Coaching Call: 1.5M Net Worth But Playing It Too Safe With Triple Net

What’s up investors? We are gonna be having a coaching call with an investor whose net worth is about 1.5 million and I would probably say this is probably one of the most typical people that we work with. These days people are asking me you know what’s the average person that comes right through these doors and that I like to have, get to know better.

You guys book those free complimentary onboarding calls by signing up for the club@simplepassitcashflow.com slash club and get to know each other and let’s meet on zoom. And. So yeah, $1.5 million net worth. A lot of you guys are just like myself who used to work a day job.

At least one of the spouses, if not both spouses make six figures and you’re in the grind, right? Where all that sandwich generation you’ve got older parents and you’ve got the younger kids that you gotta take care of. I’ve got a young child now. So I understand, like when you’re in your late twenties, early thirties, you’re screwed you can’t get nothing done. All you can do is just hold down the, for at work and, you and your spouse, if you’re lucky enough to have a spouse, just keeping things together.

So it makes it more important to invest the right way, for the average person. I see, who maybe played around with rental properties yet does syndication deals. And, they normally jump into a few deals and with no more than like maybe 10, 20% of their net worth to try it out. I think that’s a prudent thing to do. Now. Some people have joined our family office ohana mastermind, which is our inner circle, gotten access to the right people and jumped in more quickly and hit that nice financial independence, cash flow stream number that they’re looking for a lot quicker than others.

Again, most people, 1.5 million net worth they wanna play around with maybe 10, 20% of their net worth. Cuz they, they look up now they’re in their thirties, forties or early fifties and they’re like, geez, I have some decent amount of net worth and some disposable liquidity.

But still, like after people go into maybe a few deals at the minimum. It’s not much, right? That’s not gonna get you to financial independence, no way Jose. That’s not gonna happen. This stuff. Isn’t like venture capital. And when it’s why we, I like it. It’s not like crypto that just nose dies off some random incidents that happened.

By the way, if you guys also wanna hear my synopsis on crypto winter, that’s coming check out the YouTube channel rich uncle, check that on our website or YouTube and. I think I did a 15 to 20 minute video on just that topic alone. But the rich uncle channel is a little bit more geared up for the younger investors out there where a lot of you guys are more of the accredited investors.

But going back to that typical profile $1.5 million net worth you’ve got maybe four to $500,000 of dead lazy equity in your home because you were brainwashed as a child to pay down your mortgage and be debt averse. That’s exactly what the banks wanna do. Want you to do by the way you maybe have two to $500,000 in your 401k locked in there, which, there’s a lot of content we have on our website of, jail, breaking that stuff out to minimize the overall effective taxes.

You still gotta pay that 10%, little penalty, but no big deal. That’s why you gotta surround yourself. Other accredited investors who think this way. Because it definitely is a lonely world out there, which is why we do these events coming up on October 1st, we are going to be going out to Napa valley.

So make sure you guys are signed up and check that out. We’re gonna be slowly working on the info page for this to get on the email list to get first access to this, but check it out at simplepassivecashflow.com/napa and enjoy the podcast.

All right. We can make up a fake name if you want, but once you give people a little bit of context of where you’re at, I guess the people and again, jump into the story as we dive down these webs of questions. So my name’s Ron. I’m in Dallas, Texas. I have my own law practice and married two small kids.

My wife works, now we have probably about a million dollars in direct industrial assets that we own. No syndications My background is, obviously as a commercial lawyer, commercial real estate lawyer did the SFR thing, at the peak I had about five SFR. I had a partner and I split one with my brother and we had an Airbnb as well, but it was just too many doors to handle.

So this was about four years ago. I sold everything, which I thought was the peak of the Dallas market. Made a ton of money. But it’s just stupid, we had some free and clear houses and just sold those, dumped everything into mostly single tenant, triple net industrial and I’ve been just collecting triple net rents for the past couple of years.

And it’s really great, it’s all hands off and I just, I don’t even check the bank account which works. So I always have to press it for the dude listening on the podcast. You hear infinite banking. He puts all his money on that. Guys out there you need money to do this, dude. You can’t just have a million or a couple million dollars to dump your money into a triple net.

Triple net is seen as an end game strategy when you get to end game four or 5 million plus net worth. But before we go there, a lot of people are still in the, should I do some single family home? Should I, Talk to the guy who is about a million, $2 million network, any hindsight lessons learned, if you were to talk to your.

So I definitely hear that concern a lot that this triple net is the end game. And it’s what people dump their money into, a target or some type of large retail or freestanding, whatever. Starbucks, that’s seen as a holy grail with super low super low cap rates. No leverage, just pure cash.

And really that’s just one slice of the pie. Triple-net only just refers to a type of lease structure, but the deals that I’m doing and that I got started with are much grittier. They’re dirty industrial buildings, but the tenants are on a form of net leasing. And if you can get them onto even a triple.

You have a same triple net structure. You may not have an absolute triple net, which is, I think a lot of people assume the Starbucks, the CVS, the Walgreens, those are absolute leases. The, you as an investor, you don’t even have to pay property taxes. The property tax notice gets sent to the tenant. The tenant will dispute it.

The tenant will pay as an investor. That’s really hands-off and that’s to the extreme that I wanted to be for my triple net. But yeah, I don’t need to come up with, to buy one of these types of 200, 2 50. And even within that, though, I would say the best way is to partner with a partner because then, 250 each, you guys are putting in 500.

That is a lot more palatable. Plus you have another person to bounce ideas off of. You can talk to somebody and it also helps split the legwork because underwriting finding deals, closing them. That’s a lot of responsibility. And so if you’re only one person. Finding one partner to also put up 250 is probably what I would recommend.

You’re going to get a good size building that has enough cash flow to pay for property management and has enough surplus cash flow to pay for repairs, because you are going to be most likely responsible for the exterior of the building. You’re going to have to pay for the roof. You’re going to have to pay for a driveway parking lot gate. Those will be part of your leasehold responsibilities and you’ll need some cash flow to pay property taxes, which on my buildings are between 30 to 50,000 a year. So you front those expenses and then the tenant reimburses you throughout the year on a monthly basis.

So you are talking about a purchase price of 5 million bucks or 2-3million? Yeah, I would say under, because you want a little bit of reserves. And you want to make sure, yeah. You have a little bit of cash for repairs. God forbid. Yeah. You got, you guys have 500,000 and you guys are making, what about a year’s cash flow? So on these triple nets, I would say you should really expect at least nine to 10, maybe 11% cash on cash.

If it’s a single tenant, bought it like a six and a half or a seven cap, then you put leverage on it. We’re still getting private banking stuff in below four. So like you could leverage it up with a 75% or 70% LTV. So that’s going to juice your returns to that 9%, 10% threshold.

And then again, if you have rent, escalators your rents go up, your expenses, don’t go up. It produces an exit that puts you in that 20, 25% IRR, depending on when you want to sell. And if you want to take the risk of a tenant renewals or not, and that’s where instead of. Property manager that in a way the property manager is the broker, right?

That’s your friend in this business. Yeah. And a leasing broker. That there’s a difference between the investment sales guy who brings you the deal. And they do the transaction. They’re usually not the same broker that does your leasing. Those are two different worlds. It’s two different skillsets.

So yeah. You want a leasing broker that can tell you what the market is for your property, what the rents are going to be. And they’re the ones that are going to bring you tenants as well. Isn’t that going to be also the guy who takes care of, like maintenance, that type of stuff, physical maintenance.

You typically don’t have much physical maintenance. Maybe if you’re in charge of like snow removal. But again so for our properties, we all just self-manage. Yes, we have some people helping us, but for most triple nets, if they’re single tenants and other things, you don’t need to pay a property manager.

So again, maybe the broker exactly. Ticky tack stuff, the tenants take care of themselves. And the bigger things it’s infrequent enough where a guy like yourself who can use Yelp and we’ll find a contractor on your get a couple bids, knock it out. Drink your peanut Collado for another few months. Wait for the next issue fella.

Let’s dig into some of your questions that you got here. Sure. I think my questions are how to plan and grow for the next phase. I have a good idea of what I want my life to be. In other words, I’m already living my life.

I don’t work that much and put in like 35 to 40 hours a week. The, from my daily cash, just runs pretty consistently. But I just want to grow. Rental income to a portfolio size so that I can exit on a group rate and really get that cap rate compression and sell $35 million worth of property for 40 million and just collect the Delta for the privilege.

Let’s get digging to the hard numbers here. What should net worth adjusted gross income? Yeah, we’re born yet with those kind of two key stats. So depending on how you value the real estate it’s probably 75% of net worth net worth is like right over a million.

That’s not including primary. I don’t know how you guys typically do that. I don’t know. We include primary. That’s your net. So your net worth is defined as all your assets minus all of your liabilities, like your debts or mortgages. So people, essentially if somebody, yeah. Yeah, somebody stole your kids and they wanted as much money.

How much could you like liquidate everything? And about a few weeks you get essentially. Yeah. So we’re probably closer to 1.5. Then I would say 1.5 because we’re super low leverage on our on our primary, but Yeah. So one five, and again, half of that’s in, in commercial real estate, I have no, no SFR rentals anymore.

It’s all the industrial stuff. A lot of people don’t believe me that once it become an accredited investor, Can you tell me any good foods and reasons why you’d want to own little rental properties, right? Like liability, headache. If not, a lot of us would love to sell ours, we’ve got the whole mastermind looking to sell their remaining rentals.

I think this is a good time to sell you. You have the same problem. And we face that too, which is if you sell, what do you do with the money? Because that is a existential problem at every single price point, whether you’re looking to sell like a hundred thousand dollar rental, you’re looking to sell a $10 million triple-net or you’re looking to sell a hundred million dollar REIT portfolio.

What do you do with the money that generates a higher return than you’re currently getting? Because if we’re getting that 10% cash on cash right now, we bought it at a good price. Our mortgage is quite low. We just cashflow on it. I don’t know necessarily what I would buy right now. If you put a gun to my head and said, here’s an extra million dollars.

It’s a challenge, right? It’s deal flow is the hardest part. But yeah, I would say sell SFR as soon as you can. Because at least for us and for our family, I make about 400 to 500 a year, depending on the business, but we save or invest about a hundred or 200 a year. And so that reloads the kitty for us to buy new buildings every year.

And we’re also the dude, we thought that Dallas 2017, wasn’t going to go up. Yeah not to say it didn’t go more. I wanted to simplify my rental portfolio at that time because I was six with six roofs. I was even with a property manager. I was always having emails like a water heater. Went out. Oh, the dishwasher broke here.

Oh, this oh, this happened. Oh, that happened. Oh, the tenants complained about it. It was just annoying. And so I felt like it was still an incredible investment. If you think about, I was cashflowing on a rental, I had property managers, so I wasn’t doing a whole lot. And then when I sold for a pretty good appreciation, I was like, Hey man, I’m super happy with it.

It was like banking profits. I love I say this quote, you’ll never go broke banking, a profit. And so there’s nothing, I think there’s nothing wrong with that. But yeah, for sure. And even in, in 2017 or 2018, I thought a lot of multifamily syndications were overpaying for properties in my area because I got a lot of friends that are syndicators and they wanted me to throw in money, but they were just over buying what I thought over buying over, paying for some really crappy apartments.

And they’re laughing all the way to the bank when they make, 300% return in two years. Yeah. And larger. High net worth families like over your 10 20 fives, they’re always going to ask to allocate to, they’re always going to have a portion of your portfolio, whether that portion is 5%, 50% in asymmetric return.

So they’re always going to have that play, which you don’t. In terms of net worth, you got some movement to go, man, you got to get up to four or 5 million before you can start to play defense. The way I look at so I’ve, I’m coming at it from a different perspective, right? Like I also taught in 2016, 17, I was at a different coffee shop and I thought things were a little overheated myself, but I had also seen this same thing.

I started investing in oh nine, 2012. I’m like, wow, this is getting really expensive. Then in 2014, oh, this is getting really excited. Once you go through three of these spaces in your own head, you start to realize that it’s just you. And I think what you start to see in a lot of people, they’re still in that first, second go around in their head and they think it’s going to go up.

And then they start to see that role internet form or random YouTube channel. That’s just trying to sell views and they get all freaked out. You never have a crystal ball. So my thing. The buy box is goal. What do you do right with the money. If you were to sell those rental properties, you buy stuff that it’s a 1.2, five debt service coverage ratio.

Why? Because that’s what the professional banks do for goodness sakes. Copy what the pros do instead of us amateurs write copy with the pros. Do they go into stuff that cash flows? It has some value add. Awesome. But the. The metaphor that I use is let’s say we’re trying to climb a mountain.

And that’s what we are. And if you’re at 1.25, 1.5 million, if you’re under 3 million, you still gotta be climbing this mountain where you’re at is it’s so windy and stormy 1.58, Jack, right? You’re we have a couple of kids they’re going to blow that stuff easily. The reason why we say four or 5 million net worth is you can get.

A couple of kids do that, and it’s kinda hard for them to screw up. You can take 5 million divided, right? 3 million at 10% is, two few hundred thousand dollars passive cash flow a year. It’s hard to screw that up, but kids are amazing, right? They can probably screw up really hard.

Now you’re seeing that 1.25, 3, 4 million is not enough. So we’re trying to climb this mountain s o if we can, and if you’ve ever done like Patagonia type of stuff, I’ve never had them like the code. But the way I watched the videos on YouTube is they tie off, right? They go up, they tie off because what if the rock breaks or the market collapses, or there’s a reset, like a pandemic they fall, but they don’t die.

They just fall that 10 feet from. And in a way, that’s what the cashflow deals 1.25 that’s what’s coverage ratio is, and then they aggressively climb. So you could think of that as they’re still going into more asymmetric types of deals. And for you, that might mean stabilizing assets with a little bit of value add. For me, it might mean putting into venture capital, right? Like I think that’s where personally we might be different or, people range.

Everybody has their own risk tolerance. And I think, but the reason I like your opinion or respect your opinion is because we’re at least more risk friendly, risk loving in that we’re in real estate at all. I go to these conferences for family office and Private equity stuff and commercial real estate is still an alternative investment. They’re so focused on just stocks and bonds and fixed income and different types of financial products that are their bread and butter. All they just talked about is equities, and O owning commercial real estate, or reads like, oh that’s an alternative asset class.

And that’s something that we have embraced and uncomfortable with that risk. The lack of liquidity, all this stuff, property tax. I think that makes sense we were aligned on, but I agree with what they do. I think, I see, I want to know your thoughts on this. The reason why they think that is like with real estate, it’s predicated on the operator and the people, and that’s where you can go wrong with this.

If you work with dishonest people who are in competent people, then yeah, it’s going to go bad. And that’s what they describe as counterparty risks. Things go wrong in big companies, but it kinda works its way out internally. You don’t really have that too much. Whereas real estate, these alternate, they see as alternative in that investments.

It is a risk in their eyes. It’s based on people, but if you can mitigate that by building community, around you with people, who’ve worked with people in the past. I think that’s an appropriate way of mitigating the risks, but, I get it from their point of view. It’s and part of me too, you think about the number and everybody has their number.

It’s like what I take that money. If you told me the choice of selling the next, whatever, a couple of years of my life and said, I’ll just hand it to you in cash do I just put it into, the VT max VTI and just let it ride on just straight dividend. I don’t think so, because to me that’s not fun.

Like real estate is fun buying it and working the property and working with the tenants. So that’s where one thing that you might, or the listeners might want to, if they don’t really like real estate is like a huge part of the portfolio, 50%, a hundred. Some of the people in our family office mastermind group, which people can check out at simplepassivecashflow.com/journey

I don’t really pay attention to it cause I’m big on a real estate. Maybe I’m not super old. I don’t want to interact with anybody. I’ll do it, but they call it the quadfecta strategy. If you go on YouTube, you can find a strategy. It’s a way of hedging yourself, but that might be. To be in there and people might want to try it yourself.

Might want to try if you do like your paper assets, I just don’t like them. Cause I think it’s, it’s kinda all, some people don’t like coffee source from conflict areas, they just don’t want to drink that stuff. Just like I don’t like paper assets, but that might be something to think about.

But. And I think everybody needs to as you’re ascending to four or $5 million net worth, you need to change your asset allocation mix appropriately. I think where you’re at, you asked for some advice, so I would still be pushing pretty hard, 80- 20. It would be in value. Add you got to get going.

You’re not going to get anywhere with nine, 10%. And when something inevitably messes up, a very small portion of the time, right? And you go down to six, 7% that year inflation just kicked your butt. This is a game of inches. You got to get that 14, 15, 16% to beat inflation.

So high now, somebody else told me the other day that they’re ditching their triplenets because a lot of their tenants are a lot more sophisticated, bigger guys, and they’re more they can get, they can bully them because they know interests inflation is going up and they just dropped the lease and said, screw you, what are you going to Sue us?

You can Sue Walgreens. So that’s why, like he said, like the industry in general is not getting as strong for the triple net crowd. And I took that as well right now. This is a bull freaking market right now. If people don’t realize it, you are blind to the fact that rents are going up six, 10% somebody markets in all markets.
I have a call with everybody, like three times a day. They’re like, yeah, I’m from XYZ. My rockets are going crazy. I’m like yeah, buddy is going crazy. That’s the market. But like the triple nets is a defense strategy that. Can’t hurt you in this type of environment where your upside is limited in inflation because you can’t market your rents as fast.

So your asset value is decreasing until you can market and either renew the tenant or sign a new tenant at market rates. Yeah. And you locked yourself in along it’s the lock-in three years, at least, three to seven years, at least. Yeah. So you can right now that your tenants feel like they’re getting a freaking steal now, right?

Like for three years, they’d lock in. Their property taxes are going to go up, their insurance premiums are going up, so how good of a deal they feel that’s part of it, but yeah, for sure, the base rent is the biggest component and they do. They, but hopefully they carry that mentality into the lease renewal.

When I want to mark it, it increases by 50% increase. That’s not how they think, man. They are just going off of what they were, the price they paid back in 2022. That’s true. Yeah. I dunno. Hey, Lane, I appreciate it. I probably have to hop off soon, but yeah any last thoughts?

I think you got to, this is a wave, right. You Might have to get out of your comfort zone, but not saying you gotta go 80, 20, maybe just go like 25% of your portfolio just as it comes available, put it into more, maybe not the stabilized value, add stuff, but maybe go on the other end, which is development. We’re doing a webinar for club members.

You only, you guys get it. If you join the clubs simplepassivecashflow.com/club, but we’re seeing a pivot. We bought a property for 87 in Houston. Now the damn thing is worth 1 21 w two quarters later. It doesn’t make any sense. So in this with the tide rising, it makes more sense to develop.

Yeah and that really protects you against downside scenarios too, because new products on the market will always get the best rents. Even if the rents have cratered, people want to live in the new building. So you’ll have demand as long as you can build it. As long as you can see it to completion and create construction contracts, plans, and specs, mitigate change orders, and be a competent project manager. Yeah. That’s the case, right? Like I think of it as a helicopter, whereas like these stabilized value add deals are Jeeps going through the jungle. At any point hit an obstacle or the similar as owning a single family home.

Like any little things can go wrong and get a flat tire. But you got more of a cushion, you got more of a cushion if you’re not relying on that cash flow. Yeah. Just like the guys getting started was his house paid off? I’m always like, just do baby steps man just get up, HELOC, you might know you could get $500,000 HELOC on your whole house. Just take a hundred grand of that, in the next quarter. And I think you’re more conscious of this. But yeah, just baby steps, right? I think that’s the thing. And then when you get the four or 5 million, then I think you can play this game that they’re playing.

But maybe part of that is just surrounding yourself with more high net worth people in the three to 5 million range too. Cool. Hey, I appreciate it. I appreciate the time I got to hop off, but yeah.