About me & How I got started with out of state rentals
Sankey diagram of what I did each year
Golden rule of investor for high paid professionals
Three tips for dealing with the day job
Where do you invest?
Should I be a LP or GP?
Investing 201 – where should I fall on the passive investor spectrum
Ten Tips for being a LP
What I am investing in and what will happen.
Website link: SimplePassiveCashflow.com/syndication
Unknown Speaker 0:00
This next hour if you guys are kind of looking for a big overview, I’m going to talk about who I am. And my transition from going from single families to multifamily investing, kind of compiled 10 random tips that I do as a limit partner to vet deals, and also looked into the crystal ball,
Unknown Speaker 0:18
tell you what I’m going to be doing in 2019 and 2020. This is a story father to me, lane, met him one day he went try to rent them out. And then he became one
Unknown Speaker 0:29
real investor me a
Unknown Speaker 0:33
little bit background myself. I grew up in Hawaii. Beautiful place, I don’t really get up to the beach very much. Most times. I’m sitting right here in my office, working on a deal or something. But here’s why I like Hawaii. I mean, this this kind of picture in the middle kind of encapsulates Hawaii. It’s very community base. You know, everybody, everybody knows you. I like it. I lived in Seattle for the past 14 years up until last year. That’s why I like Hawaii. Everybody drives scroll as if you’re rich, you drive a Camry. It’s a community of, of people. And you know what I didn’t like about living in Seattle was it just always seemed like a big rat race. And as I got more and more cash flow, tried to find things that made me more happier and more content. So been here since about 18 months now. I grew up here. My professional resume. I have a bachelor’s in science and industrial engineering and civil engineering Master’s in construction management also from University of Washington. I’m a professionally licensed engineer. My first job out of college I graduate in 2007. If you guys had been the math at home, I’m about 33 years old, supervised 100% traveling union capital maintenance crew for Mr. Buffett’s railroad. supervisor over $50 million at work their 2013 2015 I change roles in that company and it became more for project engineer, were designed for men constructed over 180 $5 million of construction there. And that’s me. I’m like the picture there among the left. Those are some of my guys. Great times. I don’t miss that work at all. You know, it’s 24 seven, non stop 2015 17 I became a city engineer, learn more about sidewalks, streets, signal straight into broken projects, $2 million worth of total projects there. And this is where I started to go from private to the nonprofit sector. And I start to get a little bit more my life back and today I am I I used to be an airfield engineer, and did this project at Honolulu airport was a taxiway alpha project. And that’s just me at work. I have a little YouTube video on my YouTube site is screwing around. A little bit more personal stuff about myself. If you guys want to read my full quirky bio with simple passive cash flow.com slash about me. I’m a self proclaimed cheapo. These are all kinds of the stuff that I would do ridiculous stuff when I was like in my 20s from 2007 to actually kind of got more conscious of this stuff and I try to stop doing doing these kinds of things, but these are the kinds of things I would do to save money for downpayment, some properties. One tip I have for you guys that picture on the bottom right from mod pizzettes. If you ever been the mod pizza, you know they have pizzas there but you may or may not know they have salads there and you can just load it up for like 12 bucks and get like a salad the last few four days. Here’s my real estate resume today 15 apartment buildings to manufactured homes or mobile home parks and assisted living facility. 2100 total units $255 million of real estate 10 US markets But I’ll kind of go over, you know, my ascent into those 2100 units. Because I think people don’t realize how long and slow this is to get started. You know, I began in 2007 working. It took me a couple years to save up my first down payment for my first a class friends in Seattle, Washington. If you’re familiar with Seattle, it’s I bought it at Maple Leaf, which is a very great suburb of Northern Seattle. I bought it for 350. It rented for 2200 a month. And like I said, You know, I was working construction. So what I would do is I would leave home on like Sunday morning, get to work Sunday evening for work Monday, Tuesday, Wednesday, Thursday, Friday. If I was lucky, I would be able to get home on Friday, but most times they’d be on Saturday. I was like living in this home bachelor about myself and I just realized like he didn’t make any sense. So I just started to rent it out. Cut An old property management company. And that’s how I became an accidental landlord. And to me, I was making 2200 a month with the rents the mortgage was like 1600. So, to me, it just seemed like I was making like 600 bucks a month of extra beer money.
Unknown Speaker 5:18
So that was when, like, the wheels start to really turn with me. And I started to realize that was my ticket out of the big rat race, bought a couple more units in Seattle. And then 2012 happens, you guys probably can put yourselves in that mind frame, especially if you’re in a primary market. You know, a lot of the properties didn’t cash flow anymore. And I realized the difference between primary secondary and tertiary markets, that I just wasn’t going to be able to buy anything in cash flow. And this is when I started to, you know, it’s a pivot point. And, you know, I think pivot points very important in investing careers and life or you kind of realize something may or may not be working for you may have worked in the past, and you pivot to towards something else. So I try to have one of those turnkey properties in Birmingham. And it worked. So what does anybody do, but like just sell all their Seattle stuff. And that’s what I did. I turned 31 exchange into 11 single family properties in Birmingham, Atlanta, Indianapolis. And I bought this little other one in Newcastle, Pennsylvania, and was a little random, and then I started to dabble into international farmland and investing. You guys can ask me later about that about the coffee, coffee parcels. But at that point, I didn’t really know what I was going to do after that, you know, I had this thought in my mind that I was going to get 10 single family homes to get funded out. You know, I started investing a lot of money in my own education, different masterminds, traveling to different conferences, spending money on networking, because I started to realize that going to the local Ria was just it wasn’t the crowd that I wasn’t Looking for it was just spensive flippers and wholesalers. And I’m sure you guys realize, but it seems to me that the Ria is filled with, you know, broke people. You know, it wasn’t filled with the people I was trying to look for which were the doctors, lawyers, engineers, you know, kind of like myself to kind of copy and fall, what they were up to. I realized that I need to come to events like this, you know, where you get around like minded people. That way you can kind of like see what other people are doing and build relationships. More importantly, this diagram here kind of shows what I went through the last from 2007 to now. This is called a Sankey diagram. Engineers are kind of known for flow flow charts and stuff like that. Well, here’s a new one for your Sankey diagram. So what it is is on the left side, you what you’re showing is how much money I was making it my job and I believe my starting salary way back in 2007 was like 16 grande and which is a lot back then. And especially through 2008 910 when there was a recession, and I was just lucky to have a job. But you know, on the right side, you kind of go and you show you these are expenses and at the bottom of the page on the savings there that was pretty much what I was saving. And remember, I was the housing few thousand dollars a month after a while I started to live nowhere. You know, that was kind of my my cheapo tendencies. I would just stay in company lodging and hotels all the time. As I became a landlord, here’s what I would suggest, you know, go on Google Sankey diagram. Try and make one of these things on your own and it helps communicate to your family kind of what’s happening here. being put multiple income, you can put multiple different passive streams of income on here and you can show us How you expenses are coming
Unknown Speaker 9:04
so that’s me your one this is how I started
Unknown Speaker 9:09
you know I bought that first rental here in an extra $300 a cash flow and then just bumped my savings up year to bought another rental
Unknown Speaker 9:20
Unknown Speaker 9:23
and at this point in year two just a couple months this is where I started to read actually read rich dad poor dad about a couple years into this process and you know, then I started to listen to all the podcasts back then 2009 10 and I just realized I was just another hamster but uh, you know, bigger ham, stir in the wheel. Because you know yet I was making a pretty good salary back then. It just, it just didn’t seem like it was enough. I think a lot of high paid professionals kind of feel like this even though you may be making 200 $300,000 You have to keep working, if not at all stops. So you’re three you buy another rental, your savings goes up. For same thing, after a while, you know, it starts to kind of snowball on you because you need those rental properties add up and you can possibly buy one a year or even more than that. So at this point five years into the game, I kind of learned this, this monster I kind of stepped out of that construction management newbie role, which I feel like it’s a very important stage for a lot of people working, you know, for 510 years, you got to just pay your dues, and do those those jobs. But essentially, I kind of grew up to what I where I’m at today. And here’s my big mantra that I talked to a lot high paid professionals and goes something like this. So if you’re able to save more than $30,000 a year have substantial liquid liquidity. And when I mean save, I mean that’s minus expenses, and includes your passive investments. There are most people, they live in a paycheck to paycheck, even though they they’re well made like hundred $50,000. It’s kind of amazing. I talked to some people, they made like 250. And they’re only able to save like five grand a year. And I’m like, What the heck, man, right? Like, where’s this money going? And then they’re like, Oh, we got kids. I’m like, Man, what did these kids eat? It’s a little ridiculous. In my opinion. That’s what I always ask this, like, at the end of the day, I don’t care how much you make. It’s how much you save is big indicator here. If you have to say more than $30,000 a year substantial liquidity currently, which is over $200,000 in the bank, or in a lot. Being a landlord and especially flipping, it’s just not scalable, that that stuff is merely a form of capital creation. In my opinion. Many of us doctors, lawyers, engineers, accountants are better off at our day jobs with our salaries. And I’m sorry to say that to folks, I think a lot of people that have those jobs, think that they’re going to go quit it one day and become a real estate investor. And I’m here to say that unfortunately, your highest and best use may be right back at your day job that you may or may not like, there were able to generate capital into put into passive investing with tax benefits that come along with it that are sort of the the hidden intangibles and something I’m kind of learning more and more about. As I move along. If you’re already saving at that level, you will likely to be financially free in four to seven years. So beginning with the end in mind, and I would say take the more passive approach. And then if you’re doing single family homes, do the math with $300 per property at cash flow, you’re going to need like 20 or 40 of these things to replace your income. I had 10 of these things or 11 of these things, and I thought I had good systems in place. But with 10 or 11, I had one or two evictions. A year, and three or four big things that happen. So if you imagine if you had 30, just three x those numbers and you guys can read that full article there simple passive cash flow calm backslash syndication for full article. But as we move along, you know that’s with that in mindset that was where I kind of took a turn a pivot in my journey, you know, start to pick up syndication deals. And as you can see, it’s a little bit more scalable.
Unknown Speaker 13:27
And 2016 was that big pivot point for me, when I started to look into multifamily. I stopped buying single family homes. And this is a chart that I made. And I think we’ve heard like the crossover point and kind of made this crossover point to point all where I overlay the green line, which is, you know, this is your job like, as you kind of take on more and more roles in your organization. You’re constantly increasing expectations at work, keep going up and up and up. But 568 years into the investing game I think what you’ll find what happened to me is my motivation network decrease greatly. And part of this was I at my job, my first workplace, I had a lot of bad experiences with my supervision. I mean, my first five years were fine. But then everybody comes to a point in time where they they just run into, you know, difficult personalities. And at that time in 2014, I believe I was probably making more money than my boss, my boss’s boss. At the end of the day, I always get these pop ups on my LinkedIn profile, like, you know, we found jobs, you might be interested. I’m not looking for another job these days. So surviving the W two, we’re all and I’ve got five tips for you, folks. Number one, don’t take promotions unless you have to, you know, like for example, you know, there’s a there’s a promotion available, and somebody who’s going to Get it you don’t want to work for maybe you should just take it just you know have to work for a difficult person or in capable person. But, you know, again, these are just some of my personal tips. Number two, swallow your pride. And this is something that I kind of learned, like I said, you know, working for two people who were thinking about their family more than their their people. I like working for people with good character and integrity as opposed to just burning bridges to get to their next promotion or to get their bonus. Number three, avoid energy drainers. So this includes people you work for people you work with, your time and energy should be spent on investing and finding more deals in the future. get the work done, go home. Number four, is the big question. Do you talk about investing or not talk about and thing to other people. I am was more of a private person, I didn’t even talk much about what I did in my first job. And partially because, you know, people found that I was buying rental properties. And they probably would have used it against me in any kind of performance review. Some of you may or may or may not be in those kinds of situations, but that’s what I was in. That was a big thing for me to kind of keep it to myself at that first job. Once I started to change job I used to kind of, you know, you talk a little bit what you do. And you kind of see that a lot of people do you have rental properties and you know, be open to possibly investing with you or maybe you can team up. So my story there, you know, one time at work, I actually dropped my investor card and now my my current partner that we’ve picked up, you know, he was kind of a really the guy who pushed me into the multifamily stuff, because he was going to these boot camps. Flying flying to these places, he picked up the car and he texts me say, Hey, didn’t know you’re a real estate investor, we should talk about this. So you never know who you’re going to meet. You never know who’s in the next cubicle. But you know, the good comes at the bad You never know if the person is going to be very scarcity minded and you know, sometimes you have that crabs in the bucket behavior work where the other workers are just thinking what we’re all here making the same salary. Nobody’s going to be getting ahead. You know, we’re all here to spend the eight hours and we should be working, which, you know, I believe you may need to you need to do the job up but, you know, if you’re a professional, you get the job done. satisfactory and then you know, that’s that’s what you’re paid for. No more, no less.
Unknown Speaker 18:00
So as I move along here, you know, you’re a it’s kind of brings us up to kind of serve president day 2018 and beyond in 2017. Like I said, I moved back to Hawaii. I invested another $30,000 into my education. So I’ve kind of almost spent over 100 grand just on like conferences, masterminds and traveling and checking up properties going on trips. I partnered with my investors in the Guido pipeline club, and you guys can join that. There below simple passive cash flow calm backslash club. The year on the bottom is fudged, I’m terrible speller. I need to improve on that. But hey, I’m an engineer. And that’s not what we do very well. We’re good at numbers. we’ve acquired over $255 million in real estate and raise over $13 million within my group. It’s a picture of us center last mastermind in Sonoma. There is my buddy Patrick. He’s the guy I actually picked up my best friend. card at the door luckily was him and not the boss together that the synergy there we kind of traveled to a lot of these conferences and masterminds together and we call MFP investments. And we picked up 2100 total units these last few years, my financial brain was kind of like it was all on this financial independence. And I think at the age of 27, I saw the light at the end of the tunnel. And I was able to kind of predict in the future that’s very near future. I was gonna be financial free and I could just go to the beach and just hang out and drink pina coladas all day long. But then I started to realize what kind of a lame existence that was. So I started to make this podcasts in 2016 mostly as a way to communicate what I was doing my friends because a lot of them were like, oh, you’re buying these properties and Birmingham, you can go and look at them and you know, answer the same questions over and over again. And you know, it’s, it’s real estate. So most people will never ever do anything because there’s money involved and it’s getting out of your comfort yada yada. So I made this podcast put on iTunes, Google Play, and you guys can check that out and started the YouTube channel even did a charity where we raised money for cancer and then at that point, this whole thing started to blow up on me. Which was unexpected. I got all this like, Cool emails and it just never happened to me before. where people would send me this stuff. You guys can check out simple passive capital.com backslash testimonials, I mean, some of this stuff is kind of neat, like, can’t make this stuff up. And at that same time 2016 I went to a Tony Robbins, up w unleash the power within seminar. And I’m actually going to that again coming march in Los Angeles and if you guys want to come along symbolize Cash flow.com backslash mastermind, Tony is the URL and you can you guys can join us we’ve already got about 2030 people coming with us. But at that, at that seminar, it’s a four day seminar, he kind of goes over the six human needs. And one of those is contribution back to others. And that’s kind of on the higher end of, if you think of mazz Maslow’s hierarchy of needs. You know, once you’ve got the cash flow, you’ve got pretty much all the necessities, you’re living in Hawaii, life’s Good, good people around you, you want to find a way to give back to others. And for me doing the podcasts, just helping people get started was kind of my way of contributing back to the world. And as things were growing, you know, I kept on seeing this, this financial struggles that a lot of people have in Hawaii and in Seattle, where I was, you know, people, they spent all this time and energy to get this house. This big yard, which happens to be the only place they can afford is like two hours away from where they work. So they’re driving around commuting all day long. Everyone’s all stressed out and everyone’s unhappy and why a lot of it stems from money management issues. So kind of my big Why is you know, to help people, whether it’s getting an estate turnkey rental or step into the big syndication game, is to get them financially free ultimately. You know, and I and I found out the problem to this was some people just would not take the first step on their own my first half of my presentation.
Unknown Speaker 22:36
So I do have two questions that have come in. Do you invest in secondary or tertiary markets,
Unknown Speaker 22:41
secondary and tertiary? I think these days tertiary markets are really where you’re finding the deals that just because even the secondary markets aren’t really working these days. But I’ll kind of go into that a little bit more in detail. I’ve got some cool charts and Sure, sure, buff drawings that I think the engineers like. I like it
Unknown Speaker 23:01
in here is is why haven’t you quit your job and moved into real estate full time?
Unknown Speaker 23:06
Because, well, I’m 33 years old. I don’t have kids yet. And I know you got kids write down like things. I’m 35 you’re only two years away. Yeah, yeah. And I hear from everybody. And that’s kind of one of my big things. I’ve gotten a lot of mentors that are kind of in the next stage of life 40s 50s 60s. And it’s giving me a lot of good insight. People tell me to kind of run with the ball as hard as I can now. But at some point, I believe that that recession is next 123 years away, and I want to be holding on to a good government job. And at some point, you know, that this, this investing thing is a little bit. The stuff that I do as the more active I’m in general partnerships, but as a passive investor, you really should really shouldn’t be that hard. I mean, if you’re spending more than a couple hours every day As a passive investor, you’re doing it wrong. So it’s not that’s not that passive
Unknown Speaker 24:05
anymore at that point.
Unknown Speaker 24:06
Right, right. And like for me, like, I actually like my job now, there’s always three components I look at as a job, like, you know, do you like who you work for? Do you like who you work with? And do you like what you’re doing? I’ve never had the thing where I actually like what I do, like, like what I, you know, I’m actually doing as an engineer. But right now I like who I work with and like, who I work for. So two of the three is fine, and it’s, it works for me. I like structure and the day I’ve stayed home and few days to do investing stuff, when things get busy, and I find that I get just as much done when I’m kind of at work. It’s amazing what you can get get on your phone and if you implement systems. I like structure if I stayed at home all day long and eat junk food. And it’s kind of neat to go to work to it has that feeling of like you stole something right? You’re there, you’re picking up two paychecks. I mean, and plus, I don’t know, maybe I’m just like, I just don’t want to make my parents upset or something like that they spent all this money at this college and I don’t know, maybe I just need identity in life.
Unknown Speaker 25:14
I have another question that came in here. Um, if you are dependent on the cash flow from apartments, when do you sell income assets and still preserve your cash flow, although you may get a good chunk of sale.
Unknown Speaker 25:27
I will say that my turnkeys is a good example of that right as as I bought my turnkey rentals, they appreciate it a little bit. And you know, because I love these places, I bought them born in secondary markets back in 2000. And I bought the Seattle properties in 2009 10. But then I bought these other ones and 1314. So at some point in the beginning, you’re making a lot of money, your return on equity, and if you want to take a look at the dive into the numbers, I think that Simple passive cash flow, calm, backslash, ROI or returns, but initially you’re making like 30% as you know, in mortgage, pay down appreciation, tax benefits, all that stuff and appreciation. But as you get more and more equity, which is a good thing you return to equity goes down. So this is kind of speaking to a lot of people who have a lot of equity in their primary residences or rentals. At some point, a sophisticated investor will be leveraged to get that return equity back up, and then eventually natural you’ll get more appreciation it’ll be more this this downward trend and then you re leverage that’s what you’re supposed to do and manage the see curves and at the end of the day for engineering speak, it’s all area under the curve that’s that’s you making money. So what I’m doing is I’m selling off that my turnkey rentals and putting in larger multifamily or other syndications.
Unknown Speaker 26:58
So the next question is It says here is am I right that you are a so called equity partner only raising the money not finding deals not managing property management company.
Unknown Speaker 27:09
That is correct. That is hard work.
Unknown Speaker 27:13
But I did that I did that not all the boots on the ground, the ramrod and contractors, the flying to these places that take a broker out to lunch. I did that for 18 months, I you know, did all that I really didn’t get anywhere because living in Seattle, I just don’t think you can live in Seattle, like, you know, not be in the state where these places are and be able to be successful in in actually, you know, getting properties. It’s very difficult. I mean, it’s possible, but it’s a very slim chance of happening. And I think that’s where you need to partner with somebody who’s boots on the ground doing the stuff. You always got to figure out what your highest and best uses.
Unknown Speaker 27:59
What Do you invest in value add or stabilize properties?
Unknown Speaker 28:03
think everybody throws around the term value add all over the place I invest in stabilized properties with about two to $8,000 a rehab per unit. So you guys tell me what that is? I don’t I don’t like that term value add because you know, I’ve, I’ve watched like dozens and dozens and dozens of these presentations and when I hear that I’m already skeptic already. But tell me what the rehab budget is per unit and that’s what I go off of.
Unknown Speaker 28:31
That’s a good point. That’s a good point. Where are you buying the multifamily properties? And are you flying out to look at each one of these deals?
Unknown Speaker 28:39
Most of them is in the south southeast, right because that’s where like the market drivers for employment and growth are down there. I’m not saying that you can’t find the value add do in the primary market but I think you’re just competing with too many on sophisticated with money in a primary market and am I going to fly to these places will eventually I am but I think That’s why you, you’ve kind of focus on the people portion first. And what’s nice about when I started with this, you know, when I was sitting in conferences, I would meet up with peers at that time. And you start to trust people as you start to climb the ladder of success together. And that point you start to trust people and then you’re also doing the thing alongside with them. So you can talk in terms of data points and like know, maybe you both visited a property in Dallas in 2015. And then a deal comes up in 2017. And you know, you’re able to say well, I remember that was time we went to Dallas and we you know, wait at this place Oh, and the next part of England visits kind of like that, that that kind of feel and of course you got to go back check them at the end right. Once you once you’ve got the property or at some point in the due diligence, you will fly there yourself. The limit partner tips here so so for those of you who just woke up and what is a syndication well in my I like to use the 10 plane analogy where the cockpit has the general partners. And the cockpit of the general partners could be one person could be two people could be I’ve seen as much as like eight or 10 people, lot of deadweight in that eight to 10 people cockpit but essentially, you know, there’s somebody who finds a deal somebody who brings all the investors along somebody who does have boots on the ground, some somebody who signs on the loan with their balance sheet or their user net worth and liquidity to help qualify for the loan. So it’s a lot of different roles here. me as a equity razor I’ve been Luckily, I’ve been lucky to sit on that jump seat you can kind of see in a picture there and if you can see my mouse but there it is, but it’s been a really cool place for me to sit and get a behind the curtain view of what’s happening. Initially, I would just sit there and you know, help out with the admin stuff. And the rest Investor Relations stuff but now being in like These deals it’s been really cool to kind of see what actually happens through those windshields and what actually gets communicated back in coach where all the limited partners are sitting. So that’s essentially the the makeup of a syndication. And I think a lot of people are always having to ask this question, do I be a GP or an LP? Here’s my personal two part tests and you need to ask yourself number one, are you good at being a lounder I which includes managing tenants, contractors, deal analysis, deal hunting, deal brokering. And this is where I was, I was talking earlier about, you know, I just didn’t like to take brokers out to lunch and call them up on the phone. I mean, for me, that was a real pain in the butt to do that but I think that’s what you have to do to be top of mind with the brokers you got to take them out to Dallas Mavericks game. And for me sitting in Seattle, that just was impossible. I wasn’t possible. You can run Was I guess, but it was just unlikely for me to do that all the way out there, nor did I even like it. And that’s the important thing here. That brings up number two, do you enjoy doing any of this? Um, I, you know, like I said, I’m a project manager for construction projects and you know, being a landlord has like managing contractors and I’m really good at it. I know all the the way that these contractors play the game, you know, that’s why there’s con and because they’re all con men. So you have to police these people and I do it for a living, but I don’t like doing it. Again, I don’t know why even working anymore. But you know, I don’t like doing that. You always have to ask yourself, What is your goal? What are you trying to do here? What kind of life are you trying to make? I think if your goal is to be like, you know, I’m trying to pick up 1000 units or this month of cash flow. I think that’s a horrible goal. You need to look beyond that trend, do a more of a lifestyle, design goal. If you said both to yes yes to these questions, well then congratulations you get to be a classy and be multifamily investor and deal with all this stuff. This is that big guidance I gave earlier in the talk to professional w two employees. And this is the expert of this of that quote and it says if you’re already saving at that, you know $30,000 or higher level, you’re likely to be financially free and four to seven years. So I emphasize begin with the end in mind and take more of a passive approach and I emphasize again, begin with the end in mind.
Unknown Speaker 33:41
Check out that article, simple passive cash flow, calm backslash syndication. And you know, we just did in my group goals seminar that you guys can listen to and kind of follow along and brainstorm your own goals there at simple passive capital. com 2019 dash launch But here’s the evolution of what I did and what I can teach my folks, you know, simple passive cash flow zero point O is get out there, go work your butt off for a few years to save money to go get some single family homes or some multifamily and then simple passive cash flow 2.0 we’re kind of where I’m at these days is transitioning to more of a passive investor in syndications. But I’m not here yet but simple passive cash flow three point O is finding your passion, creating your lifestyle the way you want. And I don’t know if you like golf, but I think golf is not really that great of retirement. If you think yeah, if you think what you’re going to do once you hit your your cashflow number, is go golf and do whatever like that. I think you need to find something that contributes back to people in something bigger than yourself. But hey, who am I To say something interesting that no of all my investors, it’s, there’s a big age gap between like the age of 30 and 42. You know, when kids come to the picture, there’s like a dozen years where like nothing gets done. So my investors are either younger than 30 or older than 42. And it’s it’s very rare that that are between that age. And that’s kind of where I am personally like I’m before the kids come in the picture. So I’m trying to take this thing as hard and as as high as I can get it now, because I know for the next decade, I probably will do nothing. And that’s it, but hopefully I’ve kind of set it up or doing nothing is exact thing I need to be doing. And then for those of you who have kids, don’t be discouraged. But somewhere between the ages of 10 to 15 your kids will likely not like you anymore, and you’re going to need some hobbies. So that’s where this real estate investing comes in. It’s pretty awesome. It’s kind of like hunting, in a way. You’re looking for treasure with these deals, honestly, you guys flow charts. And here’s the flow charts. This is what the way I advise high level what people should do. And if you look at the in the middle, don’t don’t pay much attention to the stuff on the outside. But the middle is the first is the first questions like how much time to devote to real estate investing. And this determines if your energy levels if you’ve got a job. And then the next thing is like, you know, what’s your annual household salary? if you’re if you’re making more than like 120 grand a year, you probably should be more of a passive investor. But if you don’t have anything else to do, or you’re barely making 50 grand a year, then yeah, you should probably be an investor. And this is where, you know, most of the people that work to me are high paid professionals. And it’s always funny because like, you know, you Read all these blogs about people leaving their job and quitting their job replacing their income. And for me, I don’t know how that’s possible, right? Like, where am I going to go and collect, like, you know, hundred thousand dollar paycheck? And, you know, barely do anything because I’m pretty good at it and I’ve created systems to do my work for me to answer earlier question, I think my job is sort of passive. I mean, that’s why I guess that’s why you go get a degree and you spend all that time but it’s a very poor return on investment. At the end of the day, there’s active side of this as a passive side of this, you need to figure out which side of the spectrum you’re on. And you need to ask the questions, you know, accuracy was more the general partner side, what is your highest and best use and these are some of the questions you need to ask yourself as a passive investor and if you if you got money, you’re probably better off there. If you have management skills more. Your doubled to hourly rate is greater than 80 bucks an hour of One are your network consists of high net worth folks that you can collaborate with and, you know, go into deals together. And, you know, also have other people to kind of be your spies out there, which deals are good. I, I’m a fan of Gary Vaynerchuk. And he is one of his tenants that he talks about a lot are self awareness. And when you know this, everything sort of changes. I talked to a lot of people on the phone I give away like free investor calls, strategy calls.
Unknown Speaker 38:31
probably done over 1000 of these over the past couple years. And it’s always funny to talk to somebody who is kind of that that cat kitten, their cute little kitten there and he thinks that they’re big lion. And Amida as the Science Guy, I always sort of like check up on these kind of kittens, and they never go anywhere. They just bomb out because they’re not self aware. They Never really end up to where they want to go because they don’t have the necessary needs. They’re not fitting themself into the right place. And you know, the four big things you need to think about the four biggest resources out there and they fall in these categories time, money, knowledge and network. need to figure out what you’re good at and what you’re bad at. You’re not if you’re good at all, we need to check yourself, son because you’re probably not good at any Why don’t I quit my job? or Why did I go to be more of a passive investor? Why don’t I you know, dig for deals and fly out to these places that go look at properties to go purchase. Why am I more in the passive rod and I started to do do all that for about 18 months, I analyze like 100 200 properties. I got really good at analyzing deals, but my head really hurt because I kept banging my head against the wall in 2016 17 analyzing these horrible deals. That didn’t even make any sense. And then we go into best and final with some of the our peers and we just get bombed out at that table and I don’t know how those deals are are doing these days but this is my real spreadsheet that I would keep to myself and this is might be my little tracker. So I’ve got the year here the My ultimate goal was and you know this this always changes right? A $10,000 passive income a month was sort of my goal and still as I mean that’s that’s a good amount. And then you know, this is back in like 2016 is when I did this last one, I don’t really keep track of this anymore. My goal so basically what I did here was I kind of tracked my age and how many units I had and passive cash flow and then kind of projected when I would be at my goal, and I realized that I had enough net worth and my in my 11 single family homes and picking up a few syndications was putting me definitely on the flight path. To be where my goals were. So at that, at that point, I was like, I had my realization of like, I don’t need to be busting my butt and doing all this stuff, I can just be a passive. And I’ll get to my goals where I want to be. And luckily, I started early. And I think that’s why I was able to project to be in a really good place on this chart, like it in my 40s. And then you ask yourself the question, you know that is that, is that work for me? Or do I need to accelerate it even more? And when you accelerate things you take on more risk, right, which a lot of people don’t realize, and I was comfortable with getting to my goal. You know, at this point in my life, I mean, life is, life is about sort of enjoying the journey. Again, as I said before, if your goal is to own 1000 units or whatever, that’s a bad goal, because picking a number out of the sky, you just figure out what kind of a lifestyle you You want to have and define the rules of the game. And that’s that’s a key thing. If you don’t have the rules of the game defined, you’ll never win the game. It’ll just be continual. Just pick up units, pick up properties, rinse, wash, repeat, do it over and over again and you’ll never be happy. I use this analogy of the the train station or the buses or trains. You know, nobody ever really stays to the end of the line of the train or bus. Only people who do are kind of the weirdos who are kind of drifting around in life, don’t be that person. Here’s just kind of the meat and potatoes of my presentation here. I want to make sure you guys get a lot of value. 10 tips to be a limited partner will kind of roll these three these one by one.
Unknown Speaker 42:52
Not going to really go into like analysis of properties. I do think every limit partner needs to understand this Full analyzer, I think this is like a dozen lines. If you guys want this, you guys can email me it’s in my shirt drive want to get access to that, at least understand how these numbers work, you know and ally cap rates. It’s a it’s a good starting point, of course you want to graduate towards that for analyzer. So you can analyze each and every input. But the, this is a star, right? So the first thing is we’re the resources to collect the rent projections and how to use in and the rent projections are the input on these larger spreadsheets that I think is probably one of the most influence on the on the outcome of the performance of the of the property on paper. One of the sources I like to use is gardi. The other one, I think it’s a plan or a way, but there’s these big data houses. I like to keep this stuff Don’t know why they’re keeping this stuff maybe like the apartment ecosystem is kind of paying for the data or something like that or keeping them. So when you look at the data, you always gotta kind of look at it in a septic point of view of like, you know, is this really true, but at least you know, relative, you can compare different markets. And each spreadsheet has this component where you’re trying to apply a rent escalator to each year. So here you are you saying, you know, on the national scale, two and a half percent, is what it should be for 2018. They’re predicting 2.9% for 2019. But two red flags should go off. Number one, it’s not a national market, you should be really looking digging into the individual markets. And how are they getting these numbers because all these numbers are all wrong right here is I wouldn’t be using these numbers in my spreadsheet I’d be using anywhere from like one to two and a half percent for most markets as a rent escalator every year. Here’s another good example of that. I think this is yardie, too. I looked, I looked up this one up last week and they’re showing Dallas is 4.3%. I’m like, Whoa, no way. But then I think partially what’s driving this number off is that they’re including the Class A stuff, and I look at mostly Class B and C. So I think that’s why it’s a little higher, but I still went, you know, for a class C multifamily in Dallas. I think you’re lucky if you’re getting 2.5% these days. I mean, there I read articles of like how Fort Worth is outperforming Dallas right now. I mean, Dallas is probably was the hottest market and there’s still a lot of drivers for people moving in. But now from 2012 to 2015. You could, you didn’t have to do very much in terms of rehabbing and to get the bumps and rents. I mean it was mostly market. Appreciate which is which is awesome, right? And that’s, I guess that’s why it’s important to pick a right market. So you get you can get lucky like that. Another thing here is like here’s the occupancy which is sort of like the rent escalator, you just want to check that they’re using the right one. And here’s how yardies sort of describing the national occupancy again, you know, you don’t want to be looking at national statistics, but I just brought this up here just to discuss it.
Unknown Speaker 46:26
You know, and know the differences between they call it lifestyle and renter by necessity, I like that net renter by necessity. So, basically Class B and C These are people who can own a house lifestyles more than the luxury Class A developments and you know, renter by necessity is usually going to be higher occupancy, then the lifestyle component. I would say that this is pretty accurate. I mean, this is occupancy But you always got to keep in mind that you’re really tracking economic occupancy at the end of the day. And if you guys don’t know what economic occupancy is, like, let’s just say apartment is 100% occupied. Whoo. Right? I mean, every broker tells you that, but then you come to find out like 20% are dead beats not paying, well, then then it would be 80% economic occupancy. So you always have to be as a limited partner. It’s a cat and mouse game too, with the syndicator. Because they’re always going to tell you, you know, one or the other, and either try manipulate the other the economic vacancy, if they give you the occupancy or vice versa. You know, they might even say, Oh, it’s, it’s, you know, we were really conservative, we’re going to do 90% occupancy, but they only put 1% at for economic vacancy, when they really should be using three or four. I think a lot of deals kind of use the same format for the p&l projection This is a performance so again you know we all know about for performance which means toilet paper and French This is what I was talking about the gross on the income you know you want to kind of calculate this on your own what are the increases every year and that’s the escalator when I’m we’re just talking about on the rents other calculate your noi and pick a cap rate so here’s kind of a refresher for those The nice thing about multifamily and commercial properties it’s based off in a why not comparable sales which can be skewed by a high one or low one. Noi is basically how the property performs in terms of number How good is it making money as a business and in here is the that famous forma love form us. We take the noi divided by the cap rate and that’s your magic number on how much the property is supposedly value. So the noi is going to kind of stay what it’s at, you know, you have control over that obviously, but the cap rate is another outside variable. It has a direct impact on the property value. So if you want to show a higher property value Yeah, just use a lower cap rate. Not going to go over this because I’m sure you guys have talked about this in length. How the noi you know, bumping and rents affects the total value how you create value overnight, whoo multifamily. But this is really important because in the analysis spreadsheet, there’s one cell called the reversion cap rate or the exit cap rate. And when you’re underwriting properties, you don’t know what that future cap rate you’re going to sell it at and and because you don’t know and it’s a shot in the dark. What you’re trying to do is you’re trying to be conservative. And a good rule of thumb, the users use 1% higher on the reversion cap rate than the prevailing cap rate for the asset class to ensure conservative underwriting. And it’s a little counterintuitive, right? Like you’re going to bump the cap rate, the reversion cap rate up to be more conservative, but trust me play around with a other formula and you’ll see how the numbers work and you’ll get it. The cap rate going up means people are paying more for less noi. And that’s kind of where we are now. People are paying less than less kaprat.
Unknown Speaker 50:35
Paying paying more for less cap more noi today.
Unknown Speaker 50:41
So if the market gets stronger, you know your 6.5 cap today matrix a four 6.25 cap in the future. Obviously, we want to assume that it’s going to go higher, to be conservative. So here’s an example. If you’re doing 6.25 today, that’s your prevailing cap rate for like Class See, I don’t want to say one, we’ll call it a no, call it Timbuktu or whatever. in Timbuktu class see a 6.25, you play the role, you want to use a 7.25. And, and if I use that plus 1% on the top line there, you’ll get like 100% return in five years after you put in all these other inputs, you put in all the rental tables and everything. But now let’s just say you want to sharpen the pencil a little bit as a syndicator. And you want to show a higher returns for paper because maybe it wasn’t 100% return in five years. Maybe your deal sucks and it’s really like 80% return in five years. Well, if you’re if you’re to show like a point seven 5% cap rate reversion plus, now you can pump it to 114% return in five years. And that’s what I’m kind of seeing in a lot of deals these days. You know, some shorts sharpen the pencil and putting the reversion cap rate at less and less than less and in this little sensitivity analysis here you see how it just skewed all the returns? I mean I’m a syndicator I do this all the time I should know you know the reversion cap rate is probably with that with like I said with the rent, no rent increases those are probably the two biggest levers you can pull it play around with the numbers and here you can there’s a sensitivity table and see how it really affects sales prices and and whatnot. Typical terms on lending today I’m seeing 4.55% Fannie Mae Freddie Mac community banks insurance companies are Anna are lending on these things. You want to look for 25 to 30 year amortization and pull up to 12 year terms in that that’s actually really important the eight to 12 year term on on these notes It’s, that’s probably much more important than the interest rate or the amateur ization for me. Because the way I see that is, you know, here’s a market cycle right here, I’m thinking we’re somewhere around this expansion phase where for the crust, and that eight year know, or 12 year notes should supposedly be long enough to span this market cycle here to get you to the other side. Obviously, like a three year note will put you right likely pretend in the trough and you’ve got to sell in the worst part of the market. So that’s what you know that term is doing. Today even seemed like interest only, like up to seven years I heard I mean, that’s crazy. And that can be very misleading because it sounds really cool, right? Well, they got seven years interest only I Oh, whoo. But then that really user IR because it’s not the property making money. It’s the fact that you just got interest only. You’re going to Pay that at some point. And just something to be aware of.
Unknown Speaker 54:07
Number five here recourse was non recourse that this is in red because this is one of the biggest thing that I look at, I like to go into non recourse debt, because you don’t have to pay it back if there’s trouble. recourse that is, is sort of the traditional financing that we all have. And our primary residences are rentals, if you if you fall behind, you always got to pay it back. That’s, that’s how the world works. But the non recourse debt if you fall into these, these four major things in a 90 stabilize, it’s a it’s a larger loan. Somebody on the general partnership team has their fenny card, and the debt service coverage ratio falls in line. I don’t know if it’s 1.25 1.2. I’m not not really paid much attention to that. But whatever it is, these days that those are the big things that qualifies for and this is a big thing that you know those You looking to pick up smaller multifamily is like in the 30 to 50 unit size. You know as you go to the smaller deals it’s a higher interest rate because the banks know that that’s a lot more riskier. They have a lot more amateurs in that sector. The limited partner you want to be looking that they’re doing a cost segregation and you know this is your K one which I like is a lot easier than me keeping up all my p&l is on my schedule ease for my single family homes. As we know properties go up in value but on paper we get a flow down and depreciation on your personal w two taxes and I did a book club on this we wrapped up the fourth session yesterday. If you guys want to check out those four webinars you can go simple passive cash flow calm backslash tax, but I was kind of talking about like in 2017 I was able to take $25,000 for for my passive losses on my personal side because don’t make too much money only made like $90,000 a night who So, I was, I didn’t get into that phase out, because I think if you get above $150,000 of income you, you’re not allowed to carry any passive losses to offset it. So I think I paid like 14 grand of total taxes or like, like, which is unheard of, right? Like, I mean, I paid less taxes than a school teacher in 2017. It’s getting crazy. On these bigger deals. What they do is they do this cost segregation, you can read the full article there. But here’s a sheet that we got back from one of our cost segregation folks, on a quote, this is on a thing is a $2 million asset. You know, here was what we would have depreciate it if you did it every year. And what this other category bonus depreciation after is what we were able to take in year one. And here is that property here, you know that equates to $130,000 of additional savings just right off the bat, and the cost segregation fee and that one was 6000 bucks, which is like a no brainer, right? You pay the six grand to get that cost savings of $130,000. But on a smaller property This doesn’t make sense, right? And this is where syndications and multifamily single family homes are the water because you can do stuff like this. There’s one of my k ones in a deal where I went into late last year last last year. We didn’t make any money but we had depreciation there, you know, a couple grand tip number seven here, you need to understand what it what the type of deal you’re working in. Here are the different asset classes Class A, B and C and F. Class A are probably your newer builds class, be outside today’s are like your 1980s 1990s builds. Classes are like 1960s 1970s you know, years How old the properties is kind of the big indicator of this. I like to stay in assets like in this area where where you can get the highest yields and try and reposition it to get it a little higher to maybe like a b minus or a B.
Unknown Speaker 58:19
Again, like I said, it’s rehab per unit is what I look at two to $8,000 will usually get that nice little bump. You know, and obviously you don’t want to over build interesting nuance like Huntsville, for example, we picked up the properties there. Huntsville has a lot of techie people engineers that follow the simple passive capital com cheapo lifestyle, so they’re not willing to pay extra money for you know, a nicer places to kind of interesting nuance. Whereas apparently Dallas people are like $30,000 millionaires out there that they that they’re willing to do that, you know, the next thing to always keep in mind is like what kind of location property and it could be a junk see class property but what location is, you know, this is not really john the scale but I like to try and find obviously better locations because you can’t really do anything about the neighborhood but you can do something about the class of the building. number tip number eight here is that hierarchy and question like going from single family homes to syndications and then we kind of talked about this earlier, but here are some additional thoughts and you know, when as a GP Do you go or when is the LP do you go to the GP or when you go from single family homes to syndications people who I don’t think you can really dive right into kind of going to the bigger stuff right away. I think you got to kind of dabble get your experience. That’s just where I, I am personally In my opinion, but the article there is simple passive cash flow.com backslash syndication, if you want to take a read of that. Nine months stakes, I see unsophisticated investors take a look at first they focus on the general partner LP split. I mean, if if a deal is like 7030, and then they’re like, Oh, this one’s a 21, go after the 20. That is like not a good way of investing folks. Like, here’s how the deal works like syndicators, they get a deal. They they fix the limited partners, profits to maybe about 80 to 100% return in five years, and they see how much the general partners can take. That’s how it’s done. So in my opinion, I’d rather be in a 5050 deal with a lot of meat on the bone that the pay the general partners that much because there’s a lot more safety there than like a 9010 split deal. Investors, they also look at the preferred rate of return, which is the, which is the wrong way of looking at because the general partners are the smartest guys in the room, and they’re cooking the numbers so that Yeah, they’re going to give you a proof on the front end, but they’re taking it on the back end, the deal gets taken or gets hits a home run that they’re taking a larger majority of that than they would have if there was no press. Of course, the cap rate gate is what I call and that was the whole discussion earlier about the cat The reversing cap rate. You should be checking your comps for occupancy and economic vacancy. Here’s a little thing that we got from co star to kind of verify rents but you need to be walking these properties being like a tenant like a mystery shopper and a way people don’t dig into the performer and investor people they don’t know like or trust and that’s where people you know, you’re asking me what my mistake that I lost 40 grand because I worked with a shyster You can read more about that.com backslash fail there. But here’s what I more I met today, you know, more holistic wealth building and when you’re investing in syndication, there’s four ways you’re you’re trying to diversify in this stuff. different operators, I only try and work with an operator, at least at most a few deals at this point, I don’t want to at some point I feel like an operator is going to choose her family over the deal. Maybe I just have I don’t trust people, but that’s just the way they think. And that’s how I operate different asset classes, different geographical markets, different business plans, similar buy and hold spot somewhere five of your pump and dumps. And I also see most investors investing no more than 5% of their net worth into any one deal. holistic wealth building continue, you know, maybe not about getting 15 to 25% a year and multifamily it’s about real leveraging that lazy equity you have maybe it’s an icky lot. Implementing the infinite banking or managing their liquidity can be more about that. It’s simple passive cash flow, calm, backslash or fun. Getting your retirement funds back in the game. That was what Damon was talking about there with his qR P and asset protection action and simplifying taxes or optimizing taxes, something I’ve been focusing on. So here’s what I’m investing in these days. Forced appreciation in case there’s a catastrophic thing in the economy and a cash flow day one not in Performa.
Unknown Speaker 1:03:17
Here’s what I think is going to happen when the economy goes bad. And here are the greenhouses and the red apartments that we’re looking at. These are the type of investor or type of tenants that live in each property. And as we know most of the population lives in the C Class D class homes. The baby boomers will move here the gen X’s will move there, the gen y’s will move here the millennials will live there there’s kind of that upward trend but as soon as the recession hits, this bell curve slips backwards and everybody falls back. And this is why I like classy multifamily and B and I try and stay away from the a class nicer stuff. There’s a little joke Melinda’s a move back in their home with the parents home in the classes in everybody. knows about these market cycles. And this is what I’m kind of paying attention to 2008 was our last top or bottom. It’s been 11 years so far. And we’re due for another correction, which has supposedly happens every eight to 12 years. The 10, two year just just inverted a few weeks ago, and that’s a big indicator. And I’ve looked at all these ways to invest, I put it on graphs and this you guys want to take a picture. This is a cool one, but every way you can sort of invest and put it on there. Today we’re talking about the non recourse syndications and the high value add syndication or multifamily and I think it’s over there. And I still think that there are good places to invest as we come to a more mature market cycle. I always talk about this and you know, this is the way I basically built my portfolios, you know, pick up turnkey rentals. Then you get into the syndication now you start to play around with like a little bit. Different stuff more homerun deals like higher risk higher Turn hotel syndications assisted living, you start to build your liquidity fund and you know that’s kind of how I think you should build your portfolio. I’m very against Wall Street I feel like it’s very corrupt there and I like to help middle class people find safer, more profitable investments, trying to create like a who we are a community of successful investors who kind of work together and collaborate my website simple passive cash flow calm for working professionals. And, you know, here’s my email contact and goodies for you. You guys can join the any local social club I have subscribed to my podcast interview for access to my 2016 member private Facebook group. And the new mastermind is being launched here soon, probably next month, you can check out that it’s simple, passive capital.com backslash journey. It’ll be a 27 week curated course you’ll have motivated peers coming out to Hawaii check out simple passive cash flow calm backslash retreat. I thought oh my I’ve got my little cheat sheet of all the good places to eat and stuff to go visit on a wahoo and some of the neighbor islands
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