← Unemployable with Jeff Dudan
Unemployable with Jeff Dudan
Turning $500k Debt Into a Million-Dollar Luxury Rental Business Dr. Rachel Gainsbrugh's Journey #201
00:23:23
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- [00:00]
A
Welcome back everybody to the Unemployable podcast. I'm Jeff Duden. If you were a pharmacist by trade, born in Haiti, raised in Miami and achieved a doctorate degree, but found yourself buried in $500,000 in student loan debt if you downsized right sized and worked multiple jobs to eliminate your debt. And with that freedom, launched a business in luxury rentals that now includes dozens of high end properties representing tens of millions of dollars in asset value. And through the company, Short Term Gems helps other peoples do the same. Your name can only be Dr. Rachel Gainsbrough. Welcome, Dr. Rachel.
- [00:41]
B
Oh my goodness. Thank you so much. What an introduction. Thank you for having me. I'm so excited to be here with you today.
- [00:51]
A
Well, it's you and it's true. And we're excited to have you on with us here on Unemployable because you were employed and you got yourself unemployed in the best way possible, which is recurring residual income, appreciating assets, just textbook right down the list of, of how to build wealth over time and how to make it happen. So my opening question for you is, is real estate investing for everyone?
- [01:22]
B
My answer to you is yes. I am so bullish on real estate now. There are a variety of ways that we can get into the game, whether it's investing passively through someone else that's investing on your behalf or aggressively. I believe more in the aggressive investing side of things where I'm hands on. I will say though, for our particular strategy, it has more of a hospitality feel to it. That part may not be for everyone if you do not have that bedside manner and that hospitable spirit. Unless, unless you're able to outsource it and get a partner or an operations person on your, on your team to come in alongside you and help you support that part of the business.
- [02:12]
A
What do you mean by hospitality?
- [02:16]
B
Yeah, so hospitality means the extra special touches in my honest opinion. So the reason, Jeff, our properties are considered luxury properties is not necessarily because they're multi million dollar properties each. Right? Some of them are, they've appraised for that much. But we went in purchasing properties for $300,000, $400,000, $600,000. However, when we add that hospitality tag on it with were able to charge for that asset on a nightly rate much differently than a long term rental, say someone who's staying in a home, they're, you know, creating a home for themselves for the next few years. And so when it comes to luxury, what I love about it is modern luxury. Is not just, you know, your grandmother's luxury. I'm going to age myself. Lifestyle of the rich and famous with the golden toilet, the golden door is none of that. None of that. No one cares about that. Our current, I would say contemporaries, when it comes to luxury, they're looking for convenience, they're looking for connection, and they're looking for a way to really recreate and get back to the basics, in my opinion. And this is what I've seen with our guests, so I can expound on that a little bit more.
- [03:33]
A
I would love to. Because when I think about luxury rental, first of all, I think short term, I think event based, like a wedding or a trip or graduation trip or something like that. I think, I think location. Although I did hear on listening to you on some podcasts that not all of your properties are beachfront or mountains or things like that. You have properties that are in, you know, away from what you would consider to be destinations.
- [04:01]
B
Yes, we do.
- [04:02]
A
Yeah. So how do you take a property and then put that special luxury touch on it? So I was a. I was in YPO Young Presidents Organization and I was. I was the education chair and I was the chapter chair. And so I was responsible at times for either putting on events.
- [04:19]
B
Yeah.
- [04:20]
A
Or approving events. And sometimes I got, I got to go and visit the sites to make sure that they were okay. You know, which is good. You know, those are free trips. But we would always touch the five senses. So when we would. There would. Yeah. So like we would go maybe to the one hotel in Miami. And they have. When you walk into the one hotel, first of all, you see that all of the decorations look like they're high end but maybe recycled on the walls, you know, and then they have a. They have a. There's a smell when you walk in.
- [04:50]
B
Yes.
- [04:51]
A
That you will, you will read about. And it is their unique smell that they had specifically crafted for them. You won't find it anywhere else in the world. It's kind of clean, it's a little bit ocean. And then you get into the room and there's something that you're going to taste. And then there's a book that has an interesting texture on it on the coffee table. So, you know, every little detail is a different experience slightly from the norm, and it elevates it. Those are the types of things that you do.
- [05:20]
B
Absolutely, Absolutely. I'm very keen on the five senses as well. And prior to the guests, prospective guests booking the property, they're using their sense of sight. Right. They're Looking at the listing they're identifying, can their family really resonate with this space? Do they see themselves in the space? And so just the photos alone make a huge impact. Then we go into the guest reviews. How are we communicating back to the guests as they are leaving reviews? So I'm a big proponent for leaving public reviews because social proof is everything. You and I, we purchase everything based off of the Amazon review or the Google review, you know, so I truly believe. Yeah, 100%. So communication is, is a huge part of that luxury feel as well. And another thing that I found that was really interesting, there's a client of mine that has a property in Louisiana. It's like a. A 1930s home. It's a little dinky, it's got its, its own little personality. Right. And so we made it as cute as possible. And within that property we have for each guest an extra special gumbo recipe with the stock and, you know, the dry goods that can be placed inside of the insta pot or the little crock pot. And all of a sudden, all sins are forgiven. With that particular prior, something goes wrong. So that's what I mean by luxury. It's the extra special touches. And it doesn't necessarily have to break the bank, which I think is what's so special about hospitality. We started off talking about what is hospitality. Those are the small bits and pieces. When it comes to hospitality, your background.
- [07:05]
A
Would not indicate that you would be doing what you're doing right now. You were obviously a good student. I know pharmacy school is very difficult to get into. And then getting a doctorate degree, I don't know what your doctorate was in.
- [07:18]
B
But it's in pharmacy. Doctor of pharmacy. Yes.
- [07:22]
A
So there you go. So now you're tripling down on the education. Yeah. You're having success. You're having to go through boards and you're just, you really, you're really a high achiever. And then you get into that career. What. What was it like? Were you employed? Were you acting as a pharmacy? Like, what was your life like when you got out of school?
- [07:41]
B
Yeah, so when I got out of school back in 2007, ish. I went ahead and applied and got into a residency. I worked at the, the VA in West Palms of the West Palm beach va. Got a amazing training there. I think my salary there was like $24,000 a year typical residence salary. And when I got my big girl job a couple of years later, that very first engagement was a $92,000 annual salary. And Jeff, I thought I had it Made. I had never seen so much money in my life. I was running heart failure clinics, diabetes clinics, running informatics implementations throughout a few hospitals. It was wonderful, honestly, to start. And then we got not only the student loan bill, my husband and I, we also got a big tax bill. Because quickly after we got the student loan bill, we're like, okay, we got to figure this out. And we got on the Dave Ramsey train. I will say we got on and we. The cool Kool Aid. Was Kool aiding? Okay, yeah, no offense, Day Ramsey, but, sir, I drank the Kool Aid. I drank a little bit too much of the Kool Aid because, man, we started to pick up shifts everywhere. We're working at 1.5 jobs between the two of us, my husband and I. It was complete madness going from hospital to hospital. He is a psychotherapist, so he would work in the psych ward, he would work in private practice clinics. And we were just trying to figure out how to, you know, bring these student loans down. Because our mortgage was $1500 back then. Per month, our student loans were $5000. And so it was quite a disaster, to say the least. And so we sold everything but the kids. Again, Dave Ramsey sold everything but the kids. Just to show you how indoctrinated I was. But we were burning the candle at both ends, and we had burnt ourselves down to a crisp. And the biggest wake up call, to be honest with one day, we sat at our kitchen table, we got a tax bill that was $42,000. After all of that hard work, you know, we're like, we're doing all the right things. And so $42,000 tax bill. And we're like, okay, is this a scam? Like this life? Is this a scam? What is happening right now? And so we started to hear sound bites around how real estate helps with taxes. And that was our introduction into the real estate world and found a little podcast called Bigger Pockets. Started listening there, slowly took off my Dave Ramsey hat and put on my Bigger Pockets hat. And so it was. This was born out of burnout, really, getting into real estate, looking for a way to offset my taxes and doubling down on that, not wanting to see another tax bill that is so high. After having worked so hard just to give all of that money to the student loans, now we had to work hard to give all that money to Uncle Sam. And so we're. We were feeling really defeated there. But real estate was an absolute game changer for us.
- [11:01]
A
Look, I'm a big proponent. Different tools for different seasons. Of life.
- [11:05]
B
Yes.
- [11:06]
A
And you know, Dave Ramsey's background is yours. He got in trouble.
- [11:11]
B
Yeah.
- [11:12]
A
And he, you know, and now he makes $500 million a year. He's probably, he has now the big tax bill, but he built a program that basically said you might not be able to save your way to prosperity, but you can save your way to stability and to safety. So you cut your expenses, you increased your traditional W2 income. Maybe some of it was 1099 income. If you're picking up job or type shifts and things like that, it's probably where you got the tax bill from, which is the 1099 stuff. Right. Because they didn't withhold the taxes and I'm not going to ask. And the IRS never listens anyway to us. But, but you know, it's. I hope they don't. And, but if so. So you saved your way to safety, you worked your way to, to stability, but then you invested your way to prosperity.
- [12:12]
B
Yes, 100%. 100%. And you're absolutely right about the different tools because. Would I recommend Dave Ramsey for everyone? No, absolutely not. Especially my clients who are women in medicine, high income earners who, yes, there is a huge tax, a huge student loan bill there. However, there is a shortcut. There is a better way to create a life that is sustainable, create a life that serves you so that you can practice medicine on your own terms. You do not have to go the route that I went at the time. I really thought I had no other options. He was the only one with a loud enough megaphone speaking to my exact pain point. So that's where I went. And so, yeah, I mean, hats off today, Ramsey still. But I would not recommend it today to any of my colleagues.
- [13:05]
A
Right. There's a time and a place. And if you, if you've got high interest credit card debt, you've got, you know, you've got some, you've got some delinquencies, you can, most people can find time or can find room in their budget to, you know, the compound interest works both ways. It does, you know, so it, you know, it works positively, but also too, it works against you if you have interest because it's just compounding on top and compounding on top. And yeah, so it's, you know, and that's where time comes into it and dealing with things smart and dealing with things today and just doing the math and doing the arbitrage between rates and things like that. I remember early, early in my career, I mean, I had good credit. I was a business owner but, you know, I was still borrowing, you know, borrowing from Peter to pay Paul in terms of building the business. And I had all these about six credit cards. And those people would give me zero percent interest credit card advances up to 25 and 30 thousand dollars. And you would pay three points up front or something like that, or two and a half or two point. Sometimes it was one point, and then it would be zero interest for 18 months. So I would get zero interest money, 100 grand from four different cards. But then I would make sure that when those came due, that I could either pay them off because they went to like 29% and do it. But, like, that was my. That was one of my answers. But the other answer for me was real estate.
- [14:39]
B
Yeah.
- [14:39]
A
So I bought my first house as a college student. Owner financed, no money, down 615 I paid for. It was on top of a boot on top of a mountain in Boone, North Carolina. And I held that house for probably 25 years. It was rented the entire time. I refinanced it several times when I needed money and ultimately sold it. But for me, real estate everywhere. Our business moved through Florida, through the Carolinas. I would buy a building, and then when we needed, when we would molt our shell, Right. And need to move to a bigger building, I would just rent that building and keep it. And then somehow the bank would loan me for the new one. And, you know, so over time, in. In probably the least amount of time in my life, invest like literally a few, you know, time to go look at a building, time to talk, to deal with the contract, a couple hours to put together your financials, your tax returns and stuff like that. You go to a closing and maybe you got 10 or 12 hours in the whole deal. It's probably the most money that it's. It. It's the. Definitely the most money per hour I've ever made. Over 30. What is it? I bought my first property in 1990. So where are we here? 30, 35 years of owning real estate. And. And I will tell you. So my, My question for you and what I'm fascinated about is how did you. How did you manage the transition between who you were.
- [16:08]
B
Yeah.
- [16:08]
A
And your asset base, which was really a debt base, and then that time where you started to invest in properties. Because we have at homefront brands today, 250 business owners and many of which own property or some of. We. We have some. We have one business that needs warehousing, and a handful of the people own their warehouse that they, that they operate out of and they seem to do better, I mean, because they can set the rent rate and they're paying off their own property. And so, you know, what advice can you give people or maybe just share your experience about going from someone who, you know, how can I buy a property? I don't have $500,000 cash to put down a piece of property. Like, how can I do it? What would be some strategies for me to get started, and where can I go to get resources to learn how to do it?
- [17:01]
B
So many thoughts. Oh, my gosh. And thank you for sharing your story as well. That's absolutely amazing. So, so many thoughts there. Because the myth is that we would need to come out of pocket 100% to purchase a property. And already you have shared your story. You had owner financing, meaning the owner was essentially your lender. They were the bank. And you pay them month after month after month. So already you're coming out of pocket little to nothing in those particular scenarios, which is amazing. So first and foremost, I want to bust the myth that you need 100%. Dave Ramsey, eat your heart out. You need 100% to purchase a property cash. You don't. Second of all, I want to bust a bit that you need 20%. There are funding options out there that could equate to anywhere from 0% down to 10% down. And that's exciting. So imagine you now control an asset that's worth $500,000, and all you did was you put $50,000 down, right? $100,000 down. That is just so much more approachable. So I absolutely love that. I love busting that initial myth because oftentimes my busy burnt out medical professionals, if you're listening, you're here in tech, you're in any industry. You think to yourself, well, I'm not an investor, I'm just an xyz. Well, I mean, can you imagine that? I'm just a doctor. I'm just someone in. I'm just an engineer. I'm just, you know, someone who has a business. I'm not an investor. So the, the myth that I want to bust is that you do not have the skill set to understand and analyze deals. And in my background, you're literally saving lives. You're making critical decisions based off of, you know, a variety of crazy looking labs that yesterday they were doing fine. All of a sudden, the numbers are all over the place. Now that those are the same critical thinking skills that are needed to invest in real estate. So the way you invest in real estate is you pile up Your cash for your down payment, whether it's a 5% down, a 10% down, 20% down, if you want to be a little bit more aggressive. And from there you analyze your markets, you identify the markets where you're going to get the best roi, the best bang for your buck. And so one number that I like to review as well, what is the potential of revenue that's coming in compared to the overall purchase price. So that's a high level barometer. However, if we're really thinking about cash on cash though, say I'm purchasing a property for $500,000 and I'm putting, you know, 20% down, so $100,000 and all of a sudden as obsessed. I'm so obsessed with taxes, with the new tax bill that was recently approved, I can get so anywhere around 30 to 50k off of my taxes, offsetting my taxes. So that initial investment is net $70,000 or $60,000 or even $50,000. Right. So that $50,000 initial investment, now I have control of a $500,000 asset. I mean that's absolutely, that's. I don't see any other strategy out there personally. And guys, prove me wrong in the comments, feel free to. I don't see any other strategy out there that's going to give us such an outsized return that is an asset. Although on paper we can depreciate quite a bit of the asset. But in the real world, for the most part we, we can't make any income claims or guarantees. But in the real world, these are appreciable assets. It's bringing in money. And in the long term, like you say, you borrowed against it. Okay, it's seller finance and you borrowed against it, then you borrowed against it. I just, I just absolutely love real estate for that specific. And with those who are warehouse owners, when you own the asset that you typically would rent, there's major benefits there as well. Not just yeah, you're getting the debt pay down and if you have multiple spaces, you're getting someone else to help with the debt pay down as well. There's tax benefits associated with it. You're building generational wealth. I'm a believer in building generational wealth as well. So it is a win win situation. And I honestly felt like I went around the world and back and I did not answer your as clearly as possible, but I just get really excited about real estate.
- [21:45]
A
Well, I didn't ask it clearly and candidly, I don't even remember what it is, but I, but I couldn't Agree more because, so we like to say at home front Brands that businesses are a high class asset because you take advantage of the tax code. It's a hedge against inflation. Prices go up, your prices go up. So it is, and real estate are, are a hedge against inflation and they're a high class asset. So now somebody fact checked me on this, this is an old statistic, but it's, I read it in some estate course somewhere that over time real estate on average will appreciate by 7% like over 100 years. Okay, 7% a year. Over 100 years. But we just saw a time where, I mean I had properties that doubled in three years. So you're going to like, it's like with any long term portfolio, if you miss that 10% or 20% run, then you don't participate in the average upside of it. So really, you know, time in the seat, time in the ownership and all of that. So now let's say you bought a property for $1 million and it's going up by $70,000 and then, you know, 70.7, you know, thousand dollars the next year. If it's going up on average, but then somebody's renting that from you, you're paying it down. Then you did a cost segregation study where you, you did accelerated depreciation on, fixed on painting, you know, the carpet and the things that are going to accelerate faster than the average. I don't know if you amortize a building over 25 years or 20 years or whatever. 27 and a half years.
- [23:13]
B
27 and a half.
- [23:14]
A
Yeah, there you go. So now you've got a tax benefit this year. You're going to have to recapture it later. But you know, 27 and a half years from now, I might not.