What’s up guys on today’s podcast, we are going to be interviewing on a coaching call and a credit investor who is a CPA here in Hawaii. We’re going to dig in and see what his net worth, see what he’s been up to and advise them along. But before we get going, and I just wanted to give some commentary on where we are in the year 2020.
I think most people will say, it’s been a pretty rough year. depending what you’ve been up to. we’ve been. In our week group, we’ve been pretty much prudent picking up deals that cashflow staying away from more of those class C deals that have bad collections, that tenant base. And I’m thinking of better assets with better tenants, with a little bit of a value add.
I don’t see all the strategy can go wrong, right? if it’s cash flowing day one, you underwrite it where the occupancy can drop 20, 30% and you’re still in the black. I don’t see why. Why you would need to wait like this narrative, a lot of people go by, Oh, I’m waiting until their lecture. I’m waiting until next year. Just three reasons why I think waiting is just a bad idea here. Like number one, you’re not gonna have access to those deals. If you’re not already in the game plan, you’re not going to have access to those relationships, the lender relationships. And you’re not going to know what the deal is.
Most people who say that assert the guys get started. Number two, I’m not buying assets that are distressed deals. Anyway. if you notice that my stuff is 90% occupied or more so I can get that Fannie Mae, Freddie Mac debt, but you per se, I don’t really go after distress assets. And I think like a lot of these guys are saying, they’re going to wait till this distress inventory comes online and I’m like, dude, you’re not even a sophisticated investor.
You haven’t bought anything. What are you going to do with the distress asset? It falls into your life. You’ll probably screw it up. I don’t want, I don’t want to touch those distress assets. Neither, personally. I like stabilize ass to make it go. And lastly, by the time you’re ready to jump in. How are you going to know?
Like we, did you jump in around 2009 to 2014? No, a lot of people did it. They didn’t know when the bottom was maybe because they didn’t have the relationships and connections. Those who are already in the game strategically and prudently picking up Castro were the winners back then. And I think that’s what it is now.
And I do believe that this will all pass and I don’t follow people who are trying to get rich off doom and gloom and getting people to buy gold and get a little bit affiliate commissions done in that way. A little bit of me personally, lately, I’ve been trying to not work 12 to 14 hours. Been taking a little bit of a lunch break.
Normally I just work right through, but I, make my simple little lunch put on the YouTube. And yesterday I was watching a video by Kevin O’Leary, the shark tank guy, people call him mr. Wonderful. And I’m looking here with a video. If you want to look it up, how I made my first million dollars part one, it’s a 20 minute video, but I thought it was pretty cool.
And he talked about it, the story of how. No, you can get tricked into taking a salary. He gives a story. He repeats a story a lot, but I’ll summarize it, he, his first job was working in ice cream shops. Who’ve been ice cream. And the reason why he did it was there was like a cute girl next door in the adjacent store.
He wanted to be close to her. So he took that job. And after his first day at work, he was scooping ice cream and they’re wrapping up shop and. normally when people ask for samples, they throw their gum on the ground. And it’s, I guess it’s really nice Mexican tile. It looks really beautiful.
And so he was wrapping up and then the owner told him to go pick up the gum that people dropped on the floor. And of course, he sees the girl in the adjacent story. He doesn’t want to bend down and do it. And he’s no, you paid me to scoop ice cream, not like scraped gum off the floor.
And then she told him to get on his bike and never come back again. And today he’s very thankful for that. Because after that, he said he never really worked for money now, I think not a lot of people were like, mr. Wonder, he comes, it comes across as a little jerk. But I think that, a lot of people that they follow their career path a little bit too long and it never really go after their passions.
And maybe they’re, they just want to hit a financial freedom. That’s cool too. And a job is a means to the end. Not everybody’s going to become an entrepreneur and crack that $5 million, $10 million, $15 million net worth level for a lot of us, they listen to the civil past the cashflow that come out to our events and know your guys’ profile. You guys are hardworking professionals. It’s not practical to tell your boss that you’re just here to scoop ice cream. You’re not going to pick gum off the floor. You got to go pick up gum off the floor because you guys got a, you got families and you got to put food on the table.
But I think for me, the takeaway and where I disagree with mr. Wonderful. Here, you got to pick up gum off the floor, but if you put your money to good sound investments that all perform the retail stock and mutual fund market, and he’d do it in such a manner where you paid very little taxes. you guys can check out my taxes on school, passive cashflow.com/tax, but that’s enough on that.
you’re going to get financially free. And, I’d say under a decade, if you’re able to save 30 and $50,000 to investments every year. maybe your goals as in five, 10, $15 million, but mr. Wonderful kind of also outlines, how do people get to that level? Five, 10, 50, a hundred million dollars net worth.
Now maybe I don’t aspire to be there and maybe you don’t either, people who get to that level. There was always this getting to this pedestal of your first million dollars. And somebody talks about in this video is stories was going and learning how to be a cinematographer, making videos.
And that was his trade. He made a deal with his business school to make a MBA video promoting the program, but he just made like 40,000 bucks, but he parlayed that into another venture. Putting together short bits. And then he eventually sold that company or a, undervalued dollars amount of money, but that allowed him to get into the next software venture with another person who did the software.
He sold it. And that was obviously a soft key and his other business there that parlayed into the five, $10 million plus range. But yeah. all these entrepreneurs that you see that are very famous, it’s usually about two or three steps, two or three things that went right for them to get there.
And they’re outliers, I’d say most of us that are listening on the podcast. We’re just trying to get our first one and then invested smartly. And yeah, you may not do some business venture, but your job can get you there. Especially if you’re making over a hundred, 200 grand a year. If you just invest there, Be smart with taxes. You’re not going to make soft key, like how Kevin Larry did and sell it in a few years. if you work at your job for 10 years or maybe even 20 years, if you’re doing it the slow mutual fund way, it’ll get you to that first level. And once you get up to that first level, that’s where you take it up to or legacy wealth creation.
I talk a lot about, getting to your first hundred thousand dollar level for the guys in the incubator group, getting their preferred keys. And then once you get up to the half, a million million dollar Mark is a net worth, and then you get to this, a credit investor status. But for those who are credit investors, the next nice threshold they get to is a three and a half, $5 million market.
At that point, you’re able to live pretty comfortably. And when he talks about this video as most entrepreneurs. At some point, they just realize that they’re rich, they’re affluent at that point. And it’s a very binary thing that you’re living very cheapy me personally. I feel like I’m still pretty poor at this point.
Maybe I’ll one day I’ll have that epiphany, but check out the video, how I made my first million dollars part one asked mr. Wonderful is the YouTube and continuing to watch more of these, inspirational videos. But yeah, enjoy the coaching call. And if you guys would like to get on a coaching call and we still do these four volunteers are willing to put themselves out there.
I haven’t checked out the website yet, and there’s a whole bunch of stuff out there. One thing I would suggest is if you’re looking for some kind of activity to do in the winter time from home, try and check out our guide on trade lines, go to simple, pass a castle.com/trade lines. It’s a great way that I made at least $10,000 these past two years doing this on the side, renting out my credit card slots, my authorized user slots on my credit cards.
And if you haven’t yet join our club at simplepassivecashflow.com/club.
Hey, simple passive cashflow listeners. Today. We are doing a numb, another who we member coaching call. And I think this one’s gonna be a good one. We’ve got a credit investor here worth 1.2 million bucks, a semi high income earner, not too high, like in the three hundreds, like some of the doctor dentists we’ve got, but definitely making a good professional salary.
So this should apply to a lot of you guys. But we have Brian, who is a CPA from Hawaii, a local guys here, but yeah, Brian, why don’t you tell us your story a little bit. Give us the context. Before we start digging into your personal financial statement. Yeah, sure. So like many folks, I ended up leaving Hawaii and I went to college on the mainland.
I got my undergraduate degree from Oregon, a school in Oregon. And after that, I was fortunate enough to get a job here back in Hawaii. So when you get a degree in accounting, usually start off as like in public accounting, working for a firm. So that was the route I took. I was doing, assurance or audit work.
And after about three and a half years there at that firm, I was like, I don’t think this is really for me. I don’t think it’s going to be, I’m not going to be in the partner track. so to speak. So I jumped off and went to private industry and I’ve been there ever since. I’ve worked a few different jobs.
I actually ended up working for a few real estate companies and I’m still working for one right now. They’re a developer of resort properties. And golf courses and similar type acids and yeah, that’s basically it. Oh, and prior to that, I was working as an analyst for a home builder, a national home builder.
So I was able to get a good grasp on the numbers side of working for a real estate company and working real estate deals. But now I don’t really do that. I focus more on the accounting side, so not as cool. That is exciting. And sexy, but it’s a job. Yeah. Pays well. And just for a little context, probably of a, I would say nine, 10% of the members are actually here from Hawaii, but it’s so Brian and I actually went to the same high school.
I don’t know. We haven’t seen each other since what, like 15 or 20 years ago. we’re on the golf team. We both kind of suck. yeah. And for those of you guys don’t know the bottom tier guys. Yeah. Like they send us out and because we have to play for a position, but it’s just we’re just here because it’s free.
And our parents told us to do it, told us to do it because this is the way to stir up resumes to get into college. At least that was what I was told to do. but yeah, so people in Hawaii, they usually go to school in the mainlands because the school is not too good here. Yeah. How long were you on the mainland?
Like after college working? I actually didn’t really work up there. Stayed up there for a little while after I graduated, but I graduated when times are pretty tough. So to speak is like 2010, 2011. So there were too many jobs available. I probably didn’t do a good enough job marketing myself when I was in college also.
So yeah, it was, I was lucky to get a job here. I think. Yeah. Around that time. Yeah, no offense, man. But you and I are similar. We’re like underperformers at the, the corporate life, which is probably why they didn’t read, circle you to a be partner or level thing, which is why we’re here.
And this is why your net worth is this way, because you chose a different path along the way. Possible. Yeah. Any feedback for younger guys and the CPA track? Cause you, you look like you’re 25, but you’re really actually Oh, you’re two years younger than myself. You’ve been working for quite a while.
how does it kind of work? You’ve worked for four years getting coffee for people or. How does it normally work? Yeah, I think it’s probably similar across the nation where you start out at a firm, you work these long hours doing pretty menial tasks. You’re the grunt, the low man on the totem pole, but I still would recommend.
That folks that are doing accounting out of college do work for a firm. I think you gain really valuable experience doing those horrible menial tasks for years and making a pretty poor salary. But yeah, overall, the experience I would say is it’s pretty good. And you come out of college with.
Sort of a year, your own group or cohort people that are similar aged with you. And they all are hired to firms at the same time. So it’s a nice stepping stone into work in the real world, so to speak. So you’re working with people that are your same age and similar experience and background a lot of times.
So it can be fun a lot of times. And also horrible, but yeah, I’d definitely recommend it. Yeah. So we break that we work backwards. The net worth is the score, right? A $1.2 million net worth. You make about 90, a hundred grand a year, living in Hawaii where salaries are maybe like 20 or 30%, less than counter promise on the mainland.
When I first see this, I’m a, head-scratcher all the C I do, unless somebody gave you a lot of money. She think you got a little help, I think, right? Like shit for a down payment, but not much, but I automatically know right now that you did something real estate probably related. I’m just have a hunch.
I kinda know, but tell us about like, when did she start investing in real estate? Because I see this all the time, right? Like doctors, for example, they make over 300 grand a year. I very rarely see them above one to $2 million network. But the guys who are investing and doing this stuff, like there are like three, four, five plus million at least.
So it’s like night and day numbers don’t lie. So tell us, how did you get to 1.2 here? Yeah, I guess part of it was luck and a lot of. some unlucky ness also, but I started young when I was about maybe two years out of college. I bought my first unit and it was a fixer upper that required a lot of a sweat equity, so to speak.
So I bought it. it was what’s called a leasehold property, which is common here in Hawaii. So people were overlooking it and while it was a leasehold, the fee was actually for sale. So you could buy it. Outright and own the unit. So I was able to get it all in with the fee at about 300 little over 300,000.
And I put in about maybe 20 or $30,000 of work and materials. And that was my first place. And I lived there for about three years, maybe two or three years. And I had a roommate also because it was two bedrooms. So that helped me out a lot, as far as paying down. My monthly expenses. So how’d you get the dump for that?
Cause it was like, yeah. So I was able to save up enough for the down payment myself. But on the fee portion, I had, a loan from my parents that I’m actually still paying them back right now. So I borrowed about maybe close to a hundred thousand from them to purchase the fee on the unit. And eventually I was able to refinance the whole package together.
To get a fee simple loan on it. So yeah, my parents definitely helped me out with my first place with the cash. they own rental property themselves. They used to. Yeah. Yeah. And the one of the units on my sheet is really, I code with them. So that’s a rental unit that they own, and they actually bought it for me when I was in college with the intent that I would live there.
But I stayed up on the mainland for a little while and then they ended up renting it out to a family friend. yeah, it’s the one that’s like on the bottom, the last one there. Okay. Yeah. So I. Yeah, I don’t really have anything to do with it, honestly, but I put it on there because I was able to get a line of credit on it because I’m technically the owner on it, but yeah.
I mean that worked right. That got you started. we could have, they could have not done that. You probably just working on your ratchet Subaru WRX drinking beers in someone’s garage right now. Just go into your day job, right? it couldn’t, that could very well happen at that point.
Yeah. Yeah, no, definitely. I, my parents definitely had a positive influence on labor. They’ve had rental units as far as long as I can remember, they had some, even off Island and out of state. So not anymore other than this one, but yeah. Yeah. that’s why we both went to the mid-back writer turns to cut in and have some money.
Not rich, but yeah. It was, I was fortunate enough just like you. I think my parents actually sold one of their houses, I think too, to put me to mid back in college, but I never really did that. though, they just did. Okay. Yeah. Yeah. But you and I both know that a lot. Yeah.
All of our classmates started like trust fund kids. And their parents did it incredibly the wrong way where they just paid for college. They, the kids didn’t do anything. And now we’re seeing them all like the grandparents, parents dying right now and giving their one to two to $3 million estate and then just buying a bigger house to live in.
What they did here is not to say there’s a lot of different ways to generate the second generation wealth. But this worked. So note that, some of the older listeners can, I think can, should think of that. what, looking back, would you do the same thing? you don’t have kids, but like that’s sparked it.
All right. Yeah. I think so. It was a good experience fixing all my first place. Some of it good. Some of them did that, but yeah, it was definitely a learning experience. Yeah, for sure. I think that’s the hard thing. A lot of people just can’t get that first 30 grand right. To get started. Yeah.
Yeah. so the next thing I look at here is after we look at like the net worth, I know where to start which side of the couch to start shooting. And then I break down the sort of the sources, which is you make a decent salary. You’re obviously not Like you said on the partner track, but Hey, that’s cool because your rental income is more than that, right?
You probably make, you probably make more money than your boss’s boss at this point. I don’t know about that patient. She’s a pretty, is a pretty successful dude. but yeah, I think I’m on the right track and I just, I need a while. I was hoping to get some guidance and maybe just if you were in my shoes or what would you do next steps wise?
career-wise, you’re already on the right track. you’re at this point, like when I got up to I’ll be on 11 rentals back in 2015. That’s like when I hit the hockey stick. And you’re right at that cusp. it took you what, 10, 12 years to get up to this point to build your passive cashflow up to about a few grand.
to double that it’s going to be like a quarter of that, That’s why I’m saying like, yeah, you’re just going to blow past your boss’s boss. Take home. Very soon. Yeah. I’d hope so. the tough thing is in Hawaii, I have a few condos here and the cashflow is really not that good. So I think long term, I’d like to sell them.
That was always the intent actually, but it just worked out where I kept having folks that wanted to stay in rent. So like I kept rolling. Yeah. And that’s the hard thing, right? Like you, I tell you one thing. But like until you go remote and you see it for yourself and get comfortable with it, it’s hard to get away from almost paid off.
Like these condos you have in Hawaii, you got a pretty good equity position and which is not good.
Yeah. Yeah. Yeah, but they don’t really produce very much monthly cashflow, really nothing. I just look at them as pretty much breakeven. At least they’re paying off my monthly mortgage and maintenance, but. Yeah. you’re playing the appreciation game and up to this point, you’d been, you invested in the right decade and with the whole pandemic happening and the short-term sellers market, I think it’s a great time to start selling them off slowly, but we can get boring in that, but yeah, wrapping up that, and then I just peek over.
you’re pretty good. Your net cash flow, which is like your take your, how much money are you able to put to a new investments? Is over 60, 70 grand a year. That’s awesome, man. that’s, this is the most important number. I don’t really care how much money you make. It’s the kind of the net, right?
there’s so many guys and like the Bay area or bigger cities that make three times as you, but make, are able to see half this. Okay. Most people in our group, they’re able to save at least 30 grand a year. You’re in like the top 10% ish, but I know you. Yeah. And I didn’t really budget in for any major repairs or anything.
So that number can definitely go down pretty quickly. But I’d say in a good month, I guess that would be where we’re at. Yeah. I would say you. You’re already on the path and it depends like what your goals are. Like, if you just want to like stomp on the gas and get there really quick and love.
I know you probably live a little fruit, Billy. what car are you? Oh, I have a Ford truck. Yeah. Yeah. Go figure. look, if you want to go and spend like 10, 20 grand a year on a vacation or a nicer car. I wouldn’t have any Harper. It’s the guys who are able to save less than 30 grand a year.
That’d be need to type with bell a little bit and Schrader Tesla for that for Chuck or the, maybe not on the civic, but let me skid the Camry or something decent. But yeah, this, these are all, this is like your cash flow, right? This is your, where, what direction you’re heading. And I’m telling you, man, like you’re going to get there pretty damn soon, like three to five years to financial freedom.
So you can get there in two years or you can get there in four years, but like actually live a nicer life start living. that was. Like, there’s nothing sweeter than taking some of those cashflow and buying something nice for yourself. You never know what you’re going to die. Definitely. I think though, part of the reason why I listened to you and I started really getting into your content is I’d like to have the freedom or the option in the future to look elsewhere, for employment or maybe not work.
I probably would always work, but maybe just doing. Something else or just having the option. So I think that would be my main driving factor right now is just freedom. But yeah, on a scale of one to 10, how stressful your job? Yeah. It goes up and down and ebbs and flows, but I would say on average, it’s not overly stressful and I don’t not like what I do.
It’s not horrible. So it’s something that I could definitely keep on doing, but just having the option to maybe go on and follow something that I’d be more interested in or have more passion. I don’t know, maybe work for a nonprofit, even something with the mission really resonates with what I’d like to.
To see happen in the world. I don’t know. Maybe I’m speaking too crazy right now. it’s, I think it’s idea. And unfortunately, unless you’re like, you’re able to free your time up and get three to six months of twiddling your thumbs doing nothing. You don’t find that thing you’re talking about right now.
It’s just an ideal, but it’s not like a concept people see will take to get there. So what I’m probably hearing, I’m just assuming this, like you’d rather take the 10, 20% pay. Cut. For a little bit or chilled job. Yeah, I think so. Or maybe not even more chill, but just having the freedom to look for something that would be a little bit more of a passion project, so to speak versus like just clocking in and clocking out.
Yeah. Unfortunately in your career, even still you gotta go like full-time right. You got to stay full-time. Yeah. I was just going to say, I might even consider working at a job like this, but just not full-time. I think it’s possibly an option, but I don’t know. I haven’t really explored it because I don’t have the ability to really, yeah, who does, right?
it’s funny people who do this stuff and then they go have that conversation with their boss. It’s funny that they often get more pay and they get a few days. Taken off of the week. Nobody has everybody else lives by this paradigm where they’re like their employer has a by the balls and they have to keep them.
Working and coming in just like everybody else, but yeah, you’ll get there, Matt. What’s your like your living situation and you’re married. You got 50 kids. Just get some context. I have, I have a girlfriend, lead. We both live together. We actually bought, if you look on my sheet, I think it’s five under the real estate tab, the primary residence there, we just moved in earlier this year and we bought a place here.
So that’s like she and I are both 50% on that are our primary. And the, we bought a big house here in Hawaii and we’re able to rent out half of it or so, so that’s why there’s some income there, but that represents my 50%. house houses here, like pretty crazy, ridiculous, expensive.
So yeah, that’s actually a cute house, right? 700 grand in that kid. She’d possibly. Oh, no, that’s well, that’s my 50%. That’s my 50% of the, okay. Okay. So it’s a $1.4 million house. That makes more sense. Yeah, we, we paid like 1.2, 1.3 million for it, but yeah, luckily we can rent out a lot of it or a portion of it.
So it helps us quite a bit with our money. Otherwise, we’d be stuck with this big bill every month, but what did they do for work? she works for the government for the state. So she has a pretty stable job, not really high, super high earner, but yeah, she has a stable career, I would say. Ooh. I don’t think she likes her job very much right now, actually.
Perfect. Perfect. I know she makes less than you. So at some point you guys need to start doing the real estate professional status gig. Yeah. I heard you talk about that before and she can get her license and we can get some better deductions, right? Getting your real estate license and doing 1000 hours of real estate has nothing to do with real estate professional status.
it’s going to silver. Yeah. She just has to have active participation in your real estate portfolio. But we talked a lot about this in the mastermind where it’s a little bit of a gray area, which is why I don’t like to record this type of stuff, but it’s totally legit BAE. It needs to be like 700 fishing.
It doesn’t have to, he can’t have a full-time day job, which I’m sure the state will be cool with her going like part-time at some point. And she has 750 hours of active participation using your portfolio. So at this point you’ve already got a lot of voice stuff, but we’ll talk a little bit here. I’d probably want you to unload the Hawaii stuff because the rent to value ratio soccer, right?
Like I would say like maybe think about doing like a little thinky, Airbnb rental or something. An average change sheets for 750 hours a year. That can be an option or some of the higher net worth investors. They like to come on as a general partner in our deals. That can be another one, but yeah, a myriad of different ways.
of course. Talk to your CPA attorney, but yeah, I would say that’s in the cards for you guys, maybe in the next, not now, but. I would say three, four years from now and beyond, but this is all coming together, right? this kind of optimal, she makes probably way less money than you. She doesn’t like your job.
Cool. This is really hard for me. When you guys love your job and you make a lot of money and I’m like, God, dang it. it’s hard. That’s hard. It’s good. When people have a mismatch in salary. So you cool. clear path there. But it makes sense. Okay. yeah. That’d be perfect.
she wants to stay, she wants to be a stay at home mom slash wife eventually. So that’s your girl. Yeah. that’s good for you, man. unfortunately that Mary or like a rich doctor, sugar mama, but this is not a bad second option. Maybe that was the one that, yeah, I hear what you’re saying.
The one that got away right by the one. So look at if they quit or went part-time, you still probably be good, right? That cashflow. there’s, I would say as long as you keep that above 30 grand a year, you’re already on crew, you should already be at cruise control at this point.
It’s just a matter of just digging into these properties and. I don’t know if you saw my return on equity spreadsheet, folks can download email@example.com slash Roe, but it’s basically what I’m the exercise I’m going to do right here is just figure out what your debt equity is at.
So I’m going to take your fair market value minus your how much work you have on here. I’m a sum them up. Does this make sense? You’ve got like about 1.1 million in equity. Does that sound about right? Or maybe, yeah, that sounds probably about right. like I was saying that last property though.
I don’t, I sorta, I wasn’t even going to put it on there, but I just put it on there because I have a line of credit on it. So I dunno, maybe it’s, it would be more accurate. You’d just take that off. Okay. Okay. Yeah. at some point, yeah. At some point we play around with it. I don’t even know if I spelled that.
But, so this is really bad, man. Like your net worth is 1.2 and your dead equity is 1.1. That’s really bad if I was a doctor. And these are like your vitals, right? I would probably wonder while you’re still living. So in this sense, I would probably picture a really like my, like really cheap, wiser, who is house rich or EKI rich or super poor and just rise, like drives around in a POS.
And it’s super cheap. I dunno. That’s how you feel like, but that’s how, if I didn’t know you and I was just looking at this, that’s how I would think, and people. Maybe people don’t give people more context. People in Hawaii, this is very common, right? And people are very debt averse, and they’ll have $1.2 million homes that are paid off, but they don’t even have money to fix it down roof because they don’t have cash.
She’s a strange phenomenon. It’s very unfortunate. But yeah, I do feel like that sometimes. Like I just, I have a decent amount of assets, but it’s, I know I’m not really utilizing them utilizing the assets to their full potential, I don’t even know if that’s the right verbiage, but yeah, I get what you’re saying.
So that was one of the reasons why I wanted to talk to you. Yeah. you can make up your own decision, but let’s just figure out which does sell first. So you can do it two ways with one, like how I outlined it here and just go after the biggest fish. Or you can go by percentage of equity, which one of these is making you the least amount of return based on equity or return on equity percentage.
So like you take this property, this condo, how much money you making per month on this one? What’s the rent. Yeah, I 25, 50 a month, but again, I counted as almost just net zero. Maybe I cashed a little positive, a small amount, but. Yeah, so that’s pretty common, a half a percent method evaluation in Hawaii with the big ass HOA and just sucks it dry.
So I would say probably be the first candidate to sell because of equity positioning or it’s one of the bigger fish plus it has the lowest amount of return on equity. you can probably, you should probably sit down and really watered down, but that’s what I would do both first after. And then probably this one, I, and I know this one has the highest amount, but like you said, your family part of it, right?
We don’t want to give mom and dad a heart attack. They’re old. Let’s get some, let’s get some proof of concept with these crazy ideas and filling your head with first, before we, we tell mom and dad. Maybe get married or something or have kids that are happy and then three candidates to that, but that’s a couple of years or something like that.
So I think the point money, especially for you, that someone super new at this stuff, like 200 grand deploying that in one year is going to be, I think that might be a little bit ambitious. So this is now I’m like starting to like Mark it off into a year. So like 2000 and. 20 2041, 2023. And you can make the diagram for this, for yourself later on, but I would invest maybe.
A hundred or 150. I don’t know. what do you want to do? Do you want to buy some turnkeys on the mainland or do you want to do like passive syndications? What do you want to do? I don’t know. I guess that what I was one of the questions that I had say you were. In my position, what would you be looking for and how would you want to deploy, say I was able to sell these places.
How would you want to deploy it? Would you try and look for syndications or multi-family or single-family home deals? That’s where I wasn’t too. Sure. Especially now the times are a little uncertain and shifting around everything is shifting around. So yeah, I was going to get your take since you’re pretty plugged in and tuned into this stuff.
I would just do also indications, especially if your network is over a million bucks. I think, what is seriously? What is like a hundred thousand dollars kinky property in Birmingham going to change your life other than just keep yet another headache, but it will. you already know how to be a landlord.
Yo, you already know how to dance. I, so I don’t think you would gain much in terms of experience being able, just buy like a turnkey or even you certainly shouldn’t do a Burr, That’s just for like broke people. We’re trying to, they need to take more risks and they need to go after business.
She’s thinking about, I was actually thinking about trying to do some out-of-state burgers after I listened to. I think one of the guys you had on your podcast was talking about managing burrs from auto state when I was like, Oh, that sounds interesting, but it always sounds interesting.
And then when they talk about it, they rave about all these returns, but here’s my thing, man. You’re fighting with one arm tied behind your back on somebody else’s home court. I wrote a big article on this, like why would not do like burgers, but like number one risk of embezzlement with contractors.
I comes from like construction management, right? So I’m the one who always works change orders with the contractor. I not pay these tasks, but dude, you’re, you’ve done this in the past. But most people they’re trying to play like. Owner and trying to do this, like it’s just outside your realm.
And you’re doing this remote me I’d much rather have you just flip a house in Hawaii, At least you’re you see this stuff as opposed to relying on a third party to do it. And it’s just not worth the risks. Yeah. Bezel man. Shit. Why I’m over large sums of money and you’re not able to verify the scope of work was completed and to what level of quality.
And everybody knows. You’re just some rich person from Hawaii, even though that’s not the case. You got to like a piece of junk Borg Ford, They don’t know that they, their ideas, like you’re just some like rich investor, polite drinking, pina coladas. Yeah. I just don’t think it’s worth it for people making over like 80 grand at their day job.
And especially having a net worth of over half a million bucks. But if you enjoy it. Yeah, man do it. But I think maybe a hobby, maybe I think it detracts, right? I think like the name of the game is networking and building relationships with higher net worth higher credit investors. That’s where you should be focusing your time and energy on.
Not to screw it around with some toolbox Tim out in Indianapolis or something like that. It’s no carry over. What are your thoughts on I have a line of credit on my place in Las Vegas. And I was thinking, instead of selling those two rentals I have in Nevada and in Texas, because they pretty much have been managed themselves.
they manage themselves, but there hasn’t been too many problems. There I’ve got pretty good tenants so far, not the wooden pretty good property managers. So I was thinking about maybe just pulling the money out of there and trying to do something with it. Instead of selling them off, that’s a good intermediary strategy, For an hour, To get you. We’re trying to get you proof of concept right before you go all in. So like when you have equity, if you have three options, you can sell the asset. Which is what I’m proposing. You can do a cash out, refinance get at it. But unfortunately you got to pay the lenders.
Love it, right? Because that’s how they make money. If you come to the origination fees or like you said, do a hilar, right? The problem with the hilar is that it’s, you’re not getting at the full, in this case, 194 grand probably wouldn’t get at half, but the half of it, you got a lot of money there.
Half of it. It’s enough to go into a couple of deals. It’s you proof of concept that way. you have so much equity here. I would say the HELOC is a great way to just test the waters and then eventually sell. But whatever you want to do, man, I think all those are all steps in the right direction.
is that what you’re probably going to do? He locked that thing and then play around with a hundred. Yeah. I already have a, I have a hilar on that property, and I, when I refinanced my first condo here, I paid off the loan on that house. So it’s, that’s why it’s free and clear right now.
So I was thinking, yeah, I was thinking I could take some money out that way. And just like you said, proof of concept and try it out and see how it goes. Yeah. however you want to do it either. This one or this one, getting a lock on both. Get it now. it’s just filling out the same paperwork, emails, just cut and paste the name and do it.
Get a geeky Lux on them. All. The locks don’t cost anything. And so what about as far as, what should I be looking for in say I do go into syndication. What should I be looking for? You think I see they have these ones that give you a debt position versus an equity position or some that are like value add plays.
And they’re trying to fix it up and refinance out or more of a, like a yield play. I saw some of those as well. what would you think would be the best that’s syndication as a very general term? You can syndicate anything. You can send the, get very like conservative stuff, like a debt position, or like value, add a light value, add yielding assets.
Or like a brewery, a restaurant like developments, like you can syndicate anything. It ultimately comes down to your risk tolerance. Like when I first started it, I was looking more for like late value, add more cashflow based type of deals, things that were cash flowing right away. And, or you start to collect checks and the second border, that’s what I thought was a prudent way to dip my toes into it.
And that’s what I learned. And I built my community around that, but I would say stick to like more of a debt position or pref equity position or more of a lighter, medium value add type of project where they’re, maybe putting in definitely less than $10,000 rehab, continuing every unit, but yet stay away from The developments and all that heavy stuff for now, I would say, especially, it’s baby steps, right?
I know you’ve been involved in a lot of these syndications and a bunch of folks that do this type of syndication deals. have you ever seen one that went wrong or went South and what happened? I’m in one of those, I had a bad partner and that’s pretty much the risk, right?
Like syndication deals. You’re going to always going to be better. If you invest with honest people that are competent and that’s the, to the GP kind of went astray on you. Yeah. Yeah. So then I had to involve my GP rights and I don’t want to go down a rabbit hole still fighting through it, but yeah, great example.
And that’s with uncertainty, right? You want to be investing with the pros, right? I would say this is probably the end of the road for most people. Who’ve made it as far as you, at least. That’s the way I saw it. I don’t think you can do this remotely. I don’t think you can. certainly you can’t run a syndication deal from Hawaii.
It ain’t going to happen. I have operational partners that are boots on the ground. And it has to be like your full-time day job, none of the site gig stuff, When you’re taking other people’s money, it’s gotta be full time and these guys can run it better than you. And I think what a lot of people don’t realize is if you’re working with the right people, they have much better deal flow.
They’re getting like the one out of a thousand deals because they’ve closed big deals on the past. And that’s just something that you don’t have access to, but it’s hard as an LP to figure out what’s what, because anybody can pay some VA 20 bucks to make a really nice, shiny PDF pitch deck.
Often there’s nothing in the pitch deck that tells you if it’s a great deal. So it ultimately comes down to your network. You need to build a network with other high paid professionals, people that do this stuff and kind of get referrals. And who are the right people to work with, Because you’re not shied away so far.
Yeah. Yeah. and this is why I’m like, don’t screw around with a Burr. That’s just a waste of time. Okay. Yeah. Going back to your point. I think that’s why I’ve strayed away is because I don’t really know exactly what I should be looking for in a syndication deal. So to speak. So that’s what I was trying to get your take.
And I did the same thing, right? Like I had 11 rental property and I knew about a performance in vacation, but what I was doing was working, I got in my net worth up to a substantial level by myself. And it was working, but I knew that it wasn’t going to be a long-term sustainable solution.
So I went and I eventually slowly went into it after I’ve built my network around it. And I was able to ask these guys, all right, are these deals actually really work in it, who to work with? So that was how I eventually I fell into this and I transitioned to bowl for, but that’s why it’s a reboot.
You’ve got to come into different circles and then you got to learn how to evaluate deals from more of a passive investor standpoint. But a lot of that is just can be like proxy by just. Building relationships with the right people. But I would say stay away from class C properties there.
They don’t really cash though, like how they do on paper or just stick to good yield based assets. And I think that this is where it’s a lot better than turnkeys cause turnkeys. Yeah. You’re not buying value. Add you’re not buying, you’re buying retail price. So if the market insurance on you or you’re gonna lose the value of your property, Maybe 10, 20%, which is fine because ultimately you’re just buying an income stream, but with a apartment deal that’s value add, it has real value add in under it’s in the right way.
In times of trouble. You’re often forced to appreciating that property. We haven’t units increasing NOI faster than the market can be tracked. So it’s the ideas like a turnkey you’re on by yourself, right? You’re in a little rowboat by yourself, but. In a syndication deal. You’re a passenger amongst a big priests battleship.
And that battleship has engine, which is in this metaphor, like the forced appreciation, couple of hundred to fight the tide, which is the market. It’s a good metaphor. Yeah. I had a lot of time to think about it. You want to join Noah’s arc? Who would you like to just be out there by herself? You got like ducks and events.
Monoceros to have every time. Okay. that’s what I think I’ve been with just shooting from the hip, on my own, trying to figure things out. I think there’s a lot of people just like in your same pedigree, where you in your twenties, you bought properties, you actually fixed it up yourself.
You save 10 years later, you have mass a pretty good at net worth. There’s a lot of people like that in Hawaii, everywhere. And. To me. I think all roads, the syndications, there’s no better way to scale up, build your wealth and especially with all the taxes, right? this is, this deal stuff is only a third of it, right?
Like in the mastermind, we like, it’s all about legacy creation. If net banking, if tax legal, like paying no taxes, like uncle Trump, right? It’s funny. People are talking all about that. Like he’s not paying in taxes. yeah. everybody does that. Biden does that too. Mick Romney did it.
Like we should be asking, how are these people doing it? I know how they do it. But we should be trying to implement their strategies. Instead of just saying that there are deed, right? I would say just to give you like a working blueprint care, maybe invest maybe a 20, 20, I would say invest like 50 grand and just so you can see like a Q1 come back March of 2021 and you can see, Oh shoot.
This is what that’s, what that damn Costech segment. No, I know. Understand why the rich do this. They’re getting the bonus depreciation. Now. I really love those house slippers because they pay all my taxes for all their active income taking all that risk. And the bird people.
And then I would say maybe get on like a routine where you go into a deal. I don’t know, every six months. So that’s like a hundred grand. And then at that point you should see these deals start to cash flow, Versus six months, it usually takes the deal to restabilize. And then maybe around late 20, 21, you should be able to realize, all right, where do I go for my next traunch of capital?
You’re still messing around with the hilar. So it was awesome. Like a law. This is first of all, You don’t have to sell anything. You don’t have to pay a mortgage broker to originate them a new loan and pay feeds. But eventually now you start to go pick her, You a hundred. And then you do that for a couple years.
Then you’ve deployed all this money, right? If I just sum this up, that’s 750,000 bucks. And then at that point, I would say around 20, 24, you might have an instance, we’re selling. deal in Atlanta that we did two and a half years ago. And we’re two and a half exiting people’s money. that’s, it’s phenomenal.
it’s not typical. But I would say if you go into four or five deals by year 20, 24, it won’t be that five-year period where we it was projected to sell. But I would say pretty confident. You’d see at least one like refinance. And then at that point it’s Oh boy, like this stuff works.
And that’s when you go to mom and dad and say, Hey, I’d like to buy you out for this thing. And then look at like, all this deployed capital. You’re not making any cashflow here. You have $750,000 on 0.2%. Well done. Let me go just 8% a year. That’s 60 grand. Tax-free right, because you’re going to have so much passive losses.
You’re not going to know what to do at that. it’ll sit this stuff. I’ll certainly be tax-free in the first three years, every year, the cashflow. And this is not what you’re not seeing now. You’re not seeing this additional sum come to your bottom line here. And if I just plugged that in year, cause right now this stuff just levels off.
You’re making 3000 a month. But if I just increased it by three valves and. see what that does now you’re making an extra 40 grand a year to put some more investments, right? this is a good problem that happened. Like it’s like eating Skittles on the rainfall. I can’t stop eating Skittles.
There’s so much Skittles because once I put more Skittles up there, it comes in my mouth. Like one of those unicorn rainbows, right? This is where it starts as the most important, all this stuff will just happen. That’d be good. I can get some losses and enroll them if ever sell those. Let’s talk about that.
When I sold my seven rentals in 2018, Ida $200,000 capital gain. And because I went into four, I think four deals at that point I had over three, I think at $300,000 of capital gain. So I bought the 300,000 or 200,000 other passive losses offset the capital gain. And this is why 10 30 ones are obsolete at this point, as long as bonus depreciation is in play.
So let’s just say you sell. You sell this one, right? Your cost basis was two 50 and you sell it for that much. I would say you’re actually, it’s the same thing as me, right? $200,000 capital gain plus depreciation recapture 200 grand. That’s not about right. So you’re, you probably have a lot of passive losses built up right now.
I’m guessing you might have 50 grand. I’m just guessing, but when you go into these deals, He put in 150,000 bucks, you probably will get maybe a hundred grand of passive losses from this. Of course, you’ll see this firsthand, right? don’t listen to me. It’s see it for yourself on the Caitlin, right?
With this first 2020 K one, which you’ll see in 2021 March. So you’ll have a lot, 150, a hundred thousand dollars of passive losses. Plus you have, like I said, you probably have $50,000 of passive losses now. So $150,000 passive losses. And that is what offsets this sale. But if you’re smart, you do it.
You sell the asset probably in 2023. When you have, when you’ve deployed this 200 grand and you’ve gotten in another hundred grand, a passive losses from that. So total you’ll have $250,000 of passive losses to offset this $200,000 gain. And you still have passive losses, the despair that may make sense.
Yeah, definitely. Yeah. Yeah. Why would anybody want to flip houses, right? Yeah. How the wealthy deer, I don’t know what I was thinking of doing, but I just wanted to get some. Confirmation. yeah. Yeah. that’s hard, right? who the heck does this, right? Yeah. Yeah. It’s hard. Other than reading, like blog posts or watching your videos since like you I was still felt like I was piecing it together myself, so yeah.
I’m, this is the public service announcement. Like I am not a CPA. I’m not giving you tax illegal advice, but. I think I, Michael, is to empower you guys with a working knowledge of this. So you can have the right information to go have an educated discussion with your CPA. Be tax guy. Because you’re the one who should be driving the ship.
Most CPAs and tax guys are lazy and they don’t know what they’re doing. That’s why they have a day job. Any last questions, maybe some specifics on what, as far as a syndication deal, I should look for any regions maybe that you think are worth looking into, or I don’t know, maybe even diving down into some of the.
Yield percentages are, what should I be looking for? I, this is where you just talked to you build up a network and you ask people, what are you investing in? Why? What is your risk tolerance? if you asked me, I like stabilized deals from the get-go, where it’s already cash flowing, and there is a proven concept for some value add where you just do simple things and you change out the flooring and new appliances.
You’re not putting any more than like $6,000 to rehab into a unit like value add. And if you can lock it up for like under 3% debt, I think that’s a no brainer in secondary markets, tertiary markets in both population areas and in red States. So that’s what I do. If that doesn’t make sense to you, but we’ll go find something else.
But I think that’s. Again, it comes down to your network. Your network is your network. Everybody has a different investment philosophy, too. But to me, for the greatest amount of success, with the least amount of risk, I don’t think that there’s anything better than that kind of strategy or risk return spectrum that you staying in that middle America, where the rents are 700 to a thousand bucks a month.
The pandemic it’s pandemic proof it’s been proven. Okay. So stay away from C-Class jumping into a good cash flowing syndication with some trusted partners. Right? Sound advice. Sounds good. It’s all right. It’s all simple. But it’s the hard part is connecting with the right people, right? Because they’re not at the local RIA.
They’re not at. the free websites, right? Just finding the guys who are just here, that real estate is a great way to make some money, to get on broke or get out of debt. Okay. And maybe you could speak a little bit more by your mastermind group. how exactly does it work? So my group is all about, we split the group up.
I have a incubator group for like people just trying to get their first rental property. That’s probably not for you. But that allowed me to make the mastermind group or for accredited investors. But I do like a mastermind in January. If like people want to check out the last name and go to simple passive cashflow.com/ and check out what we did there last time with great opportunity to meet past investors, accredited investors and.
Drink beers, go hiking, build a real relationship. That’s the key here. I’m thinking about doing, I gotta do some meditation on a plane here shortly. I think I might do the thing virtual this year. I was in another mastermind and we did it virtually. And then the organizer, there was a lot of planning involved, but they hadn’t been, we used the breakout rooms very creatively in a very different formats.
So I think that might put this thing together for a Chile. And I think that’s, you’re not gonna there. Ain’t going to be some that comes close, man. You don’t want to sound off over profit, but I’m super confident that this is what I would want it right when I was starting out. Unfortunately I had to spend almost 50, a hundred grand to get into groups, myself and do a lot of travel.
But, we do things for our credit investors here in Hawaii when people are, there’s no pandemic, but I’ll let you. Okay. That at least you can actually see cause. I think that’s the trouble, right? if you’ve never been in, you never been around. Yeah. More than two accredited investors. You don’t understand what the value is there.
And that’s why I think why I want to do that for actuals networking. I’ll be at like a two day event, you get it. And you’re like, there’s no going back to rubbing shoulders with not a credit investors anymore at that point. Yeah. I think that would be super valuable. And like you’re saying, just to hear what they’re doing and where they’re investing and how they’re investing.
I think it’d be really, yeah. Cause there’s discussions. Turn more into like, all right, yeah, this is what everybody is just doing. Check. I answered that question, but now you can build relationships to have discussions on Oh, you’re 20, 23. When this, when you go all in, right? that’s where your life starts to open up.
Maybe you, you already got a big house, but maybe that’s when you like you quit your date or you have your spouse quit your day job at an old car. Yeah. Okay. But that, those are like those higher level decisions. And then you wonder if you want to send your kid to private school. It’s the first world problems. Sounds good. Lang yeah. Anything else? ELLs? I think, yeah. I’m just leading you to water, right? Like it’s the people I know, like I think that’s pretty much it. I think it’s been really helpful. Like I said, just talking through this. Yeah. Like I say, I’m pretty impressed.
Most people are H with good paying jobs. They’re lucky if their net worth is half a million bucks, if they invested in that garbage stock market 401k stuff. Good job, man. thank you. High five. Yeah, this is a clear indication of how real estate works right here, but you can do a lot better.
And now I would say you got to focus on most credit investors. The goal is to get to four and a half million. That’s the real goal. That’s like a seat wealth right there. Cause you can have two, you can have two or three bonehead offsprings, send them the mid pack, have them do whatever. And it’s really hard for them to squirrel what you built.
Yeah. So gotta make sure they on the golf team though, So that’s where the apparently that’s where we met. All right. Cool man. Cool. If you guys like this and you guys want to do one of these two, let me knowLane@simplepassivecashflow.com. Join the, clubs, simple, passive cashflow.com/club, and yeah, be on the lookout for the next mastermind, whether it’s in person or virtual, a simple passive cashflow.com/week three was last year’s event.
You can check out the video there. And I’ll see you guys next time. Bye
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