross 0:21

Today my guest is Feras Moussa. Feras is an entrepreneur at heart with a tech background. Feras worked with Microsoft. And he later left Microsoft to bring tech to industries that lack it, where he later found his passion for real estate. He founded Disrupt Equity. It’s a commercial real estate acquisition firm that works to provide investors with strong passive income by leveraging multifamily syndications. At Disrupt Equity they focus on identifying B and C class multifamily assets with 90 units or more in key markets, including Texas, Florida, Georgia and Tennessee. Their goal is to provide investors with strategic tax incentivized investment opportunities that create the highest potential returns.

And in just a minute, we’re going to talk with Feras, about investing in multifamily real estate. But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can subscribe, like and share. And as always we love to receive comments. So if you would, please let us know what you think. And also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And that’s Commercial Real Estate Pro Network. While you’re there, please subscribe. With that, I want to welcome my guest, Feras, welcome to CRE PN Radio.

Feras Moussa 2:22

Thanks for having me, Darrin . Glad to be here..

J Darrin Gross 2:25

Yeah, well, I’m really looking forward to our talk today. Before we get started, if you could just take a minute and share with listeners a little bit about your background.

Feras Moussa 2:35

No, absolutely. So I mean, I, I kind of have almost with my worlds become the traditional thing where you have a lot of people in real estate that came from kind of a tech or an engineering background. So you know, I fit that mold. But you know, me personally, you know, I was always been kind of an entrepreneur, I always knew I’d go off and do my own thing. And so from high school, I had my own little web company that did really well and then, you know, kind of went off to Microsoft, right? Kind of accidentally really fell into that I did an internship there. Love the people, I worked with a team and I’m like, Alright, I’m gonna stay here, do this for two, three years, get this on my resume, get the experience and move on. And so I ended up staying, you know, three and a half years, I wanted to make sure I left not in the middle over release, but at the end of a cycle. So kind of time that well and, you know, went off and did my own software company after that and kind of had that going for several years. And like a lot of probably your guests, you know, start looking at Okay, what else can I invest in? Besides the stock market? Right?

Being from tech stocks is the thing everyone does. But, you know, to me, I wanted to diversify a little bit more and started educating myself on real estate right listen to a lot of podcasts such as this, I read a lot of books, and you know, kind of learned all I needed to know and then it kind of hopped in and figured out so before I even moved back to Houston, I had a four Plex under contract that you know, is now coincidentally about a mile away from our office but uh, you know, bought a four Plex bought a bunch of houses and kind of, you know, got into real estate before I then transitioned into multifamily. So, you know, love real estate, fun business fun space, and so I’m glad to kind of be able to share that.

J Darrin Gross 4:03

Awesome. So the attraction of real estate, what was the attraction for you to invest in real estate?

Feras Moussa 4:11

I mean, for me, so I’ve been there’s a book that I highly recommend called The Millionaire Real Estate Investor, Gary Keller, the guy that started Keller Williams. It kind of does a good job positioning really just what I like to call the pillars of real estate, right, you know, what does it mean to make money from you know, real estate investment, whether it’s cashflow, appreciation, depreciation, leverage, right? All of these things compounded really turns into actually a very powerful investment vehicle. And I think a lot of people, and again, coming from Tech, a lot of my friends are sipping the stock Kool Aid and you know, you tell them about real estate and what do they do, right, everyone thinks they’re a genius. They search Google, you know, they go Google it and say real estate versus stock market. The thing that you see is, oh, well, the stocks of you know, the past 50 years have averaged, you know, 10% a year, right real estate prices. It’s only two and a half percent. So clearly real estate a terrible investment, right?

But they’re not really factoring in the other pieces of that. Like I said, appreciation, depreciation, leverage cash loss, I mean, all of those things combined is actually a much more powerful. So to me, the math made sense, right? And then you know, it is a real asset, right? It is always there. And if you buy it, right, where, you know, you get it, you be pretty resilient, right? Because, you know, rents, you know, will fluctuate, but they’re not going to fall 100, you know, at 80% in at night, right? We’re certain stocks have done that, right? individual stocks, so you’re not beholden to some CEO somewhere not doing something they shouldn’t do kind of thing. And so, you know, for me, it was just another opportunity to get into a different asset class. And as I got more and more into it kind of started to really learn the power of it, you know, kind of run with it.

J Darrin Gross 5:48

So you said you had a four Plex, and some single families? Did you buy the four Plex first? Or did you buy some single?

Feras Moussa 5:54

So everyone talks about in all the podcasts, you know, four plexes is much better? Right? Well, the problem is, I knew I was in Seattle at the time, I knew us moving back to Houston and get into real estate. And there’s not a lot of for plexes in Houston. For those that don’t know, Houston is one of the largest cities in the world in terms of landmass. So in Houston, we don’t build up, we just build out, right. So there’s a lot of houses, there’s not a lot of for plexes. And so I know and I still do Houston pretty well, and most of the one for plexes that existed in areas that I would want to buy. And so luckily, I did find one, and I’ve you know, bought that. And then from that, you know, bought a bunch more houses, right? Which made more sense. And then, you know, after that point in time, okay, I saw the power of the four Plex all the power of the houses. And again, you can make money in real estate a million different ways. There’s no right or wrong. For me, the residential side didn’t really scale very well. And that’s kind of what led me into learning more about apartments and then kind of hopping all in.

J Darrin Gross 6:49

Let’s talk about that. Because I think that like, like a lot of people, myself included, I was, there was an lewer of real estate, I saw people that were investing in real estate. And I remember one guy was telling me, he goes, Yeah, make $100 a month off that $100 a month off that $100 I’ve gone, man, you know, you can add up, you know, pretty fast, you can have a couple thousand bucks extra cash coming in kind of thing. Mm hmm. And so that was kind of my allure. Yours? Was it the the Gary Keller book, kind of the big picture and the math or was there anything more?

Feras Moussa 7:25

It was the big picture in the math for me. I mean, it’s the numbers made sense. Right? And, you know, and then I could see that there is a path to scale that right. You know, I since didn’t realize some of the pain points of the residential side, right, I have 12 different properties, 12 different insurance policies, you probably know that, well, 12 different loans. I mean, all that becomes a pain because they’re all different. They’re all different times, right, etc, etc. And so, for me, I didn’t even have the headaches that people have in our tenants. Luckily, I had pretty good tenants for the most part, right? But it was some of the other stuff that led me to kind of realize, okay, this works, but it’s not gonna scale to where I want to scale to so.

J Darrin Gross 8:02

So you started off, you got the taste, you realize you need to scale? What, what were some of the hurdles going from Single Family to multifamily for you?

Feras Moussa 8:15

Um, hurdles? Honestly, I don’t want me to, I’m getting educated. Right. So once I kind of realized I wanted to make that transition, I was, you know, I was looking at doing my own smaller apartment complex, right, as a 32 unit in Conroe. And I’m glad I did not win that, because I was going to do that on my own. You know, no syndication, no nothing. And I didn’t win that one. And I was doing 32, because I was about the size that I could comfortably do right in terms of cash. And I didn’t win that and instead started learning, you know, again, educating myself more and started learning more about syndication, right. And syndication. For those that don’t know, it’s really the concept of, you know, let’s say, Darrin, you had $100,000 to invest in a property right. But hundred thousand dollars will let you buy a $400,000 property roughly. Right? Great if $100,000 property, that’s not enough meat on the bone to have full time staff or system size or anything like that. But now let’s say me, you and eight of our friends have $100,000 to invest right? together, that’s a million dollars, we can buy $4 million property right? So syndication is the concept of pulling together, you know, equity to go do something bigger and better together. And so luckily, I learned about that. And you know, I was gonna go off and go do my own syndication. Right. And, you know, also met my partner and, you know, we did count our first deal went really well then started to kind of continue to do more from there. And so it’s funny because that broker who, you know, that toward that 32 unit, I stayed in touch with him, right. And, you know, I remember I offered it and when we had a coffee and then about a couple months ago, I was asking him about a big deal that they had a for sale recently, right. And A class I think was like a $50 million deal. And his message back to me is like, man, how do you go from you know, asking me about a 32 unit asked me about this massive deal and it’s kind funny jokes, I told him the same thing like, Well, how do you go from touring me a 32 unit thats for me, this kind of large deal? And so, yeah, I mean, hopefully that answers your question. I kind of got a little bit long winded, but it’s education. And I think that’s the biggest thing, you know, people need to get educated. And for me, that barrier was cash, right, not having enough to have a bigger thing, but then I learned about a way to solve that.

J Darrin Gross 10:19

Right? I think you illustrated Well, the just the power of of, you know, leverage is really kind of what we’re talking about, because you could only leverage 400,000 with 100,000. But if you got a million, you can leverage 4 million. Right? And with that, the the the economies of scale, how, how large was the property? Or tell me about the property that you did syndicate? Or where are you at in the syndication?

Feras Moussa 10:47

So right now, I mean, so we, you know, we’re very, so we’ve done nine deals, three, two and a half days gone full cycle. The very first one was a deal that we did in Atlanta, that we bought for, man is about 3.9 million. So it actually wasn’t that big of a deal. We got a very good price point on it, though. And we know we sold that deal last year. And last year that I think is laser sales last year. And, you know, we’ve since actually about a year ago sold and, you know, our investors did really well on that deal, right? I mean, they made more than 40% annualized. So it’s, you know, your whole deal that we knew that we can get in and, you know, we can’t go wrong on that deal. Right. It’s a deal that we had, it’s hard to have, it was a very challenging deal for a lot reasons, because it’s a complete turnaround for kind of, you know, clean out, deferred maintenance, you name it, we saw it kind of situation. But when you as long as that we did our part, meaning our business plan is purely built around me and my partner needed to perform making sure things got done. It wasn’t needing to bet on the market. It wasn’t needing to bet on big rent pops or anything crazy like that. I like those kind of deals, because the deals and I always know for sure I can get done. Right. So right, that was our first deal. And, you know, investors see that they make before you know, they perform, they start getting excited about making money, and they start telling their friends, so it kind of grows from there.

J Darrin Gross 12:09

Right? How long did you hold that property?

Feras Moussa 12:12

That deal was a little less than two years?

J Darrin Gross 12:16

Wow. That’s great. That’s great. So now now that you are in, in multifamily what when you’re out, I mean, not multifamily, just, you’ve gone from the the singles and the more of kind of residential stuff where they look at you, the borrower, the banks, looking more at you to where now you’re looking more at the the banks looking at the property. And the operators? What I’m trying to think so the clearly the power of the numbers is kind of like the compelling theme here that I’m picking up on, or there. What else about the property? I mean, how many numbers was the the first property that you bought?

Feras Moussa 13:05

I think it was 99 units? We bought it for? 38,000? A door? You know, we sold it for 71,000? Right? But if you go if you just do that math in your head, right, it’s about a $4 million purchase price sold for about 7 million. Right? So you know, we profit wise, right? From kind of the purchase price itself about $3 million, right?

J Darrin Gross 13:27

Well, you’re mature improvements, how much were you in exactly as

Feras Moussa 13:31

I say? So we spent about a million a little over a million dollars in improvements, right. But on the deal, we also only raised, you know, one and a half million. So you know that one and a half million dollars allowed us to buy a $4 million property, right? And allowed us to make $3 million, right or two, you know, depending on how you how you size it up $2 million.

J Darrin Gross 13:51

So on that first deal, what were some of the lessons you learned,

Feras Moussa 13:54

Man, choose your lender wisely. That’s the biggest, you know, that was a deal. Again, not most lenders would do that deal. But we did have a professional lender that would have said we have to go into the company that is kind of known to be a loan to own type of lender and they said for verbatim one of the best one of the best turnarounds they’ve ever seen. But they wouldn’t approve the release of all of our CAP EX money. It was just such a circus. So, you know, we ended up actually funding it more out of pocket just because you know, whenever you’re running 40% occupancy, you need to get units online, right. I mean, you’re running in the red and so yeah, that lender was just they made they single handedly made a deal twice as much more than it should have been. So that’s the biggest lesson of that deal.

J Darrin Gross 14:38

No, it’s that’s a you know, it’s a lesson worth worth learning. Hopefully we learn from others rather than learning yourself. Yeah. kind of tight when you’re in the know

Feras Moussa 14:49

No, I like I say we’ve we’ve grineded our teeth on all the hard stuff. So you know, we were probably we know more than we should know about most things in terms of like lending all that. I mean, we just we just seen all the things that go wrong. So,

J Darrin Gross 15:02

Gotcha. So now now you’re a syndicator you guys are finding deals, you’re sponsoring deals, you’re raising capital. What’s the the most challenging thing that you’re, you’re faced you face today from a syndication model?

Feras Moussa 15:20

Um, I mean, I’d say just it’s hard to find good deals, right or last deal we bought was a year ago, and it just hard to find a deal. That makes sense, right? We’re, you know, we’re patient, we’re, you know, we don’t want to get a deal that we can’t perform on for our investors, right. So we’ve since really spent our time you know, we’re vertically integrated now. So we have our own management company. So brought that in house, and now that company is doing third party management as well, for other friends and people to kind of grow on that. Because, you know, going back to the reason I left Microsoft was really to bring tech to industries that don’t have it, right. And issues that are really dated. And property management is about the oldest thing, you know, out there. I mean, it’s just, it’s very notorious for, you know, really being built in the 90s. It just kind of stuck there. Right, not enough companies have modernized or rethought property management. So we’ve been really reimagining that and, you know, it’s since worked out, right. People are, you know, they see kind of what we’re doing, they’re excited, they, you know, there when we start managing other people’s assets, you know, who kind of gain their trust, right, on that sense. So.

J Darrin Gross 16:19

So in the property management space, what what are some of the things that you can you share some specifics with the tech that you, that you?

Feras Moussa 16:27

Oh, absolutely, I mean, you know, let’s just start with the most basic right, most people didn’t know what slack or Microsoft Teams was, until a year ago, right? We’ve been using Slack for like, five years, right? I mean, I’m bringing, you know, that was the norm in tech, right. And again, that just helps streamline things, right, you get people communicating consistently, and you know, kind of moving the conversation rather than being one infinite thread to being more conversation specific topics. So that’s a simple one, right? moving to an actual proper task management system, right? And solution that everyone can see what’s being worked on, people can get updates, etc, right? The biggest problem in property management is get on these weekly calls with a property manager. And we all agree on the things that should get done. But no one really documented it, no one really tracked it. And the following week, it’s like, oh, did you do that? Oh, no, I forgot about that. Right. So really, right now, I mean, you know, another thing too, is just, you know, we have BI dashboards, right? Business & sales dashboards, where we have visualizations of all of our properties, and you know, all real time data, right? Who are their managers, we have five different management companies, no one has given us that right. And so I mean, the list goes on and on and on, right, we make our maintenance, people take pictures of every single move out, and every single make ready. So we can see what it looked like before how much money was spent? And what does it look like whenever the tenants gonna move in, and doesn’t meet our standard, right. And so really kind of cranking up that visibility and transparency piece.

J Darrin Gross 17:52

It’s interesting, you mentioned that because I do feel like there’s a kind of an old school that we don’t do that kind of thing. But But the reality is, I think that the, with all of the the pressure from new laws that are protecting tenants to that kind of thing, it’s almost more of a tool to protect the landlord as well, if you do some of these things like the before and after pictures. And you know, more of a documentation type thing to where you don’t open yourself up to any kind of a nuisance, kind of an exposure or a situation. So it is, I mean, I applaud you guys for doing that. Because it seems like it’s a, it makes complete sense. I question why others don’t, you know, don’t do that.

Feras Moussa 18:45

Property Management is Hard. That’s why. I mean it’s a hard business. And so we have a rock star who kind of leads that part of the business and we’ve been just, you know, building the systems and the processes around her.

J Darrin Gross 18:57

Yeah. That’s, that’s great. Tell me about some of your capital raising. Have you? Is it been friends and family have you have you got about raising capital?

Feras Moussa 19:10

Friends and family and yeah, as we’ve grown, we start attracting more and more people writing for, you know, across the board, friends and family, friends or friends to, you know, people we meet at events and conferences, and now private equity, quasi institutional as well, right. We’ve had, you know, multiple conversations with those people and trying to, you know, I like to say we’ve kind of transitioned to be really glorified matchmakers match deals to equity, right. And so, you know, it’s really kind of up and down the spectrum. And because of that, we also look at deals up and down the spectrum. Right, we kind of got our start with that CB value add play, but we’re absolutely looking at A class properties. We’re looking at B’s we’re looking at C’s we’re looking at it all. So

J Darrin Gross 19:51

Right. No that the in your hold time on the one being two years, I think one of the things that I’ve always found interesting about commercials estate is it, especially with syndication, there’s a there is an exit plan for every property. I mean that just based on the makeup of the investors, they want their money back kind of thing. So there’s constantly I don’t say churn, but there’s there’s turning of properties and opportunities for coming up. And I suppose, you know, being patient right now is key. You know, make sure you find a good deal, not just a deal, kind of thing. That’s great. So, so on the on the tech side of things. Primarily, you’ve applied that to the property management, have you have you had any tech applications for any of the other? Whether it be raising or? Or?

Feras Moussa 20:49

I mean we do use a lot of different tools across the board, right. I mean, even just documenting and streamlining how we do every step of the way matters, right. We also have a team of VA that we leverage to kind of help really systematize and help keep everything kind of greased and everyone accountable. Right. And so I mean, we I’m always very open to looking at Tech and options and kind of how to do things. And so yeah, I mean, we, I’m trying to try to, you know, we do use a system called the IMS investor management system, it’s piece of software that I pay a lot of money for, I’m not really happy with it. But I’ll leave it at that it is acquired, did get acquired by a Real Page. But you know, it’s helpful for investors. Right, I think it’s just overly complex for what it is. But, um, you know, that’s helpful we use. I mean, we it’s really more about systematizing. And making sure you kind of have a plan for all of the common things that happen, right.

J Darrin Gross 21:47

Gotcha. Yeah. If it’s repeatable if it’s, something’s going to happen again. And again, and again, it’s kind of nice to have some sort of system as opposed to handcrafted solutions for every, you know, little situation I get you. Well, so today, you’ve got how many properties?

Feras Moussa 22:06

We’ve done nine total.

J Darrin Gross 22:08

So okay, it should two had gone full cycle

Feras Moussa 22:11

Two. And then we have another third one that’s gonna go for sale here soon. It’s for sale. I mean, we’re about we’re, we’re going to sign a contract very, very soon.

J Darrin Gross 22:19

So gotcha. And have the investors that got their capital back. were they saying, Hey, where’s the next one? Are they?

Feras Moussa 22:29

Sorry, I’m wrong. Three have gone full cycle. We have another one that’s coming up. Sorry for. But yeah, I mean, investors have gotten their capital back, they are chomping at the bit for another deal, right? I mean, especially the deal that we’re looking at selling right now those guys are like, man, can we get into a deal by the end of the year? Right, you’re gonna make a lot of money on that. And they’d rather get into another deal so they can get the write offs from the next one. So

J Darrin Gross 22:48

Right, right, plus a bonus depreciation right now. That’s absolutely, that’s kind of a key thing. And on your deals, are you guys, are you doing cost segregation?

Feras Moussa 22:59

Yeah we do cost segregation and bonus depreciation on every single deal. Okay. So I mean, our investor, I literally had to go back to the pillars that I mentioned the beginning, right? Some people invest for appreciation, some people just depreciation, right, those almost seem like contradictory things for someone that doesn’t know but you know, a little have investors that will invest only for doing the depreciation, because they’re looking at, you know, they have so much in gains, and they’re looking to basically write off, right, and so that literally makes more money for them, quote, unquote, than the investment itself.

J Darrin Gross 23:29

Right?

Feras Moussa 23:30

Because you have to figure I mean, taxes, you know, 30%, right. So you can write off, you know, let’s say you have $100,000, right off and you write off 100,000 you just save $30,000. Right? So,

J Darrin Gross 23:42

Right, right media in that hundred thousand dollar write off from the depreciation is it didn’t actually, quote cost you it was a more of a, an accounting,

Feras Moussa 23:53

accounting thing. And, you know, there’s a lot of tricks to you know, you do owe that at some point in the future. And there’s right, you know, but really, if you’re savvy enough, you can basically avoid ever paying that. So there’s my plan. So,

J Darrin Gross 24:07

Right. With your sale of your properties, have you had any? Have you guys done the 1031’s as far as like, goodness, sometimes? The GPS and I’ve heard of it?

Feras Moussa 24:17

It’s complicated with syndication.

J Darrin Gross 24:18

Yeah.

Feras Moussa 24:18

Yeah. Something that we should have just made way too much. Right, maybe I’m not

J Darrin Gross 24:26

know and I think that’s kind of one thing I’ve come to the conclusion of is if you’re an individual investor, or you you control the deal, and you have the entity that that’s in place, that’s that’s an option. But syndication is more kind of like it’s very comparable to stock markets for the in and out I mean, you get in you get out you could return, pay your tax move on to the next deal, kind of thing, but when the returns are, you know, 40% annualised. I don’t know that anybody’s gonna get too upset about that. I mean, that’s, you know, pay a little tax and move on.

Feras if we could, I’d like to shift gears for a second. Before we started recording I mentioned to you I’m a an insurance broker. And one of the things we do in insurance is we try and manage risk. And there’s a couple of different strategies we typically employ, we look to see if first we can avoid the risk. If that’s not an option, we look to see if we can minimize the risk. And when that’s not an option, then we look to see if we can transfer the risk. And that’s what insurance is it’s a risk transfer vehicle. And I like to ask my guests if they can take a look at their situation. Be your your properties, you know your customers, your tenants, your, your partners, whatever however you want to frame. But if you can take a look at the situation and identify what you consider to be the biggest risk. And, again, for clarity, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you Feras Moussa, what is the biggest risk?

Feras Moussa 26:17

Yeah, I’ll say there’s two I’m gonna answer to two risks. Right? For me, personally, I’m one of them is just kind of really seeing what happens with COVID. And the government stimulus, right? Or deals of you know, I mean, our we’ve collected a lot of money, these properties, but that’s been because of the stimulus. Right? So really seeing, you know, what happens around that situation around evictions, all of that, right? And is the government to help kind of, you know, bail out tenants or not? Right, that was definitely something top of mind. And, you know, that kind of segues to my second risk, which is cash is king, you know, and all these properties cash is king and, you know, we make sure we have significant reserves, right. And even at the company level, I mean, we’ve been doubling down and just, you know, investing back in the company, right, we’re in growth mode and doubling down and reinvesting reinvesting, but just again, making sure there’s enough cash for everything. Right. So, I’d say those are my two biggest risks and some things I’m you know, just kind of very conscious of and, you know, continue to think about so.

J Darrin Gross 27:13

Yeah, I think it’s, you know, for all of the the COVID relief that’s been granted, there’s been a fair amount of challenges presented to landlords as far as you know, the no evictions and, and all that so yeah, it’ll be definitely interesting. See out all plays out and hopefully, there’s a soft landing and we all drive any major crash. But with that, Feras, Where can the listeners go? If they’d like to learn more connect with you?

Feras Moussa 27:47

Yeah, wwwt.disruptequity.com or they can send me an email at feras feras@disruptequity.com or you can find me on LinkedIn or Facebook. So

J Darrin Gross 27:58

Got it. Alright, I’ll list that in the show notes. And with that, Feras I want to say thanks, I’ve enjoyed our time and learned a lot, and I look forward to doing it again soon.

Unknown Speaker 28:14

Sounds good, Darrin. Thanks for having me. Appreciate it.

J Darrin Gross 28:17

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Property Investor Mindset with Tracy Cousineau – CREPN #282

Tracy Cousineau 0:00

I think it all has to do with mindset. You know, I know where my mindset was during 911. And I know where my mindset was during the Great Recession. I know where my mindset is now. So I didn’t feel anything during 911. I had a bad, bad negative mindset during the Great Recession because I allowed noise to interfere with that. And then when we hit COVID, my goal was how do I serve others? How do I show up? How do I keep helping the community, buy and sell real estate? That’s what my goal is. And so I showed up in a different way that I did during the Great Recession and it it was huge.

Announcer 0:36

J Darrin Gross 0:55

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Tracy Cousineau. Tracy is a powerhouse real estate entrepreneur, and business coach. She is a co founder of the number one real estate team in the Atlanta metro area. Ranked number 12 is the fastest growing company in Georgia by Inc magazine, and a real estate agent coach. And in just a minute, we’re going to speak with Tracy about creating wealth through real estate, and how to avoid certain mindset pitfalls.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help. You can like, share and subscribe. And as always, please because please consider leaving a comment. We’d love to hear from our listeners. Also, if you’d like to see how attractive our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. While you’re there, please consider subscribing. With that, I want to welcome my guest. Tracy, welcome to CRE PN Radio.

Tracy Cousineau 2:31

Hey, thanks for having me today.

J Darrin Gross 2:34

Well, hey to you, and so glad you are able to join us. Before we get going if you could share with listeners, just a little bit about your background.

Tracy Cousineau 2:45

Yes, so I started in property management in 1989. And 10 years later, in 1999. I got my real estate license and full force to get my $12,000 in my 401k and hit the pavement running full time in real estate. I’m young in my mid 20s and didn’t know what I didn’t know at the time. But I’ve learned a lot along the way in the last 21 years. So I figured at the time. If I could lease apartments I sure could sell some houses.

J Darrin Gross 3:22

Okay. And are you a native from Atlanta or is that your your home?

Tracy Cousineau 3:27

This is home? I was born in upstate New York.

J Darrin Gross 3:31

Okay. Okay. In in Atlanta. You’ve been doing your as your real estate career been been based in Atlanta?

Tracy Cousineau 3:42

Yes. So I moved to the Atlanta area in 1980.

J Darrin Gross 3:44

Okay, gotcha. And tell me a little bit about just the marketplace. In Atlanta. Are you mean I? I’ve heard it just on fire, lots of growth. Can you speak to a little bit of that? Yeah, it’s

Tracy Cousineau 4:02

We’re definitely busy. Right now our production is at 42% from last year, even during the pandemic, you know, we were we’ve pivoted where we need to, we’ve shown up in the community where we need to our team, we cover 12 counties in metro Atlanta, so we have a very wide range, hours from one section to the next. to get from point A to point z would be hours worth of drives. So we cover a lot of ground in metro Atlanta, we feel that if we don’t get to, then maybe they might not have the best experience that they need to in the industry. So the more people that we can serve. We know that we provide a great client experience and have the certifications have negotiations and can get them the most money for their investment. So we always try to get to as many people in our community that we can.

J Darrin Gross 5:00

Yatra in, in specific to the just the the Atlanta area in the time that you’ve been working in real estate, has the growth been steady? Or is it a more recent phenomena?

Tracy Cousineau 5:15

No. So this is my third recession, if you want to call it since I’ve been in the business and the market is down about 35%, for the most part, metro Atlanta, we just again showed up to serve our community and where we needed to to provide for sellers and for buyers on, you know, the American dream. So, um, you know, the market is declining here, and they’re in different parts of Metro Atlanta, but things are selling, if you know how to make the best first impression to get the property sold for them.

J Darrin Gross 5:46

When you say down 35% of your referring to sales listing price or whatever, yeah, well, the

Tracy Cousineau 5:51

MLS is down by the amount of listings, a number of listings.

J Darrin Gross 5:56

Okay. Gotcha. Are the prices holding firm year over year, month over month kind of thing?

Tracy Cousineau 6:06

Yeah, I mean, there’s been a, you know, in some areas, you might see a little decline, but I haven’t seen anything major. And, you know, the homes that have what everybody’s looking for right now, you know, the pools, the extra home office, The finished basement, the resort style, style, backyards, those homes are selling really, really fast, because it’s supply and demand, people are working from home, kids are digital learning. So people are looking for specifics and properties. So those homes are going to sell a lot faster. And they’re going to have multiple offers, which are going to raise the price for the seller. You know, homes that are older that are not updated. People don’t want projects right now. So those might stagger a little bit longer, or they might have more of a reduction, depending on the price point.

J Darrin Gross 6:49

Gotcha. And that the the home buyer versus the investor? Is there? Do you see a lot of investors trying to get into the single family? Or is it more end user can the homeowner?

Tracy Cousineau 7:08

Well, I think we’ve got both right now, especially with some some on we’re going to territory right now that we just don’t know what’s going to happen, you know, you hear some talk about oh, we’re about to hit something, it might, you know, people think November December and then you have people Oh, by February, you’re going to start to see something but for me I’m looking more at I’m starting to get more calls on short sales, or people not being able to make their payments, because they’ve, they’ve lost their jobs or in COVID or they’ve deferred payments as far as they can with a mortgage company. And they you know, a lot of mortgage companies want that defer deferred payment back, you know, in a balloon payment after the different periods over so, you know, you’ve got some people just depending on their financial situation right now, because of the pandemic for this year. But, um, you know, loan modifications are coming due to a lot of people did an IOU at the end of a 10 year loan modification. So you’re starting to see a lot of that hit also that they’ve got a balloon payment due or they need to refinance. And maybe now they don’t have a job because of COVID, or, you know, something. So there’s a lot of different stuff going on, unfortunately COVID’s caused a lot of divorce situations that we’ve seen as well. And so it really depends on the situation, if it’s a great deal for an investor, I think the times are starting to come, that there’ll be some investor deals that that, you know, investors will want to start keeping their their eyes and ears open.

J Darrin Gross 8:40

No, I appreciate you sharing that, because I think that, you know, depending on what you’re watching, or however the The news is painting it or whatever the winds of blow, it can be kind of a foggy, kind of a sense of what’s going on. But I think there’s there’s been a kind of a sense that these things are coming. But, you know, I don’t know that I’ve talked to too many people that have seen them actually materialize.

Tracy Cousineau 9:11

Now. And it’s I think it all has to do with mindset. You know, I know where my mindset was during 911. And I know where my mindset was during the Great Recession. I know where my mindset is now. So I didn’t feel anything during 911. I had a bad, bad negative mindset during the Great Recession because I allowed noise to interfere with that. And then when we hit COVID, my goal was how do I serve others? How do I show up? How do I keep helping the community, buy and sell real estate? That’s what my goal is. And so I showed up in a different way that I did during the Great Recession in it. It was huge.

J Darrin Gross 9:49

Sure. No, I was kind of curious to know more about just the you mentioned that there are some of the you’re starting to see the the people asking about short sales. Kind of The cumulative effect of having taken a deferral and now the money’s due and, and perhaps the job isn’t there anymore, is that anything you feel like growing or is that just kind of random calls right now?

Tracy Cousineau 10:18

Honestly, I hate to say either way, but my opinion, if that counts, the amount of calls that we are getting our, we’re hoping that they have enough equity right now. And we’re just educating them the best that we can, you know, this is what we can sell it for. Now, you know, in six months, we don’t know. So this is what you know, if you want to make a decision today, this is what we know, we can sell your property for, but we can’t, we don’t know where it’s going to be in six months. If right now you’re not in a short sales, short sales status. And I suggest that if this is your financial, financial situation, that we go ahead and make that move now, so that you can pull out the equity that you need to before you’re completely upside down. And so each house is going to be different. And each situation I find is different with every house that we go to, to sell. And it’s really just educating the consumer and really giving them their options. My goal is to always put more equity in somebody’s pocket and take it from them. So you know, I want to bring everything that I can

J Darrin Gross 11:18

I appreciate that. Tracy, I was looking on Google before or preparing for this call. And so and I was just gonna ask you, it looks like you’re into a lot of things. beyond just being a real estate broker. Are you did I see, you’re also a host of a TV show. And own a retail store, you looks like you’re quite the entrepreneur there.

Tracy Cousineau 11:46

Yeah. So I, I’m on a TV show called The American Dream. I’m also working on a production of my own TV show called For Sale In The City. And so, you know, just hosting a TV show for Atlanta real estate, and, you know, and the community. So that’s in the works, launching a new book, and then have a cobook with my my partner that we’re putting together for real estate, I have a clothing store, it’s a women’s clothing store, I have a women’s group called Women’s Elevation that I help female entrepreneurs grow their businesses. Um, I have a, we have a call center. So we have an inside sales department as well. And I’m trying to think what else we my mind doesn’t shut up. So I just keep going.

J Darrin Gross 12:38

No, I saw it and it looked like a quite a prolific list of accomplishments and, and, you know, investments, or at least look like you’re you’re you had multiple, you know, pots on the stove there. So to say. So, that’s good.

Tracy Cousineau 12:56

Don’t always put your eggs in one basket is what I learned during the Great Recession.

J Darrin Gross 13:01

That’s, that’s good. That’s good. Let me ask you mentioned a little bit about the the changing times, and this is your third recession. As a real estate broker, you kind of have your finger on the pulse of what’s happening in the marketplace. And and I would assume have a much better feel for when something is priced. More competitively than not. One of the things that I I’ve kind of been amused by sometimes and it’s not right or wrong, it was kind of curious, as a real estate investor myself. I’m always kind of curious about real estate brokers, and whether or not they invest. And just if you can speak to that a little bit, do you do any investing.

Tracy Cousineau 13:52

So I did prior I did during the beginning of the 2000s. I am just now getting into looking at portfolios because we, you know, we have ran in the past and guaranteed sales program. And we have found great rentals for other people. So now is just looking at the opportunity. Our goal was also to look, you know, in the Florida area as well and see now would be the time to pick up those kind of condos and stuff. So I see that since we do get so many calls and we are on radio and TV, then I just see that come fall and winter, there might be more options. And so I haven’t been coming out of the Great Recession because the market just kept going like this. I lost everything during the Great Recession. So I didn’t have any income or credit to be able to do any investing and pick up what I needed to do during that time. So for now I look at it is if I can make investments and I can purchase other properties. I can use those for rental properties for people that may have to sell their property now. And need a place to go to. And so for me to find other properties at a discount would make sense because I’m going to help other people that need to move into the rental market.

J Darrin Gross 15:13

Right no, I think that sometimes it’s thought of is that the investor is, you know, stealing something or something like that. But the reality is there’s usually two, two parties to the deal. Yeah. You know, and it’s try make it a win win.

Tracy Cousineau 15:28

Yeah, I just, you know, I would hate for anybody to lose, not only do they lose their house when you when it’s in a foreclosure, but they also really hurt their credit by doing it that way. So if you can find a way to work it out, without them hurting their credit, and not having to sell their property on the courthouse steps is always a great investment for all parties.

J Darrin Gross 15:47

Right? So let’s talk a little bit about creating wealth in real estate. What are what are some of your thoughts on on how one can create wealth in real estate?

Tracy Cousineau 16:01

Well, definitely right now, the rental market is huge. And so you know, having if you’ve got a property that you are considering selling, but you don’t need to sell it to purchase another property, I would always, you know, take a look at what is the rental market look like in that in that district? You know, what is my return on that? Do I, you know, can I maintain that house, you know, what is the size of the house and maintain my house. So when you start in that investment cycle, those are the first questions that I always ask, especially when as a seller that’s never had anything to do with rental property, investment property is hidden, let me look at this. Or if you want to flip a property, I prefer to flip property, I think versus renting property, because you can fix it to how it needs to be fixed, pull the equity that you need to when you sell it, as long as you’re making it a trend. You know, during the Great Recession, those you know, people were there were hiding mold, and they were hiding all sorts of problems inside houses. And for me, I don’t like that type of investment. If you’re going to pick up a property, in my opinion, fix it to the way that it needs to be fixed. And don’t leave the buyer behind with stuff that needs to be fixed later. Because I walk into that all the time as a real estate broker, because now they need to sell it because now they hate the house because they bought it from an investor who, you know, took a lot of shortcuts just to put money in their own pocket. So I always say if you’re going to invest into real estate, and you’re doing it for a flip reason, please do it the right way. Because at the end of the day, it just your character shows from that. So that’s really huge, because I see it all the time. And it really stinks to see that I’ve got some buyer their first house right now. And two weeks after they moved into their first house in their early 20s. There’s about $200,000 worth of water damage, because an investor fixed a pipe in the wall, but failed to crimp it. And so water just exploded everywhere in the house while they’re at work. And so it ran water throughout their house and did $200,000 worth of damage to their property. And so they don’t like their house so much anymore. You know, this was their first house and this is where they’re going to begin to make their memories and now they’re left with a watering mess that they have to fix. So, you know, I’m just putting that out there. Because, you know, when we look at investment, if it’s not something that you that you do on a daily basis, always educate yourself on how to be the best investor.

J Darrin Gross 18:30

Sure, with that, you talked about the the investor that’s not doing the thorough job and I mean, water, water mess is a mess.

Tracy Cousineau 18:40

Yeah, water will rot your world is what I say.

J Darrin Gross 18:42

Yeah, that’s good. What what are some steps or some ideas to help avoid that and also even just kind of mindset, pitfalls.

Tracy Cousineau 18:56

Yeah, you know, go into it with what your what is the end goal, you know, if you’re doing it for a rental, I think that’s great people need rentals, long term, just make sure that it’s something that you can maintain when things fall apart, etc. And that you have a Rolodex of vendors that are going to show up when they need to show up because that’s huge in the rental market. If you’re using it for a flip you know work well if it’s not something that you’re you have a trade for and you don’t really know how to to fix whatever needs to be fixed, electrical, you know, plumbing or whatever, you hire the professional to do it the right way so that you’re not left being, you know, sued later for something that wasn’t done right or disclosed. So I always say full disclosure on stuff, um, and to make sure that you find the right contractors that you’re working with.

J Darrin Gross 19:45

Gotcha. I’m looking down my list of things here. Can you describe some of the typical issues you’re you’re run into right now in this marketplace.

Tracy Cousineau 20:02

really is just educating again, sellers that you can’t just wake up and say, that’s what I want to sell my house for. And it’s really, you know, showing them what the true what an appraisal is going to come back out for the value of their home and making sure that they understand. And I won’t over list a property because it’s my job not to over list a property, it’s to get maximize their, their price for them. But if it doesn’t make sense, it doesn’t make sense, and to be a a bold enough person to say, Hey, I’m not gonna set you up for failure and list your home at 800, when I know that it’s only gonna sell for 750, you know, and then help educate on a lot of people have the mindset that if I listed 800, I’ll take 750, well, that 800 buyer is probably looking from 800 to 850. So you already lost them at that 750 mark. But then when you have to reduce it to the right price that it should have been at, you’ve already lost basically, so much traffic, because your best traffic comes in the first few weeks of listing your property. And now people are gonna wonder what they have been on the market this long. And they’ve already had to reduce what’s wrong with the property. So you set yourself up for failure, if you don’t list your property at reasonably, what it needs to be listed somewhere around. So that’s always a risk, especially now, right now, you know, it’s, we don’t know what’s going to happen, I’m going with the mindset that we’re just going to keep killing it like we are, and the markets just gonna keep going. And that’s just the positivity that we just keep going with. And we’re I mean, are selling homes or sell multiple homes every single day. So we just keep going with that mindset, and we’ll keep the economy going as much as we can in metro Atlanta.

J Darrin Gross 21:51

No, that’s, that’s good. What are the kind of the range of prices that you’re seeing right now? And what’s Uh, what’s the median price?

Tracy Cousineau 22:00

Yeah, you know, our average sales price in our office is around that 325 350 mark. And I believe that for metro Atlanta is probably that 285 300 Mark, anything under 300 sells overnight still. And that’s just that first time homebuyer and that downsize price point for now, in this area, but you know, we’re closing million and $2 million sales. So, you know, we’re not, we’re not feeling anything. So I’m going to, you know, keep going with that positivity. I’m working on a case study today and tomorrow. So have to get back with you on this one. But I want to pull the last 30 to 60 days worth of appraisals that we have from our listings and buys. And look and see because I noticed that on an appraisal I was looking at yesterday morning, the appraiser put in this particular area that he’s beginning to see and decline decline decline was three areas on the appraisal that he had seen of the market in this one area in this area is a pretty happening area in Marietta. And the price point was, was only like low to hundreds. And I’m thinking, hmm, where did he get that data from? I need to go find this because I can’t imagine that that area has a declining market. That doesn’t make sense to me. So I’m like, What if they’re, how many appraisals are they doing? And what are they saying? So I need to go back and research that and look and see what where he pulled his numbers from. But then I’m like, ooh, let me go look at a bunch of appraisals so that I can see is this a trend? Or is it just this one appraisal?

J Darrin Gross 23:37

Right. Now, I think the thing always in residential real estate is, you know, whatever the neighbors or the homes around you are selling for is kind of a benchmark. I mean, that’s a reference point, right? When Yep, when they’re doing the comparisons,

Tracy Cousineau 23:55

You know, it’s apples to apples, and then you take off the oranges.

J Darrin Gross 24:03

Got it? Hey Tracy, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and as such work with my clients to do some risk management. And there’s three different strategies we typically look at. The first is can we avoid the risk? If we can’t avoid it, then we look to see if we can minimize the risk. And when we can’t avoid or minimize, we look to transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if they can take a look at their situation their their business, their clients. You know, however you want to frame this. And I like to ask them to consider what or identify what they consider to be the biggest risk. And for clarity I’m not looking for an insurance related answer. But if you’re willing, I’d like to ask you, Tracy, Cousineau, what is the biggest risk?

Tracy Cousineau 25:13

You know, I’m gonna go for the our client sakes and customers are, you know, buyers and sellers is if you’re a buyer, and you need to have a hunt, you need to have an inspection, you need to know, if there are any issues with the property, you need to make sure that you hire a home inspector that has all the credentials, that they’re that they are checking everything for you and that they’re not missing stuff. radon is a huge thing in Georgia, because there’s lots of rock. And so you know, if you always have a radon test, and then always check for termites, homes in metro Atlanta, they’ve either had them or they will have them. So those are always three things. Because all three of those things could cause a risk to your insurance. Radon, there’s lots of issues that could cause it, but in my opinion, if somebody comes to your house all the time, and they’re stuck in an in an area of your home that has radon, this could cause a health issue for them, which will then go back to your insurance, possibly, or if you move into a buyer moves into a house, and they didn’t have a home inspection, and let’s say that it flooded or it caught on fire, because something was missed, there was some electrical issues in the panel box or whatever, you know, those are all risk and when they close, that’s their risk. And they’re you know, and their insurance that have to go back and find out where the problem came from and where it was from. And, you know, vacant homes as well. So with sellers with vacant homes, it’s you better make sure you add on that protection that you let your insurance company, you know, know that your policy needs to stay that your property is now vacant. Because there are many things that can happen we had a vacant property and we got a call in the middle of the night that it was on fire, and the house was burnt down. So or you can have an intruder you know, mess with it. You know, there’s just so many different things that you always you know, personally for me, and my personal situation is we’re putting in a pool. So it’s like, Okay, I need to make sure that I’m adding the pool that I’m adding the fence and you know, we are always looking at what could go wrong in this situation and then figure out okay, how can I make it? How am I less liable for it if I if I take the right steps to clear it. So I always think about what’s the end goal and make sure that anything in between the end goal doesn’t you know, I didn’t miss

J Darrin Gross 27:49

Well, it’s good. I appreciate all the the insurance reference because that’s I mean you speak the truth A lot of people don’t always think of those things and those are definitely some issues especially the vacancy and the change in exposure. Appreciate that. Tracy Where can the listeners go if they would like to learn more or connect?

Tracy Cousineau 28:11

You can find me on Facebook at Tracy Cousineau Connect, and you can find me on Instagram at Tracy.Cousineau or you can find me on LinkedIn at Tracy Cousineau.

J Darrin Gross 28:23

Got it. Tracy, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it. learned a lot. And I look forward to doing it again soon.

Tracy Cousineau 28:33

Yeah, I would love that. Thanks for having me today.

J Darrin Gross 28:36

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 28:56

You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio.

Make Setbacks Your Rocket Fuel with Mike C-Roc – CRE PN # 281

Mike C-Roc 0:00

Your life will never be the same because every time you come into one of these setbacks, matter of fact, you’ll look for setbacks and problems. You get into these situations. You understand, man, this is a training session or this is fuel for me. This is rocket fuel for me. And the reason I say rocket fuel is because I’m trying to get into orbit. What I mean by that is there’s suppressors in life. Bad things happen to good people. You can call that gravity. And when gravity’s action, it’s trying to pull you back down. Well, I want to get to orbit where the gravitational pull is pretty much gone. And you need the only way to get into orbit is rocket fuel.

Announcer 0:35

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast. Whether you’re an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.

J Darrin Gross 0:55

Welcome to commercial real estate pro networks CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today my guest is Mike Ciorrocco. Mike is the CEO of People Building Inc. He is a performance coach, author, dynamic public speaker, visionary and thought leader. He has been featured by Yahoo Finance as one of the top business leaders to follow in 2020 and is on a mission to build people. At his core. He’s obsessed with success and helping others achieve greatness. C-Roc is a guy who had a fire lit in him at an early age that fires led him to inspire others to see greatness inside themselves using past life events to fuel their fire. In just a minute, we’re going to speak with Mike about how you can turn setbacks into rocket fuel.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we would love to hear from you, please consider leaving a comment. Also, if you’d like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find us on youtube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that I want to welcome my guest, Mike, welcome to CRE PN Radio.

Mike C-Roc 2:45

Thank you for having me. It’s an honor to be here. Anytime I have the opportunity to share my story and my content with others audiences. Man, I’m honored. And I just want to express gratitude for you, to you for having me here.

J Darrin Gross 3:00

No, my pleasure, I’m looking forward to our talk. Hey, before we get rolling here, if you could take just a second and share with the listeners a little bit about your background.

Mike C-Roc 3:12

Yeah, so I run a mortgage division for a large company called Nation’s Lending. And it’s throughout the 50 states mortgage lending. We have 40 employees and I get to work with three of my best friends I grew up with since I was 10 years old. We all went to high school college. And now we’ll get to work together. And my younger brother Casey is one of our sales managers as well. So when I wake up in the morning, despite thanking my Creator for being alive, and being able to impact people every single day, I also am very thankful for the opportunity that I have to come and work with such a great team along with best friends and my brother. So we’ve been doing a mortgages for since 2006. And we had our own company as far as our division since 2011. So for the last nine years, we’ve been learning growing, without much guidance, without much mentorship, kind of figuring out things on our own. And understanding that, you know, we had a lot of setbacks, just like anybody in business that you’re, you know, you’re going on, we could have the best guidance, mentorship or what have you, and still finding out that we need help. and not being afraid to ask for help, being able to go to somebody and be vulnerable. And so we’ve learned that in the last nine years, and now we’re actually seeing, finally, exponential growth over the last two years. And we’re finding things that work. And then we get so excited about it. We want to share it with people. So that’s what I do. I also have a coaching business called People Building and the podcast called What Are You Made Of?, and we’re just firing on all cylinders. And, you know, I just want to try to jam as much as I can in the number of years I have left on this planet to make the biggest impact that I possibly can.

J Darrin Gross 4:57

That’s awesome. I love the way working with your buddies from 10 years of age. That’s, that’s pretty cool. And was everybody like minded? Or who was the, the the lead on getting in the mortgage business?

Mike C-Roc 5:14

Well, there’s one gentleman, Chris Short, one of my best friends he got in first, I was in real estate. And two of us were in real estate as realtors doing well. And another one was in banking, not necessarily mortgages. So Chris was in it first, we all jumped in. And then as far as the building and scaling and all that they’re all on board, all like minded, but I lead the charge within the inspiration and the culture building. And then they jump on and help and they have their own strengths that they’re that we use them for. So

J Darrin Gross 5:48

Oh, that’s awesome. And are all of you guys still located in the same area? Or have you spread out?

Mike C-Roc 5:54

No. So we’re spread out. The cool thing about technology nowadays is we have seven, six or seven branches, I can’t even keep up anymore. But we have 40 employees spread out through Maryland, Delaware, and Miami, actually. So we use zoom, we use Microsoft Teams a lot to interact with each other every day in the morning, we meet with the whole team for 15 minutes. And we do a lot of video calls rather than we rarely use the phone anymore. It’s mostly video calls. So we have that interpersonal communication and contact with that. So but occasionally, we’ll be together at certain offices just depending on the day. So

J Darrin Gross 6:33

No, that’s awesome. It is kind of a funny thing to think how technology has shaped our world. And in brought us closer and accelerated. So through this whole COVID experience. I think the just like what we’re doing right now, the video phone is kind of a ubiquitous experience, and, and all the different platforms and all the challenges that brings, but it’s all good.

Mike C-Roc 6:58

Yeah, and you know, Darrin thing we talked about before we got online here is, you know, COVID has put us in situation where we can adapt more. And I just want to preface this because you may hear some noise in the background. And we’re overcoming a challenge right now You and I, that we had talked about and I like to bring things I’m transparent kind of guy because I any lesson that I can learn through everyday life, I like to bring it to people’s attention so that they can benefit from it. And you know, I’ve construction going on downstairs in my house two levels below me. And we said to ourselves, do we want to do this or not. And I’m not in my podcast studio, I’m usually in a nice studio. And you know, in life, man, I learned a lot of things with this. And COVID has bring that brought this to the forefront, that you have to be able to adapt to things, you have to be able to use setbacks as fuel for yourself, not just fuel, but rocket fuel, which we’ll get into later. But I just wanted to bring that up in case people hear a little bit of noises in the background. Nowadays, we’re in the COVID environment, the COVID, uh, you know, things are, you know, changing and happening out of our control right now and just kind of have to adapt and make the best of it.

J Darrin Gross 8:02

No, that’s so true. I think it’s, it’s really kind of opened up a whole new range of possibilities, I think, you know, a lot of the the rigid kind of place to work and how work was to be done as getting exposed for, for what it is, I think the reality is if, if there’s work to that needs to be done, and people can do it. Let’s get it done. Right.

Mike C-Roc 8:30

I love that. Yeah, I mean, nothing, nothing, you know, we can use all the excuses we want in the world for things not getting done. And that that’s a great example of COVID a lot of people used COVID for an excuse not to be successful. And when it happened for our team in the mortgage industry, as soon as it started to happen, getting to acceptance and acknowledging the issue that was going on as fast as possible was key for me and my group. And we met with our team and say, Hey, guys, this is what happened. And right now, things are gonna change. I don’t know how bad it’s going to get. But let’s just shoot and think that ourselves that we’re going to work absolutely the hardest we’ve ever worked in our lives. We’re going to be the most wore out at the end of this. However, this is the reason we’re going to make it a reason why we’re successful while everyone else makes excuses. And so 100% Man, I mean, I’m in a T shirt right now, I work most of the time and a T shirt. I wear a hat, I don’t have hair, I wear a hat, but we’re doing more business we’re more successful than we’ve ever been. And at the end of the day, like you said it’s about getting the job done.

J Darrin Gross 9:32

Right right. So let’s let’s talk a little bit about your your driving, you know your your focus of taking you know, a setback and turn it into rocket fuel. The in the intro there read a little bit about something early in life. He had something is there a is there an episode that you can share with us that that kind of made that crystal crystalize?

Mike C-Roc 10:02

So, I came from a broken home there. And I don’t remember my parents together. And when I tell you the story, it’s not because I’m trying to play a victim role. I use this as strictly as rocket fuel. And I’ll explain to you why rocket fuel in a second, but no, my parents never know them together would do the other weekend thing, like a lot of your listeners may have dealt with the custody battles, the child support battles, all that jazz as a kid. Now, as a kid, I didn’t know any different, I thought it was normal. And you know, then I moved with my dad from eight to 11. And during that time, again, I didn’t know this was not normal. But I dealt with a lot of emotional and psychological abuse. My parents had conflicts, the step parents were, you know, had conflicts. And I was in in this environment and trenched in it and felt like it was all me it was my fault. And so, you know, I didn’t think it was anything of it. Until one day, I was coming home from my mom’s house after a weekend at her house. And we would go to these hills in southeastern Pennsylvania. And my stomach would be in knots before I would go back to my dad’s house, I would have anxiety. I just wasn’t right. And I thought it was normal. I thought it was like this is just the way it is. And my mom told me, she said, You know what, this isn’t normal. You shouldn’t be doing this, you shouldn’t feel this way. This is not normal. So at the end of the day, when I basically had the conversation with her, I opened up to her and said, Hey, this is what’s going on. I’m not happy, I’m being treated this way. She said, Listen, I’m gonna, I’m gonna follow court papers. And I’m going to, you know, get you out of there, if that’s okay with you, if that’s what you want. But if I do this, you need to stick to your guns, you need no matter what, because they’re going to try to talk you out of it. So one day, I came home from school, my dad had court papers in his hand, and I knew darn Right, well, what was in that, that envelope. And, you know, he said, Go Go back to your room. And I sat in my room for about five minutes, which felt like five hours. And he came in and he said, You know what’s in this envelope, you really want to move back with your mom, they don’t have it that great. They’re, you know, they don’t have money like we do. Now, my dad was my hero, he had a masonry business, very successful, I looked up to him, he’s a hard worker laying concrete, pour concrete laying block. And the end of the day, I looked that up to him for and he always had this wad of hundred dollar bills in his pocket with a rubber band around it. And that, for me, as a kid, that was like, cool, you know, I, I just knew that we got trips that we went to dinner a lot, we went places and had a nice house. And, you know, when it all came down to it, though, that none of that stuff really matters. And I became understanding of this. Now when he said that you really want to leave here. I said, Yeah. So he takes the $100, bills out peels one off, crumples it up and throws it at me, it says, well, you’re going to need this when you’re living on the streets with your mother one day.

Now imagine 11 year old kid, his hero, basically throws in the towel, like a trainer would throw in the towel on his boxer. That’s the way I fell inside. But I’m very stubborn Darrin. And that could be a strength and a weakness. But I said to myself, I’m not going to let him win, I’m not going to need that money. And also, I knew remember, I thought this was an ordinary scenario, I thought that everybody’s going through this, I can’t be the only one going through this. There’s somebody else out there that’s given given up on and they’re going to need somebody to look up to, to see the experience where somebody rises from this, this this situation. Now I didn’t have it that bad, I don’t think because there’s people that had it worse than me. But at the end of the day, that’s considered to me a setback. Let down somebody given up on me. And so at that moment, I just decided that I was going to help other people by being a role model. I didn’t know that I was going to be able to help people as far as coaching them or being an inspiration as far as a mentor or what have you. But I do didn’t know that I could be the best I could be at everything I tried. You know, it got into sports, work, school, what have you.

So that’s the moment I look back at this 30 some years ago, it’s clear as day that’s the moment that I can point to that really understood what setbacks are for in our lives. And that obviously, through my life, I’ve had many more as we progress forward. But the thing is, is that at that that’s the one that that the pivotal moment when I was a young kid. And what happens is, is that when you have a setback, a lot of people get thrown back. First, they don’t acknowledge it right away. They don’t accept it. They try to go through a denial phase, they go through a victim phase. Meanwhile, all this time is passing there. They’re not in the right frame of mind. They’re wasting time energy,

productivity, lagging, family life might be lagging. And if they could just understand this one concept to turn all setbacks, let downs negativity into rocket fuel for your future. Your life will never be the same because every time you come into one of these setbacks, matter of fact, you’ll look for setbacks and problems. You get into these situations. You understand, man, this is a training session or this is fuel for me. This is rocket fuel for me. And the reason I say rocket fuel is because I’m trying to get into orbit. What I mean by That is there’s suppressors in life. Bad things happen to good people, you can call that gravity. And when gravity’s action, it’s trying to pull you back down. Well, I want to get to orbit where the gravitational pull is pretty much gone. And you need, the only way to get into orbit is rocket fuel. So this is the things that go through my mind. And not a lot of people can relate to this, it might be too much for some people, but it works for me, and it works so well. And I feel like I got to share it and coach people about it.

J Darrin Gross 15:30

I love the story and how you did take that and kind of galvanize and you’re you said, You’re stubborn. I’m sure that that that helped a little bit that you didn’t want to, you know, let it in there. But I’m curious, you know, you mentioned a couple things I’m familiar with, you know, acknowledging what’s what, what the issue is first, having some acceptance over that, and then kind of, you know, some sort of a plan to move forward kind of thing. What, what do you find? Is there a daily routine, because I think it’s one thing to have an issue on one day, like a big event, whether it be you know, you know, whatever it might be, but throughout our lives throughout the days, there’s always little things. And some we may just kind of deal with and move through, but, but just maintaining that, that high level, high energy, high positive, and we’re gonna get through this, we’re gonna get past this, this is not going to keep us back. What is it? I mean, are you are you a Red Bull guy, you drink lots of coffee? What are you doing? What’s your what is it that keeps you, you know, focused and driven? And tell us a little bit about your you have a routine? Or how do you how do you stay that fired up?

Mike C-Roc 16:46

Well, first of all, yeah, I like coffee. But that’s not what you know, I don’t drink it every single day. So I like to like coffee, and I work out a lot. But really, what it comes down to there is when you have a purpose that you believe in, and you’re so passionate about it and you’re obsessed about it. Really you don’t burn out. It the people burn out when they don’t set big enough goals and targets for their life and don’t have a big enough purpose. So I think people need to start First of all there, before I get into the routine thing, people need to start First of all, by thinking about being in the desert somewhere, finding a lamp that has a genie in it, and rubbing that lamp, Genie comes out and gives you three to five things that you could have no matter what it is not putting a limit on it. Don’t worry about if you think it’s impossible, what is it? and 95% of people don’t know the answer to that question for themselves. So it’s always starting right there. Because when you start there, and you don’t put any limitations on what you want in life, and then it’s a really big grand vision or goal. Once you do that, things start to open up afterwards. And so that’s where I start. And so when I you know, have a goal, I have a goal to create a, you know, a half a billion dollar company, I say half a billion because that’s where I want to start with with people building and helping people build themselves and helping companies build their people. So that’s a goal there. I have a goal right now I’m writing a best selling book. How do I know it’s best selling because I’m going to make it a best selling book. I’m doing whatever it takes to make it a best selling book and an impactful book. I have this in my head. I’m excited about it. I’m fired up about it. And so I’m just giving you some goals that I’m having. I have right now. My mortgage group we’re doing we started out doing 4 million a month, we have a goal to go to 100 million a month. That’s an unheard of amount of loan volume for group our size. Now we’re going to grow a little bit but at the end of the day, we can do it with just adding a few people. So that’s a big goal that we have and I continue to talk and preach that to my team so they’re constantly striving and not getting complacent and comfortable. kryptonite for me is comfortability and complacent complacency.

So I’m constantly aware of that and so that’s what keeps my energy up because I’m not going to settle and sit back and and be okay with things happening to me. And and me giving control to something else and playing a victim. And I work out so morning routine man I get up I’m gratitude right away. Thank thankful that I open my eyes thankful for my legs and feet, my hands, my ears, my mind, my everything. It sounds corny, but I go through this list every morning, because I’m thankful for it. And what it’s done for me is it removes and eliminates and makes everything that I could complain about disappear. It’s a magic trick, if you so to speak, but you got to be patient with it because it doesn’t happen overnight. Now, I’d recommend people do it for 30 days, and then give me the feedback. Let me know how it works for you. I know it’ll change your life. So I start with that I start with the goals writing goals down, drink water every morning to stay hydrated. I read 10 pages every morning, and then I’m off to the gym, working out our workout at least. And then I have a team meeting with my team after that. Get everybody’s head straight and ready to go. That’s what fires me up. That’s where I have energy. I don’t listen, I don’t get tired or burnt out. I do However, sleep very good. And I get seven to eight hours of sleep every day. Because when I hit the pillow, I can’t lay there and watch anything with my wife, I fall asleep right away.

J Darrin Gross 20:10

No, that’s awesome. So you’ve got you explained kind of two things there. One is the the importance of having a purpose. And you also explain your, your kind of routine. And then I want to ask you about team building your you have your own team that you’re selling here, the the responsible party for kind of motivating and getting them keeping them driven. It’s one thing to motivate oneself, it’s an entirely different thing to translate that and get others fired up and keep them focused and, you know, moving and have that energy in that. And it I think there is something to that the the positivity kind of feeds off of, you know, the, what’s that the the five people you’re closest to that, you know, you kind of absorb what they’re around. So, I wonder if you can speak a little bit about how you go about motivating others.

Mike C-Roc 21:12

Yeah, so you have to, first of all, share your your vision and your big goal of your company with your team, your company, your employees, once you share that with them, then you have to find out what their personal professional financial goals are. I learned that from a mentor of mine, Branden Dawson, where he got it, I don’t know if he made it up or whatever, he created it, but I got it from him. I’ve done it in the past, but I didn’t realize I was doing it. And that he may be aware of it. And being more intentional about it, but getting with the team and having a one on one meeting with them and understanding where they want to go with their lives. Very important, because you cannot hold people accountable if you don’t know what they want out of life. And you’ve got to make sure that it aligns with your company’s vision and goals. Because if it doesn’t, there’s no alignment, you’re gonna have conflict, and then that can rupture the team. So that’s number one.

Number two, is gratitude. Gratitude is very important. So we practice gratitude exercises, once a week in our team. In a sales meeting, we start the meeting with everybody going through one at a time saying the name of a person the week before they did something above and beyond for them, that has changed our culture. We’ve been doing that for over a couple years. Now. Secondly, I’m sorry, third is unlimited income potential, we create an environment for everyone to bring revenue into our company, even people that aren’t salespeople. So when they bring revenue into the company, they’re rewarded, but it obviously takes care of the company as well. And they can never complain about the money they’re making to leadership, unless we’re not helping them sell or teaching them how to do something. So that eliminates any animosity. And then also we do a we accountability, where we have a team that holds each other accountable. Rather than just the leadership down accountability, we have the team feeding off each other, and you get an actual lift, like a hot air balloon, when the team is holding each other accountable, and lifting each other up, celebrating wins together, etc. So those are the things that we really focus on. And that has lifted, our team has gel our team, it’s a constant work in progress, it’s not something that you put in place once and then you leave it if you do that you’re just as good as not doing it at all. It’s a constant work, I have to constantly talk to my leadership team about Hey, guys, we need to speak the same language, we need to be constantly on this hundred million a month, we need to be constantly holding each other accountable. And it’s, it’s, it’s, it’s hard work, it really is hard work to do. And it’s persistence, and you just got to be relentless with it. But if you’re committed to your goal and your purpose, then you will make it happen. And that’s that’s what we do.

J Darrin Gross 23:50

Yeah, I am guilty on on having, you know, read something and been all fired up, you know, and in, you know, you head off for a couple days or whatever. And then life starts happening distractions kind of take over and, and, you know, it can be a little bit of a challenge there. So in those instances, how, I mean, there’s the personal side of thing, but then also try and keep the team motivated. Are you are you constantly taking the temperature of how the team is reacting and then trying to, to, you know, point them in the right direction or is that a daily assessment? How do you how do you deal with that?

Mike C-Roc 24:34

Yeah, so with that, first of all, we do training every single day. Our whole team is on we call Cardone University. I’m not sure if you’ve heard of it or not. Grant Cardone is a mentor of mine. So we do Cardone University every day at 10am. I get a report to see if everybody did their four videos that they’re expected to do based on sales, training, motivational training, financial literacy, communication, etc, etc. by me doing that and getting that report I can see who’s engaged for the day. If they’re not doing their videos, then I’ll reach out to them say, hey, everything, okay? Anything I can help you with. So that’s number one. Number two, is every day of the week, my leadership team is assigned a day of the week that will reach out to each employee for five minutes, and just touch base with them and see if they need anything. Especially because we’re not in the same building. It’s important for us to make sure that we maintain a open door policy, so to speak, and also an engagement with our employees. So we do that every single day, there’s five people on the leadership team, my day is Friday, and we just call around real quick, even if the people don’t answer and shoot them a message if they don’t answer and let them know that we were checking in on them to see if they need anything. So that’s how we do it. And then we can gauge the temperature. You know, when you’re in an environment of we accountability, you’ll get like, there’s a problem with one of our employees. I’ll hear about it from one of the other employees because they care. And they’ll say, Hey, listen, john was a john was talking to me today. And he’s not real tickled about this, where he’s having issues with this, don’t tell him I told you. Now, that’s a trick in itself, because you got to figure a way around that without throwing that person under the bus. They’re not tattling. They’re just concerned with the team and they’re concerned with that person. So then we just reach out nonchalant and say, Hey, you know, hey, I was just thinking about everything, right? Anything I can help you with today. And you and you aim to attack things in a good way, not not like aggressively but attack things. To assist people, instead of running from problems. Like I’m always looking for challenges, I’m looking for problems. I want to solve things. Successful people do that they’re unsuccessful people, what they’ll do is they’ll look how can I get out of problems? not solve them, but how can I avoid problems? How can I avoid challenges? I look for them, and I want to solve them. And that is that has taken us to new heights.

J Darrin Gross 26:51

I love that. No, solving other people’s problems or saw solving your problems, problems. I mean, that’s that there’s always need for that. That’s, that’s good stuff. So you work with your own team, you also then mentor or coach others?

Mike C-Roc 27:10

Yes. So first of all, real estate agents are a source for us for business. But we don’t like to just go to them and say, Hey, you have anybody that needs to be pre approved. And just ask for a cake, right? We want to go to them and say, Hey, listen, we know how to get business, we know how to teach you how to get business, how to make more money. Let’s do that. Let’s work together. Are you interested in making more money? Are you interested in making your business more stable, and then we go do that first. After that, then we ask for reciprocity. So that’s, that’s the route we take, we invest in people first, we give, give, give, give, of course you give without expecting return, we do that. I mean, there’s plenty of agents, we help and they, you know, they don’t send anything our way. But at the end of the day, if you do that, they end up giving you business back. And so we do that. And then also outside of the mortgage industry, I coach people from all walks of life, life coaching, leadership, communication, you name it, anything that has to do with building people I work with, I do one on one coaching, I have a group coaching that we do. And you know, we’re gonna get into some workshops and some digital courses along with the book that I’m writing.

Unknown Speaker 28:25

Awesome.

J Darrin Gross 28:26

Hey Mike, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker and I work with clients to assess risk, and determine what to do with the risk. And there’s typically there’s there’s three different strategies that we we look to. The first is we ask, can we avoid the risk. And if that’s not an option, then we look to see if we can minimize the risk. And when neither avoiding nor minimizing the risk or options, we look to see how if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can take a look at their situation, their their, their work their clients, their, you know, employees, however you want to frame it. But if you can identify what you consider to be the biggest risk? And again, for clarity, I’m not necessarily looking for an insurance related answer. But with that, yeah, if you’re willing, I’d like to ask you, Mike’s Ciorrocco, What is the biggest risk?

Mike C-Roc 29:37

By the way, my friends called me C-Roc, Darrin, and so you’re more than welcome to call me C-Roc. But the biggest risk for me is I’ve been through business before where I’ve relied on people, I relied on their production what and even if they didn’t buy into the culture that we were trying to establish, I would just put up with it and there were they’re producing a little bit. And so the biggest risk for me nowadays is One, you know, I don’t ever want to have to do this. But I’m always thinking to myself, if I have to do something myself, I will. And I don’t want to ever risk my independence and ability to. So go back to zero and build a team by allowing people that do not buy into our culture to stick around our team. So in other words, have you heard of the term being held over a barrel? Oh, yeah. So I’ve been in this situation before, where I let that happen. And things fell apart in the company that we were in because I let the culture slide. And I was basically allowing the production to rule the roost, instead of people that are buying into the system that I know works. And so I was risking at that moment, our whole group, our whole team, everything that we built, based on production, rather than attitude and buying into a culture. So right now what as far as the biggest risk for me, to me is it’s constant. It’s I’m always looking at this, I deal with this right now, I have a few individuals in our company, I’m very open about it, that I’m not sure we’re going to last here, even though they’re doing business, because they think that that’s the most important thing, rather than being a part of the team, and buying into what we expect. So it’s very risky when you do this, because to me, you have to think to yourself, if I leave these people around the risk is that other people are going to see their complacency, the fact that they’re not bought in, and they’re going to start to buy into there, the people always start to buy into the band and the cancer, and that that risk is always present. And I have to weigh that and balance it, whether it’s worth keeping the production on, and taking that risk that other other people are going to see these people not buying in. So that that’s that’s what I would answer that question with right now. And that’s constantly on my mind.

J Darrin Gross 31:54

Now, that’s, that’s really important, especially if you’re trying to create a culture and maintain a culture. It just occurred to me as you were, you’re saying that I’m kind of curious if you have any sense of this, but maybe you do, maybe don’t, if you’re looking around, and you see, and I’d say probably small businesses, what percentage of businesses that you run into, do you think have some sort of a culture that they’re trying to maintain, as opposed to more of just a, you know, more or create and maintain, as opposed to just something that’s kind of going through the motions?

Mike C-Roc 32:38

Just from my experience, I’d have to take a guess, an educated guess. But I would guess that I would guess that 20% of companies, I think it’s a large problem, I think 20% of them might be too high there, have great cultures, and are trying to maintain a great culture, and very few, most people start a business, and they’re just so hung up on trying to produce and bring revenue in and not focused on how to do that. And they’re just basically go through the motions every day, and try to be in survival mode, rather than trying to excel and be great. And that’s the issue and when you wake up in the morning, are gonna go to where, you know, oh, I’m gonna go deal with these employees. And again, remember, I said that they’re trying to get out of problems, get out of challenges, rather than going and hammer them, attack them and solve them. I think that’s a big problem. And that’s why there’s such a big need for what I do, and people building. So very, very low, probably 20, maybe even under that Darrin.

J Darrin Gross 33:35

Yeah, I would concur. I’m, you know, unless you’re some sort of a larger corporate structure that has, you know, levels of management, and there’s, there’s people certain roles to maintain morale, or however you want to, you know, phrase that I would guess that it’s, it’s fairly low. So, but, and, you know, I appreciate you sharing just about the challenge of maintaining it, and actually, you know, maybe having a prune, you know, a few, a few players, rather than, like said be be, you know, put over a barrel, because those are the kind of those tough decisions, but I’m assuming, just like, we’ve been talking all along, that that making those tough decisions and, and solving those problems kind of gives you that, that fuel to to go further. When you go through that. So,

Mike C-Roc 34:32

Yeah, a lot of times when you want to do more, you want to accomplish more, it’s not about doing more. It’s not about doing more work, adding things. It’s about taking things away, removing things out of your schedule, removing things out of your life removing things, and then then that allows you to maybe replace it with something more productive, and then you can accomplish more.

J Darrin Gross 34:57

No, I love it. Hey Mike, where can listeners go if they would like to connect with you or learn more?

Mike C-Roc 35:04

So first of all my books coming out at the end of this year and if they go to the mike c roc.com. With no k themikecroc.com. They can subscribe there get a copy of the new book. It’s called Rocket Fuel. Man I’m excited to get this out to people to share my story, how I’ve developed the culture how how I’ve gotten to where I am today, and also where I’m going. And if they go to there, they can do that. And also on Instagram, I’m big on Instagram and LinkedIn as well. But Instagram is at Mikey C Roc and m i k e y c r o c. MikeyCRoc, and I like to engage with people a lot on Instagram.

J Darrin Gross 35:40

Awesome. Mike, I can’t say thanks enough for taking the time to talk. I’ve enjoyed it and learned a lot. And I hope we can do it again soon.

Mike C-Roc 35:49

I appreciate you Darrin, and thanks again, man. appreciate you having me.

J Darrin Gross 35:52

You bet. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 36:12

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