Why Smart Investors Never Hold On to Property Too Long

Summary

Radical Wealth Plan – "Why Smart Investors Never Hold On to Property Too Long"

Podcast: Radical Wealth Plan
Host: Paul Morris (Entrepreneur Media)
Episode Date: March 31, 2025
Guest: Anthony Walker, CEO of Buckingham Investments

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Episode Overview

This episode dives deep into the real strategies behind building significant wealth in real estate, emphasizing why smart investors never hold on to a property for too long. Host Paul Morris brings on Anthony Walker, an accomplished investor and CEO of Buckingham Investments, to uncover the math, mindset, and actionable tactics investors need to build generational wealth. Together, they debunk myths about passive investing, unpack the importance of action, and offer invaluable insights on leveraging real estate for long-term financial independence.

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Key Discussion Points

1. Anthony Walker’s Journey into Real Estate (02:56 – 16:44)

• Background and Early Career:

  • Grew up in Minneapolis, later relocated to Los Angeles to pursue music and education.
  • Early careers included claims adjusting in insurance—exposing Anthony to hard work, time management, and customer service (11:11).
  • Obtained his MBA while working full-time, entering real estate after being inspired during a business school class.

• First Investments:

  • His first investment property: a small duplex in Long Beach purchased with saved bonuses, tax refunds, and a 401(k) loan.
  • Lesson from a Costa Rica vacation property: “It was fine. I owned it for 11 years, sold it for the same price I bought it for to the dollar... 11 years, no cash flow, same price I bought it for. No leverage. Not a good deal.” (17:12)

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2. Systematic vs. Non-Systematic Real Estate Investing (18:31 – 20:39)

• Many accidental landlords or investors end up with a hodgepodge of properties due to emotion or chance encounters, not planning.
• Anthony credits Buckingham Investments’ systematic approach as his turning point:
  • "I loved their business model. So I was a client first… helping people learn how to invest and take a systematic approach rather than just 'it's a good deal, buy it type thing.'" (15:57)
• Paul’s Three Rules of Investment (teased for a future episode): Buy where you know, buy what you know, keep it simple.

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3. Boredom, Specialization, and "Sticking to Your Knitting" (20:49 – 21:49)

• Both Paul and Anthony discuss how seasoned investors get bored with proven strategies and are tempted by shiny new trends.
• Anthony: “Your competitive advantage is the most powerful at that point when you're getting bored with it.”

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4. Making the Numbers Work: Simple Math, Big Wealth (32:44–46:47)

The Core Formula: Time Value of Money and Real Estate Returns

• Anthony breaks down the formula for future value:
  • “Future value equals present value times 1 plus the rate of return you achieve on the investment to the power of N, where N is the number of years your investment compounds.” (33:44)
• Math in context:
  • Investing $100,000 at 25% annual ROE (Return on Equity, not just IRR) for 20 years can yield $8.6 million—“The longer your money’s working for you, the more powerful it gets.” (38:53)
• Paul underscores: most investors struggle to grasp this until they do it: “You can explain it, but when you actually do it, it makes sense.” (55:33)

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5. Value Add, Leveraging, and Knowing When to Sell (50:10–66:13)

• Value Add Investment:
  • Strategic improvements (security, new windows, cosmetic updates) can provide huge immediate returns on investment—sometimes 100% or more in equity.
• The Deleveraging Problem:
  • Anthony: “When you do value add, your equity builds up and your return on equity goes down as the property appreciates and the loan remains stable—equity gets lazy.”
• The Smart Investor's Move:
  • “Sell or refinance after maximizing value add—then roll over gains into a larger, new property. That’s the difference between owning $100M and $1B—equity must keep working!” (64:34)
  • Anthony’s concise explanation:

    “After you do your value add and hold, your return is cut in half. To keep compounding, you have to keep re-leveraging, whether by selling or refinancing.” (65:06)

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6. The Four Elements of Real Estate Returns (57:44)

Anthony’s “C-A-A-T” acronym:

• Cash Flow
• Appreciation
• Amortization (principal paydown)
• Tax Benefits

All four combine into “Return on Equity” and should be tracked annually.

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7. Tax Strategies: "Swap Till You Drop" (58:24–61:21)

• Investors can defer capital gains tax through 1031 exchanges (property swaps), with ultimate elimination upon death via step-up in basis.
• Paul and Anthony agree:

  “That equity that would have gone to the government is compounding on your own behalf… you never pay that; your heirs get the step-up in basis.” (61:09)

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8. Should You Wait for the Perfect Timing? (84:37–91:31)

• Market Timing Fallacy:
  • “You don’t know the bottom until 6–12 months after it’s passed. By then everyone’s piling back in.” (85:01)
• Anthony’s Data:
  • Study showed it’s far better to buy the worst deal today than the best deal a year later. "Time in the market beats timing the market—especially with inflation."
• Deal-Driven Investing:
  • Paul: “Market condition is a factor, but it’s a smaller one compared to the details of a specific deal.” (91:21)

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9. The Unique Buckingham Investments Model (31:41, 73:05–76:59)

• Combines free education, investment planning, and deal brokering
• Focuses on the investor first, not just selling properties:
  • “We usually start with the person first, not the deal.” (31:41)
  • “We’re a great option between paid education (expensive, often poor) and syndication (hands-off, high fees, no control)."
• 80% of business comes from repeat clients.

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10. Leveraging: Risk and Reward (92:24–93:49)

• On infamous advice to never use leverage:
  • Anthony: “There’s a conservative level of leverage that doesn’t add much risk and leaving that off the table is passing on a ton of return. But it depends on your risk tolerance.” (93:28)
  • Paul: “If I hadn’t used leverage, the math would be scary—so much less equity built.”

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11. Memorable Quotes and Moments

• On action and overcoming fear:

  "Anybody can do it... Not special at all. But not everybody will. People don’t take action." – Anthony (55:10)

• On property management fears:

  “You don’t have to do the three T’s (toilets, tenants, trash) to own property…and you don’t have to give up your profits to a syndicator!” – Anthony (26:00)

• On value add:

  “Don’t discount what committing significant capital does for your focus—if you’ve got six of them, you’ll pay attention!” – Anthony (29:22)

• On timing the market:

  “At that moment when everyone else is so afraid to jump in, that’s the moment when you get the amazing deal.” – Anthony (85:18)

• On building deeper relationships:

  “We’re in the classroom, not sliding a property across the table. It’s a great experience for everybody.” – Anthony (75:27)

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12. The "Fire Round" (94:23–96:50)

A rapid Q&A with Anthony revealing personal values:

• Happiness: “Spend time with my family, help others, give back—teaching others to be successful.”
• Greatest fear: “To be forgotten.”
• Most treasured possession: “A journal my mom kept when my brother and I were babies.”
• What he’d yell from a mountaintop: “Hey guys, it wasn’t that hard.”

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Timestamps for Key Segments

| Segment | Timestamp | |----------------------------------------------|------------| | Anthony’s Background & Early Investing | 02:56-16:44 | | Systematic vs. Non-Systematic Investing | 18:31-20:39 | | Boredom & Specialization | 20:49-21:49 | | Real Estate Math Simplified | 32:44-46:47 | | Value Add & When to Sell | 50:10-66:13 | | The Four Elements of Return (CAAT) | 57:44 | | Tax Deferral & Step-Up in Basis | 58:24-61:21 | | Market Timing & Deal-Driven Investing | 84:37-91:31 | | The Buckingham Model | 31:41, 73:05-76:59 | | On Leverage | 92:24-93:49 | | Fire Round & Personal Insights | 94:23-96:50 |

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Episode Takeaways

• Building sustainable wealth in real estate is about systems, patience, and taking action—not chasing trends or hanging on to properties out of sentimentality.
• Compound returns, leverage, and value add are keys to exponential growth, but investors must know when equity turns “lazy” and re-deploy it for maximum effect.
• Education and mentorship, tailored to individual goals and accompanied by hands-on dealmaking, transcend traditional brokerage or paid education models.
• Action is everything—"You don’t learn to ride a bike in a seminar."

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Recommended Actions for Listeners

• Don’t buy investment real estate by accident—have a plan, set goals, and work with knowledgeable advisors.
• Learn and track all four sources of return: cash flow, appreciation, amortization, and tax benefits.
• Manage your fear: start small, but act. “Anybody can do it… but not everybody will.”

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Full episode recommended for anyone aspiring to build lasting generational wealth through real estate, whether a complete beginner or seasoned investor.

Transcript

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[A]

This is Radical Wealth Plan presented by Entrepreneur Media. If you have the drive, we'll give you the plan. I'm Paul Morris, New York Times bestselling author, prolific investor and award winning entrepreneur. Join our real estate revolution.

Welcome to Radical Wealth Plan brought to you in partnership with Entrepreneur Media. Today I'm super excited to share with you my interview with Anthony Walker. Anthony is the CEO of Buckingham Investments, which is a very unique brokerage model that looks for investment grade properties for new investors and also seasoned investors. One of the great takeaways from our show with Anthony is exactly how he does the math and analyzes property to build generational wealth. And here's Anthony Walker.

Anthony, thank you so much for taking the time out of your very busy day to come talk to us at Radical Wealth Plan. I know that the information you have is going to be incredibly valuable to this broad audience of folks that are interested in building wealth through real estate.

[C]

Absolutely. Thanks for having me today.

[A]

So where did you grow up?

[C]

I grew up in Minneapolis, believe it or not. I've been here for 23 years.

[A]

Wow.

[C]

Last month I moved out. I moved out in 2000 to go to undergrad at SC.

[A]

Huh. Interesting. I've been here 23 years, so we.

[C]

Moved out at the same time.

[A]

Yeah, we did.

[C]

Yeah. Great place to grow up. Minneapolis is awesome. Lovely town. Still have tons of friends and family back there, you know, but it's kind of a small town, big city.

[A]

Right.

[C]

You know, and the weather.

[A]

The weather's terrible.

[C]

My family came here on vacation in, like, February when I was, like, 17. And I thought, you can choose this. Oh, my God. You know, and of course, college is a great opportunity to, you know, make a big change in your life and test the waters.

[A]

Test the water somewhere else. Very, very different place.

[C]

So I got to stay.

[A]

You said big town. Would you say small town, big town? Yeah, it's kind of.

[C]

It's kind of a small town, big city. I don't know that.

[A]

A small town, big city.

[C]

Yeah. You know.

[A]

No, I like that.

[C]

I've heard it's the least dense major metropolitan area in the country, and it totally feels that way. I mean, wherever you are. I grew up right in the city, and it's still. Everyone has a yard.

[A]

Right.

[C]

Most people don't even really have a fence. That's very California thing, you know, a lot of room. You can kind of bike everywhere. There's lakes all over in the city.

[A]

Right.

[C]

Beautiful in the summer.

[A]

Right. You know, one of the things that caught me. It's one of the reasons why. I want to ask you why I want to get that term from you. Small town, big city is that I'm originally from Pittsburgh.

[C]

Oh, yeah.

[A]

And I feel like Pittsburgh is sort of small town, big city, sort of. I guess I don't know how big they are relative to one another.

[C]

I think Minneapolis, about a million people in the metro area. But, you know, that's. They call the Twin Cities because that's right. St. Paul's right there. And then you have some suburbs as well.

[A]

Sure.

[C]

It's good size, you know, it's pretty.

[A]

Big, but people are still a very small town.

[C]

Yeah, people are insular, too. You know, I'm still close Friends with people that I went to grade school with and that's how it is there.

[A]

And one of my business partners, including a lot of business out here in LA. We met when we were 11 years old.

[C]

Yeah, totally.

[A]

You don't see that other places. You don't see that here.

[C]

Not in L. A. Yeah, very rare. And we've stayed together. My friends will come out and visit and we'll go on trips together. Those are still better friends from Minneapolis. Probably a lot of people that I've met since. Not that I don't have great friends in LA too.

[A]

Is it just weather or what? In terms of. Is there opportunity? How does the opportunity.

[C]

Well, I mean, to me at the time I was starting to get into music and I really wanted to experience that and try and make a go of being a musician. So that was definitely a part of it. And LA was still. Is very much the music town, epicenter.

[A]

Of a lot of entertainment.

[C]

Entertainment. So that, that was interesting to me. And you know, I was. I was 18, you know, I wanted to spread my wings, try something new. I had never lived by the ocean, you know.

[A]

Right.

[C]

And I wanted to try a huge city.

[A]

Right, right, right.

[C]

It was in la was enchanting as a young guy.

[A]

It gives you a big city, you know, no matter how big the city is, going to school gives you an anchor for sure.

[C]

Yeah, yeah, that was really helpful, I think a lot. You know, I've met a lot of people that have moved to LA and sort of drift and struggle and end up going back to where they came from. But if you come for school, yeah, you've got a built in community group of people doing the same thing. Whatever you might want to get into, it's just a great way to get into a place wherever you're going. And at that point, I mean, it was interesting with music because it was in a kind of a transition period, I think. We started the band in 2001, so Napster was around.

[A]

Oh, right.

[C]

MP3s were happening, the big labels were struggling. It was very difficult to do it the traditional way was like the way I was trying to do it, get noticed at a gig. An A and R rep might like you. They come to a few shows, they see if they can sign you. And it was moving towards produce your own music and get it out there. That was still really difficult to do. Right. Because there was no Spotify. You could put your tunes up on MySpace and that's where we were.

[A]

That's right.

[C]

And so kind of simultaneously you had this, you Know, move away from that the traditional way being effective and the labels weren't doing as well and it was still really hard to do it on your own. There wasn't a great way to self promote your music or sell your music. And you know, we kind of got caught up in that. And it just, I think I didn't focus on that. I focused on, I always thought, you know, if we're great, somebody will find us and we'll be successful. Sure. And it just doesn't work that way.

[A]

And that's such an interesting point. Moving forward into business. And that marketing piece is so important because I believe that whatever you do, unless there are certain professions that, that this is not the case. But in most professions that are business related, there are two jobs and one job is, one job is doing the job. That's the obvious thing. So we're talking real estate, right? You know, it's like, okay, so I'm going to go out and I'm going to find, you know, a great house for somebody and I'm going to do a great job for them, all that sort of thing. And, and even lawyers, because I was a lawyer for a while. If you ask a lawyer, you know, what does it take to be a very successful lawyer? They will still make the mistake and say really, like, find a niche that you're great at. Crush it. Have great client, you know, your, all your clients love you and eventually you'll get, you know, enough referrals and that's that. It can work that way, but it's an awfully tough way. Right? Get it done. But that's doing the business. Right. And really the other job, the second job of almost all jobs is getting the clients. And that's why when I did that, seven things, it's like job one is get the client and job two is actually do the work. Right. And my proof of that is when people doubt that, I always ask them. So if you're, if you're in real estate, I will ask somebody, do you know anyone that's not as good as you at doing the job, at actually servicing the client? They're not as good as you at servicing the client.

[C]

Right.

[A]

But they've got way more clients than you. And whenever you ask that question, like, oh God, yeah. They're like, oh, you got this guy, he's terrible, you know, and he's got so many clients. Or this woman, like, you know, they all have reasons why, oh, she's so well connected. Or you know, whatever their reasons are, right. You know, there's so many of those. And then if you ask, conversely, hey, do you know anybody who's like phenomenal at the real estate deal that doesn't have that many clients? And the answer to that is, of course, yes.

[C]

Right.

[A]

And owning a big brokerage firm, I really do have. I mean, I have some realtors who are really great that I would hire to represent me that just don't have the.

[C]

All the time. Our office too, especially with us, we focus so much on the technical aspects of real estate and investing and finance and numbers and analysis. And we get agents to just come in and they know, they want to know everything they possibly can before they go out and try and meet a client.

[A]

Right.

[C]

It's a great way to work yourself out of a job. You don't ever get a paycheck.

[A]

That's correct. Especially when you're on Commission.

[C]

Yeah, 100%. It's so frustrating because they are great and they just need to time block a little bit and go take credit for it, you know?

[A]

Yeah, that's right.

[C]

Yeah.

[A]

And there's a. There's another saying which I love, and that's that you. You can't learn. You can't learn how to ride a bicycle in a seminar.

[C]

Yeah.

[A]

There's a lot of stuff you can learn how to. How to do in a seminar, you know, and you could do the physics of it and the whatever, but it's just awfully hard to learn how to ride a bike seminar.

[C]

It is.

[A]

And getting out and doing it is the best way.

[C]

Yeah.

[A]

So usc.

[C]

Right.

[A]

And then I know you did insurance.

[C]

For a long time, so. Yeah.

[A]

Then you also had an mba, so where is that?

[C]

That was all simultaneous. So that was busy time in my life. So, you know, as I graduated from sc, I had studied international relations and East Asian languages and cultures.

I speak Japanese. I had studied abroad. That's a useful term, right? That's. Please. And I originally thought, oh, I'll do some international business. I'll go live there, travel back and forth. Well, you know, by the time I got to graduation, I wanted to stay in LA and make music. Go. So that wasn't an option anymore. And I just had to get a job to stay here, you know, and be able to pay the bills. And I ended up taking a job as a claims adjuster.

[A]

Wow.

[C]

Difficult job.

[A]

Right?

[C]

Brutal job.

[A]

Oh, I'm sure it was, yeah.

[C]

For personal lines, auto. So this is car accidents. So this is not. I didn't naturally transition from insurance sales or being an agent into real estate. This was Not a sales job at all. Driving all over town, you're learning all about cars and negotiating with body shops and negotiating with chiropractors and settling injury claims and deciding liability and interpreting policies for coverage and.

[A]

And people are angry with you. People.

[C]

Everybody's angry. Everybody. Even if they're not angry at you, they just had a really bad experience, right? They got in an accident or their car got stolen and it feels unfair. And they're on guard because the insurance companies going to try and, you know, rip me off and they don't think they're at fault and they're hurt. You're starting off on foot and then you're with the insurance company, right? So, yeah, I learned a ton in that job. You have to, A, they bury you with work. So you have to work so fast and so accurately that you really learn hard work, you learn discipline, you learn effective time management. And then B, it is all about customer service. You're dealing with people at a really bad moment in their life, sometimes a really awful moment. You know, if there's a serious injury and you know, you've gotta make it right and make them feel like they were heard and they were taken care of and they were made whole. That's the job. At the end of the day, the job is to be fair and make people whole. But then you also learn a ton about the law. You learn a lot about liability. You learn a lot about valuing things. Right. Even if it's cars or whatever. And I drove all over the city too, and learned the city and all this stuff. So you really learned a ton doing that. In retrospect, I think it was a great experience. I ended up getting promoted a couple times while I was there being in management. And I was really fortunate because I knew pretty early on I didn't want to do that forever. It was a low salary. This was an entry level corporate job. I was making 17 bucks an hour at that point, which was more than it is today. But I had benefits and stuff. By the time I was in it for a few years, I knew I wanted to go do something where I could control my own destiny and have control over my own income and time and where I would actually be able to reap the rewards of my own effort. Right? And so I thought, I don't really know what I'm going to do. I'm going to go to business school and I'll figure it out there. And I want to start a business for myself. I don't want to work for a 30,000 person company anymore. So I started applying around, ended up going to Loyola Marymount for business school because they had a great program, they were nearby and you could do part time at night. And so I got lucky. I was considering going to a full time program and I didn't. I went part time. And this was in 2007.

[A]

Wow.

[C]

That I got accepted into the program started in 2008.

[A]

Wow.

[C]

Random happenstance subprime crisis happens while I'm in business school, of course, and I've got a safe full time job. And so simultaneously we acquired AIG's personal lines business because they went under the subprime crisis. And so on the insurance side I got to see the implications of that, which a lot of people don't really, you know, we just talk about real estate in that context. But then I was learning all about the economy, business and real estate while we were watching. It just nosedive in school. But I was safe, you know, I had a good job so that was a great opportunity for me.

[A]

Right.

[C]

And in school that's where I started getting into real estate. So I took a real estate investments class in the MBA program there at lmu.

[A]

And what interested you in real estate investment?

[C]

Yeah, so I mean I was trying to find a business to have a few criteria. I wanted minimal number of employees because by that time I had a lot of people that I was responsible for. And most of the job as an insurance claims manager is just dealing with people. And I got a glimpse of how difficult and time consuming and expensive that is. I wanted a business that was scalable, where I could grow the income and I wanted a business that could deliver passive income. So tech works for that kind of stuff, investing works. I didn't know how to code, I wasn't going to go do that. I was a few years out of undergrad already. I didn't have a computer science background. And when I took the real estate class I thought well this is perfect, it's right here. I don't need to invent anything. I can start in on one of the oldest businesses in the world and I just need to buy some properties and get going. And the numbers are right here. And all of a sudden when they put a dollar sign in front of the math. I'm really good at math and I wasn't before. Interesting, motivated there how that works.

[A]

And also the math makes sense.

[C]

It's pretty simple math. It's. Yeah, it's not, it's not calculus. Right. So I just got really interested in it there and then through my Network. At school, I got introduced to company called Buckingham Investments. It's a brokerage company that had been around since 1963, helping people learn about how to invest, you know, and write an investment plan for that and take a more systematic approach to investing in real estate rather than just it's a good deal, buy it type thing, which is what most people's experience with real estate is.

[A]

Sure.

[C]

And I just love their business model. So I was a client first, and while I still had my insurance job, I bought my first little duplex in Long beach. It was $300,000 and had a bootleg unit in the back, you know, and scrimped and saved my tax refunds and my year end bonuses and I managed to.

[A]

Did you live there?

[C]

I did not. So I had already bought a condo in redondo beach in 2009. I got the Obama $8,000. They pay you to buy something. In retrospect, I should have bought an investment property instead of the condo. But I wasn't keyed into investing in a huge way then yet. I had bought one investment property in 2006 in Costa Rica, and that didn't really work great.

[A]

It was just a property.

[C]

I mean, it was fine. I owned it for 11 years, sold it for the same price I bought it for to the dollar, you know, 11 years later.

[A]

And that's a bad real estate deal. Yeah, 11 years.

[C]

11 years, no cash flow, same price I bought it for. I had no leverage because you can't really get a loan, you know, out of the country. I enjoyed going there on a trip, you know, a few times, but not a good deal. It hit. So, you know, by the time I was ready to take a systematic approach to it, I had, I had that property and I had my condo and then I bought that little duplex. So I had enough to get started with some equity and a few properties, and then I just loved the company's model.

[A]

So one of the things you said was you had, you had put some money away too, and I totally got the thing that you were using and I think it's a great idea government program at that point in time to help you buy that condo. Sure, in 2000. That was in 2009.

[C]

2009, yep. Right, that's right.

[A]

And what was the impetus for the Costa Rica thing? You're just like, hey, it's a nice place. It's. Yeah.

[C]

I mean, my family was there on vacation. We had a nice time. They were building units. We got all excited about it. It seemed cheap, you know, you Scratch the numbers down on a beach cocktail napkin and it seems like it works. And so we just bought it.

[A]

And a lot of people do that.

[C]

So common.

[A]

Right.

[C]

It's such a bad idea. It's not the way you should approach your investments.

[A]

Yeah, it's so common. It is such a bad idea. And a lot of people do it.

[C]

We get clients coming in all the time that have cobbled together a collection of two to five properties that they ended up in just like that.

[A]

That's right.

[C]

And it's sometimes a house that they used to live in and they just kept it rented. It's a vacation property that they had big plans for or whatever it was somewhere their office used to be or somebody just sold them on something.

[A]

Right.

[C]

They went to a seminar and they walked out with a deed and they don't know what you know. It's so common.

[A]

Yeah, yeah. My housekeeper has one of those and try to figure out how to get her out of that. Yeah. So it is common. And one of the things I picked up on already was you were talking about the thing that you liked about Buckingham was a real systematic approach. Yeah. And so the non systematic approach is, hey, I go on vacation. It's not impossible to go on vacation and see something interesting or whatever, make it work. And I. I definitely have people in my world that are great sort of trend spotters.

[C]

Right.

[A]

But I really am good at discerning a good investment from a bad investment. And I don't trend spot myself.

[C]

It's so easy to feel like everything's happening and you're there and you've been there for like four days.

[A]

Yeah, that's right. That's right.

[C]

What do you really know?

[A]

Yeah, that's right.

[C]

The whole out of state. Don't get me started on that. But Nick, that's. It's a common thing.

[A]

Well, and one of the things that I did was I did a. And I'll do an episode on it. I haven't done it yet. As my three rules of investing. The three rules of investing that allowed me to acquire. I now have 600 units. But of course I've bought and sold some. So, you know, not a ton on the buy and sell. So, you know, maybe acquired a thousand units over time and have held on to 600. And having done that, never lost money on a single great record. I just have three simple rules. I'll save it for another podcast. But one of them is buy where you know.

[C]

Totally.

[A]

And buy what you know and buy what you know. Right. That's a Great one, too. Yeah, yeah, yeah. Buy where. You know, part of it for me is keep it simple, and that's really doing what, you know how to do.

[C]

Well, I think it's easy to, like, have some success and then get bored with it, because it's easy. And real estate is a slow game.

[A]

Yes.

[C]

So, you know, I want to do some more exciting stuff.

[A]

Yeah.

[C]

And then something a little bit different comes down. It might be a different asset class. It might be a little bit of a different area.

[A]

Right.

[C]

Property type and.

[A]

Right.

[C]

It reinvigorates your excitement about the business, and you have this desire to make the deal work.

[A]

Right.

[C]

Because it's not just another apartment building and, you know.

[A]

Right.

[C]

Which really, I should be buying just another apartment building in Long Beach. Correct. Because that's your.

[A]

That. That then becomes your area of expertise, and people do. Right. You know, it takes so long to get good at something, and then once you're good at it, that's when you should really dig deep. And that's. You're like, oh, well, yeah.

[C]

Your competitive advantage is the most powerful at that point.

[A]

Right.

[C]

When you're getting bored with it.

[A]

That's correct. And also, of course, the grass is greener piece, which is really a very strong thing in. In real estate, because you know your deals.

[C]

Right.

[A]

And so therefore, you know the pluses, you know the minuses, you know the headaches, you know how hard you have to work. You say it's a long game. So now it's like, wow, it's taking me, you know, I'm not hitting a home run out of the gate. Right. And then you hear about somebody else seemingly hitting the home. Right.

[C]

I saw it on Instagram.

[A]

There you go. Yeah, yeah. And that's really. That's the recipe, really, to lose money easy. So you accumulated some money. You're using a government program. I like that. Because why not use. Use whatever is available. Use whatever is available at the time you bought a condo, but then you said you accumulated some money to invest, and I imagine it's not a lot of money.

[C]

No, it was, like, 75 grand. It was everything I had.

[A]

Right.

[C]

I had to borrow from my 401k.

[A]

Right, right, right, right.

[C]

You know.

[A]

Right, right. And that's to make your first, like, investment, like, dupe.

[C]

That's my first multifamily.

[A]

Okay.

[C]

Duplex.

[A]

And so tell me about that. So you found Buckingham Investments.

[C]

Yeah, I got introduced to them through, actually, my network at lmu. So that was great. Another student that I knew knew another student who since become a Great friend and partner. And he had known the guys at Buckingham for a long time and they had been running this business at that point almost 50 years now. This is our 60th anniversary.

[A]

Wow. And you're now the CEO.

[C]

I'm the CEO now, yeah.

We'll talk about that a little bit. And you know, they weren't doing a ton, so the company wasn't very visible, but they just had these great materials. They had really simple guides about how to think about investing as an individual. The stuff you learn in business school is like how you syndicate a hundred million dollar office. Right. Not that anybody's syndicating office buildings.

[A]

Right, right. That's right. That's a bad play. Yeah.

[C]

And so it's like, how does this relate in the real world? So that was a great bridge for me as individual, how to get into it, how to still approach it like a professional investor. But it can be for a $300,000 little duplex, not that that exists anymore, but it did back then. And I thought, this is great, you know, I can, I can get started. And their program was all about learning the basics of finance. Time, value, money, compound interest, writing a plan that will illustrate what your future net worth and passive earning potential can look like with even a small investment today. And so the genius in that was, we like to say we're selling somebody a winning lottery ticket in 20 years, it's guaranteed.

[A]

I liked it.

[C]

But you have to wait. They don't pull the number for 20 years and you have to execute on the program. Right. It's really boring. You know, it's get rich slow. But if you understand how it works, like you're focused on the payoff and what that's going to do for your life, and you're not focused on this hundred year old dumpy duplex in front of you in kind of a sketchy neighborhood, you know, with a bootleg unit. Maybe there's a problem that's going to happen there, which did. And so it allows you to see what real estate's going to do for you as a tool for financial independence rather than focusing on the three T's that everybody likes to talk about, right? Toilets, tenants, trash. And that's the syndicator's pitch, you know. But the reality is, if you learn.

[A]

A little bit about this, why am I always learning new things? Three T's, you know, like maybe I'm not, you know, maybe they'll edit this out too, like the three T's, Why had I never heard that before?

[C]

Toilets, tenants, and Trash. Okay, everybody's favorite.

[A]

What does that mean?

[C]

I mean, it's an aphorism for the frustrations of managing your own properties and the idea that if you have to. If you're going to be a real estate investor, you have to be a landlord.

[A]

I see.

[C]

Which is just not true.

[A]

I see. Yeah. You know, because I avoided that from the get go. I wasn't physically present. Even though I say, yeah, buy only where, you know, and it is true. The only places that I've bought are in Pittsburgh, where I'm from, and I have a extensive network there. And then also in Los Angeles. But I was, I was traveling, I was, I was in school, I was, you know, working as a lawyer. I was in the. Working in the government as a lawyer. I was not in Pittsburgh or Los Angeles most of the time. So I had no choice. When they cannot call you. Right. Because they've been locked out. They don't call you when they get locked out.

[C]

Exactly. And you don't have to do the three T's in order to own property and you don't have to invest in somebody else's deal either. You probably learn, you know, professional property management does amazing things. So you can know the business, you can know your market, you can know the building really well, but you don't. That doesn't mean you're collecting rents and fixing toilets either.

[A]

Right.

[C]

And people don't get that. You don't have to give up a whole bunch of your profits to a fund or a syndicator. And I syndicate, so I'll be the first one for myself under the bus there. If you can afford to buy your own properties and you've got the time and the inclination to learn a little bit about it, keep your profits, keep the control, do it yourself. You know, you're doing this for your own family. At the end of the day, you should be on somebody else's time frame.

[A]

Right.

[C]

The tax benefits are better. You choose when you take the capital out, you choose when you start taking the cash flow. You choose when you exchange, when you re leverage.

[A]

Right. You know, right before our market shifted, I bought six houses in Joshua Tree.

[C]

Oh, wow.

[A]

And you know, that was a very, very, very hot market. And I know with all the experience that I have that going into a very, very hot market, paying top dollar is a bad idea generally. And yet what I did was I bought six houses that were all trashed so that in the event that the market were to shift, which it did.

[C]

Right.

[A]

That I had all that built in value. So That I knew I had a great cushion. Yep.

[B]

So you're about to make a trade based on a friend's text but which you do you listen to is it we could buy a house in Tulum.

[C]

Get optioning those options.

[B]

We could lose everything.

Or let's do a little research, get.

[A]

Your head in the trade and make.

[B]

The investment decision that's right for you.

[C]

Learn [e-mail] TradeSmart.

[B]

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[A]

Now the reason why I bought 6 instead of 1 because I always think like, you know, hey, let's buy one and see how it works, right? Is that the management fees on the short term rentals were so high when I penciled it out right. It swallowed every possibility of profit. And so I came up with a number and the number was less than 6, I think it was 4 that I really needed to buy in order to be able to have at least one full time. I mean yeah, they were taking at the height of that. It's probably come down now some for sure but at the height of that they were taking between 30 and 40% of gross to huge to manage it. And that doesn't include actually fixing the stuff. It's just like managing the fixing the stuff and there's no way I can pencil anything out. Boy, if you could pencil it out and it would give you 30 or 40% profit that would be great. It did pencil out very nicely but I saw the management as chewing the whole thing up. So the only way I was willing to do it was to buy four or more and that's why I bought six. And so I have built in like when it's ready to go, right. That I will be able to have a full time manager that I can have on salary and I don't have to.

[C]

Well, and don't discount what that does for your focus too, right? That's correct. It's so easy to like I'll just buy something cheap and small to get started and then of course it's not going to go very well because you're going to ignore it. If it's a tiny portion of your portfolio, you're not going to give it any attention, you know.

[A]

Yeah.

[C]

If you got six of them, you'll pay attention.

[A]

And in a way, it still is a small piece of what I currently do, but I also know enough to put somebody in charge that it's very. And they are also a partner.

[C]

Right.

[A]

So they have skin in the game.

[C]

Right.

[A]

And it's a very big piece of what they do. Right. And they can be out there and on it all the time.

[C]

Totally. Good call.

[A]

A few minutes ago you were kind of rattling stuff off because you're. I appreciate how fast you talk because we get the information quickly and you're so smart and good at this. You've got a lot to say. I do. So my hand doesn't write nearly as fast as the great stuff pours out of your brain. So, you know, like, for example, one of the things I wrote down was get rich slow. So I love that I'll be borrowing that. And then, you know, of course, the toilets, tenants and trash. And one of the reasons, like you said, I can't believe you hadn't heard that one for all the years I've been in it. But interestingly, I just didn't have that experience.

[C]

That makes sense.

[A]

I have heard the, like. A friend of mine was investing in mobile home parks and the return was great and I was curious about it. I was, as always, like, oh, you know, you don't want to do this because you have to be the mayor of your own town. And again, it's a very limited way of thinking because I'm not the mayor. You know, I have 230 approximately units all in one particular little development. And it's quite spread out because there are two units and four units. And so it's like a small little city. And I'm definitely not the mayor of that city. I haven't been there in a decade. And yeah, they definitely would not know who to call. Well, they know who to call, but it's not me. When they have a lockout.

[C]

Sure.

[A]

So one of the things that you spit out, which was really great and I didn't even have one possibility of writing it down because there were so many good things I was caught on the first good thing, you already said six more. And you were talking about sort of the training with Buckingham and you just listed all these things. Right. And so tell me what they were so I can write them down.

[C]

So we've kind of got a process for people, you know, the. The whole experience with us, although we're a brokerage company, we just make money from commissions like any other agency. The difference Is is we usually start with the person first, not the deal. And so we kind of put investors through a little curriculum, for lack of a better term. You know, a lot of people don't take finance in school.

[A]

Correct.

[C]

They should teach it in high school, but they don't. And so our curriculum, it's only a few hours long. It's pretty easy to digest. But we take people through. Learning first, then writing an investment plan, researching your market.

[A]

Finally, I'm slowing you down. And invest. Writing an investment plan. That investment plan.

[C]

Yeah.

[A]

So I'm the cause.

[C]

This is.

[A]

So it's old hat to you, and that's why you're running through it. And that's why I'm the host.

[C]

Unusual, though. No.

[A]

Okay, so she had to take the person first, not the property. I love it. And I know how to distinguish that for our audience. I will do that, but I'm too excited about these other pieces first.

[C]

Sure.

[A]

And that is you're going to take the person first, not the property. I like that. You're going to put me through a little curriculum. I get that. And you said learning first and then you said investment plan. Right. And what I'm guessing or think I know is that's an investment plan that's based on me.

[C]

Exactly.

[A]

And so you're going to say, right, hey, Paul, you're X number of years old. This is what you have in your retirement account. This is what you have in the stock market. Maybe you own your own homes. That's your real estate investment. Maybe you own something in Costa Rica that you shouldn't have bought and you've got a bit of money and you want an investment plan. Right. And so what are your goals, the investment plan, you know, where do you want to be in a certain amount of time?

[C]

And that's the key. People buy real estate with no goal, let alone a plan. People buy a good deal.

[A]

And I could, based on that, I could come work for you.

[C]

Totally. Okay, that's perfect.

[A]

That's good.

[C]

But if you start with the goal. So if you think what you Learned in Finance101 with us is time value, money equation.

[A]

Sure.

[C]

Right. Which is future value Equals present value times 1 plus the rate of return you achieve on the investment to the power of N, where N is the number of years your investment compounds. And so people don't know FV when they start. And that's the beginning of the equation. If people don't know where they're going, how do you know what you can buy? It makes no sense at all. And so we'll help people work backwards. Just like what you were saying. What are your goals? Are you trying to create passive income? Are you trying to create net worth? Are you trying to create a combination of the two? What's your timeframe look like? Are you already, do you need to retire in five years and we have to accelerate this? Do you need cash flow today or do you, do you want to prioritize tax write offs? You know, do you have 20 years? All that's going to change. And if you understand how the variables of that pretty simple equation works and you can play around with a financial calculator or Excel, you can write an investment plan with one sentence. Is this super simple? I'm going to invest present value dollars today in real estate investments at a sustained rate of return of R percent for 10 years. And I'm going to be worth future value dollars at the end of my investment plan.

[A]

Well, I'm glad you broke it down like that because I was going to push back hard on you and say, hey, you know what? Actually I went to graduate business school and it was a long time ago and sorry to brag a little bit, but I did very well on my gmat. And no doubt that formula that you spit out to me would have made a lot of sense to me about 30 years ago. Right. And even doing what I do right now, when you spit that formula out at me, I was like, you know, okay, so how about this? It kind of just like if you slowed it down, I would have gotten it, but it just already went over my head. So this is what I do professionally. Like, you've just lost 99 every 9% of the audience. But I want you to say that again. So you've got your present value, which is the amount of money that you have. Okay, so take me through it again.

[C]

So it's the time value money equation. You can manipulate it however you want. Probably the simplest way to do it is FB or future value.

[A]

Okay. But start me out with, this is the amount of money that I have right now.

[C]

I'm going to invest.

[A]

I know what you're trying to. You're trying to get the math there, but you're trying. You also want to get like, hey, we want to. Let's get the goal and that's kind of back into it or whatever. But that's not what I have because I'm coming to you as a client and here's what I know, here's what I have now. Yeah. And I don't know what My options are. I don't know what, you know, these things are. So what I'm telling you right now is I have 100 grand, right? And by the way, the 100 grand is kind of like, you know, 45, and my brother's gonna give me, you know, 35, and then, you know, my mom giving me whatever, but I have 100 grand. So that's. That is my right PV. That's my present, present value. Okay? So my present value is 100 grand. Okay?

[C]

I'm gonna invest that times one, plus the rate of return in parentheses times one. Call it 25%. 20 to 25% annually. Which sounds crazy.

[A]

That sounds crazy.

[C]

It sounds crazy. It's perfectly reasonable to expect that level of return.

[A]

Okay.

[C]

That's not cash flow, but roe return on equity, which people don't use in the real estate business. They use IRR instead, when they shouldn't.

[A]

Okay, so I'm going to slow you down and say that these are terms that I do know. An IRR is the internal rate of return. And then basically, you're looking at how much cash on cash I'm getting. There are other factors.

[C]

Well, IRR is cash on cash plus a terminal value, right? That's right. But because it requires a terminal value, it implies an end to the project.

[A]

That's correct. Yep.

[C]

It's great for syndicated returns. It's a perfectly appropriate metric to use for those for your own investment portfolio. You can use it. It's a good data point. It doesn't encapsulate everything you're doing. It doesn't show you the deleveraging effect as you make money on your investments. And really, if you're investing for your own future net worth and passive income, you should be looking at return on equity. And return on equity changes every year as your equity position changes every year.

[A]

That's right.

[C]

So when I say R in my equation, I'm using that ROE number, and it's different.

[A]

Okay. So now I've got my one plus 20 to 25%, which I think is crazy.

[C]

It's crazy.

[A]

Sure. Okay.

[C]

Yeah. Keep going to the power of N, where N is the number of years.

[A]

That's correct.

[C]

It's compounding. That equals future value, what you're worth in the future.

[A]

Okay.

[C]

And the real light bulb moment for a lot of people in this is, you know, we're teaching you how to do all this stuff first before you write the plan. So you have to understand the effects of compound interest and what that formula does. And now that you've written that formula down on paper, you're looking at the N in the exponent. So if you graph it out, you get a parabolic curve, an exponential curve, and for each additional year N, the slope of the graph accelerates.

You know this, right? You've been in finance, right? The longer your money's working for you, by far, the more powerful it gets.

[A]

Oh, for sure.

[C]

On the last year.

[A]

Oh, for sure.

[C]

So the difference if you hold out a few years, if you invest 100 grand for 20 years at 25%, you are worth $8.6 million. At the end of that, your 100 grand is worth $8.6 million in year 21. It goes up by over $1 million in the last year. Again, because it was working that hard. If you waited a year to invest that money, you gave up $1 million in the future.

[A]

Okay, I got to rip this apart because I've been on the other side of this. I know what our audience is thinking, you know, when they hear this sort of thing. So here's what I'm going to do. I'm going to say to you, I have that hundred grand. Thank you very much for explaining that formula to me. There's no way I'm using that formula. But the good thing is I have you. And so what I'm going to say is, I have 100 grand. What could I invest in? Now, that's a property that you could show me that's going to do something for me. And how long would I have to have that invested to get a good number out the other side? And that's probably the way I would sure approach that. And sad to say, even as a sophisticated quote, I'll put that in air quotes, sophisticated investor that I am right now, I sort of kind of want you to walk. So if we had this conversation, you're like, hey, Paul, you're a new investor. I'm going to go undercover. You know, I'm not going to. I'm not going to let you know I wrote a New York Times bestseller called Wealth Can't Wait. I'm not going to let you know that I run a real estate brokerage firm that does 10 billion a year in close volume. I'm not going to tell you any of that. And I'm going to come in as a secret newbie. Right. And what I'm telling you is the help that I'm going to ask you for, actually is help that I really need anyway.

[C]

Great.

[A]

I really, like, I really do need it. Yeah. I evaluate the deals, the way I evaluate. Right. And I'm happy to share that with you. But that'll be when you interview me and we'll. We'll do that. But I'm coming now to your firm and I'm saying, dude, help me out, dude, I got 100 G's.

[C]

Yeah.

[A]

Hey. Wow. You put me through this great education class, let me tell you. Forget it.

[C]

Don't get it.

[A]

Yeah, I don't get it. So I have 100 grand. What are we going to do?

[C]

100 grand's tough. A tough number here, depending on financing.

[A]

Yeah. Right. Okay.

[C]

So to give a specific answer to that, in the area, you've really only got a few options. You can buy owner occupied something.

[A]

Okay.

[C]

Because you can go low money down. So probably we're talking about an investor just getting started if they're renting.

[A]

Okay, let me ask you, even here. And I agree with you. Yeah. By the way, our audience is National. So 100 grand. Right. And it's a good thing you're from Minneapolis.

[C]

Right.

[A]

And I'm from Pittsburgh, because with that 100 grand, we're going to be able to do something. Something in Minneapolis and in Pittsburgh, we really will.

[C]

So in those markets, probably easier to go buy a duplex that works with 25% down, maybe in that price range. Now, things are expensive everywhere in the country, right?

[A]

That's correct.

[C]

You know, but typically you can buy an investment duplex 25% down.

[A]

Right.

[C]

Easy to go do. Now, the situation with interest rates right now makes the ongoing cash flow of that property a serious question. It's difficult out there in the smaller.

[A]

That's right.

[C]

So the technicals of the deal itself, it's a needle in the haystack in a lot of markets with that right now. I will acknowledge that. But you place your hundred grand 25% down.

[A]

Okay.

[C]

Buy a property that works.

[A]

Okay, Whatever. Doesn't matter. So let's say we are in Minneapolis. We are in Pittsburgh. I know the area in Pittsburgh, so I know the area that's not the fanciest neighborhood, but it's also not the worst. Right. And you know, when we buy value, one of the things that we do is we buy the kind of ramshackle place in the better neighborhood.

[C]

Totally.

[A]

Okay. So we're gonna do that, and we're gonna do that with a hundred grand. Sure. And we're basically gonna borrow 300. 300 grand?

[C]

Yeah, you borrow 300 grand. And this is where that crazy Roe number comes into play, because there's a leverage factor there. You're borrowing three Quarters of the purchase price. So your percentage in the deal is 25%. There's a leverage factor that multiplies your returns by the inverse of the percentage down. Okay, right.

[A]

Which I understand, but I got to tell you.

You'Ll have to explain that one too. And that is that you're getting the appreciation, for example. Right. On the full amount. Not just to break it right down into our.

[C]

Exactly.

[A]

We made the $400,000 purchase.

[C]

Right.

[A]

And we put 25% down, which is a hundred grand.

[C]

Correct.

[A]

And so if that property were to appreciate 5% or 10%, we're getting. Let's just use round numbers. We're getting the 10%, not on the 100 grand. We're getting the 10% plus 400 grand.

[C]

But your Roe equation is 10% or $40,000 divided by your money in the deal. $100,000.

[A]

Correct.

[C]

Which is 40% on your money.

[A]

That's correct.

[C]

Without counting any cash flow, principal pay down, or tax benefits.

[A]

That's correct.

[C]

Now my 25 number doesn't look so crazy.

[A]

That's correct. Right. Assuming you're getting a 10%.

[C]

10% is unrealistic on an ongoing basis. We like to use 5 here in our market. Our long term 50. We have a 57 year chart of values here for apartment buildings in LA. And our average long term average is six and a half percent every year. Okay, so we use 5% for long term planning. Even if 5%, you still make 20% on your money.

[A]

Yeah, yeah, 5%. Well, 5%, you're making 5% on the. Now you're making 5% on 400. That's correct. Right, you are. And then you've got 20 grand.

[C]

Correct.

[A]

Over 100. Over the hundred.

[C]

So you make 20 from appreciation, 3 to 5% from cash flow, 3 to 5% from amortization, 3 to 5% from tax benefits. You're in the 30s.

[A]

And when you say amortization, you're talking about paying down your principal.

[C]

Principal pay down. Right. Tenants are paying your mortgage for you. So the principal pay down can be expressed as a return because it's yours when you sell it.

[A]

And that's also what if anybody. And you should do this. And we'll put this in the show notes just for awareness back to the percentage that you gave to the amateurization we looked up real quick. Right. So, yeah, so 7, you know, in this particular deal, you put 100,000 down, you're borrowing $300,000. And that payment. Right. Is at 7% interest, which is about roughly what you would pay that payment is roughly $2,000 a month. So because I asked Anthony to pull it up on his phone already, that first $2,000 is how much interest and how much principal?

[C]

It's 1750 bucks in interest, 245 bucks in principal.

[A]

I love it. 1750 and 200.

[C]

245.

[A]

245, because I kind of rounded up. So it's really 19. Oh, it's very close. It's 1995.

[C]

Yes, 1995.

[A]

So 1995. And of the 1995, in your first payment, right, you are lowering your principal. You're lowering the amount of money that you owe on this property by $245, which is pretty good. Now give me year 10.

[C]

So, well, let's look at year one first. Right.

[A]

The payment, by the way, if we were to get a fixed loan, the payment would. Would stay the same. So the payment's going to be 1995, right. From the first 30 year fixed until the very last payment. Right. And we've put only $245, taken $245 off of principal, which is still pretty cool.

[C]

Right?

[A]

Because that's money that's effectively in our pocket. That's return on equity. Or that fits into your. Into your equation. Right. Okay, go ahead.

[C]

By year 10, your 120th month, you're paying 491 bucks in principal. Same payment, 1504 in interest. And then to circle back on our roe on from amortization, if we just look at the first year, you pay down about almost exactly $3,000 in principal.

[A]

That's correct.

[C]

So on 100 grand down payment, right. You make a 3% ROE from principal pay down.

[A]

Right.

[C]

In addition to a 20% leveraged appreciation, in addition to. Call it 3 to 5% cash on cash.

[A]

Okay.

[C]

Plus tax benefits, cherry on top and each one.

[A]

See, one of the things I did is I took one of your numbers and, like, slowed it down and ripped it apart. And so what happens is, to reiterate this, you've got your $100,000. That's real money that we took out of our pocket. Right. And we're borrowing the 300,000. But when we make that first payment. Well, when we make the first 12 payments for the first year, we're actually reducing the amount of money that we owe on that loan by $3,000.

[C]

Right.

[A]

So now instead of $300,000, we owe 297,000. And while that still seems like what's the difference? Here's the thing.

[B]

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[C]

Oops.

[B]

I've got a box of Cheez It Crackers staring at me and I just wanted that irresistible cheesy crunch. Sorry, that was a total snackcident.

[C]

Mmm.

[B]

What was I supposed to be talking about? So salty, so crunchy, so cheesy. Whoops. Lost my train of thought. I've heard a brain freeze, but brain cheese. I'll just have one more cheese at Cracker and then I'll get back to it.

[A]

You've got $3,000 that you've earned, right? On the hundred thousand, right? So that is. That is a very real.

[C]

It's a very real return. Very real 3% return you're taxed on, which is.

[A]

That's. That's right.

[C]

You only write the interest off at the principal.

[A]

That's.

[C]

The IRS agrees it's a return.

[A]

That's correct. That's correct. So you've got a very real 3% return, right. Just on that. Right. Now when I buy something, and likely when you buy something, we're buying that place. It's not. If it's in tip top shape at $400,000, which by the way, we're not getting anyway, Right. We're getting the tip top shot. You know, that's a good thing we have to worry about that is we can't get it. But the dollars that you put into rehabbing that $400,000 building is going. Let's say we put $20,000 into it. We're going to put $20,000 into the things that make the most sense.

[C]

Right.

[A]

And in all likelihood we're going to get what sort of return on that $20,000.

[C]

It totally depends on the deal, right? So that's not even in these numbers, Right? So now we're talking about value add and rehab on top of that, right? If you assume you do that in your first year, you get this huge pop in equity in your ROE at the beginning too. So you can front load all these numbers, right? And like here it's pretty reasonable. Like if you're doing a value add apartment building in my space, you can probably get, if you take down payment plus renovation costs, about a 50 to 80% ROE on your money invested in year one.

[A]

Right.

[C]

And then those, those measly 20% numbers take over after that.

[A]

Right.

[C]

Something like that's pretty reasonable.

[A]

That's right.

[C]

Typically like on that dollar for dollar on the value add. In my world, if you're spending 15 to $20,000 to upgrade a unit, depending how low the rent was before it goes in, we price buildings on the income method of, you know, valuation. So it's going to be based on cap rates or gross rent multipliers. And depending on where the rent was before, a lot of times you're making anywhere from 50 to $100,000, 15 to $20,000 invested. So it's usually at least 100% return on invested capital for any of the value add on that, on that rehab money.

[A]

Oh, for sure.

[C]

Yeah, probably more.

[A]

And yeah, I would say I was.

[C]

Interested in your number, just to be conservative.

[A]

Yeah, I was interested in your number, I would think two to three times.

[C]

Yeah, it depends where your starting rent was. You know, if it wasn't too far below market, you don't make as much of a pop.

[A]

Yeah, it's interesting you say that too, because you're taking an even more conservative approach on it because, for example, you're saying, hey, I'm going to fix up a unit, right? And let's just say for argument's sake, you know, this $400,000 building, let's just say it's three units, right? And what I'm saying to you is we bought it at 400,000. The rents are definitely depressed for sure for the market, but the place is really sort of a dump, right. So one of the things. But we've got tenants in it. So one of the things I do is I don't mess with the tenants in it.

[C]

I'm like, just let it go.

[A]

It's all good. Yeah. And then I would say, okay, now I'm looking at the $400,000 and I have it kind of in my mind's eye. And what's it going to look like? It's kind of like the fence is falling down and this and it's, you know, a lot of cosmetic crap. And, you know, maybe you've got a bit of a leaky roof and there's these things and that's going to be priced into your $400,000. That's why you're getting it for $400,000, because, you know, it's got that stuff. And when you take the 20 grand and you make the fence straight and you do the landscaping a little bit and One of the other things that I like to do, I'm interested, if you would agree, is it's gotten so inexpensive in the time that I've been investing. When I started investing, putting a security system in that's got like a buzzer. Forget the camera. You didn't even have the camera, right. You had, like a buzzer, and it was so expensive, Right. So I'm buying these places, and none of them have.

[C]

It's super cheap.

[A]

None of them have security at all, Right. And so one of the things I would do is I would spend the big money on the security system. And nowadays you get, like a killer security system. It's got your buzzer, but it also has your. It also has a camera. The camera may be hooked up to people's smartphones. So now you've got, really, a ramshackle building that I'm kind of, you know, cleaning it up. But I'm also, you know, sometimes the door wouldn't even really shut, right?

[C]

Totally.

[A]

You know, so now I've got. I put the security door in, right. I put the great security system in. And now for 10 or $15,000, I mean, forget about the additional rent value, which is where you're going. And I appreciate that because that's. That's a conservative approach, right? I'm looking at that. I'm going, hey, now I have a building that looks pretty good. Yeah, the reds are the same because, you know, I didn't fix the interior units at all, right. I might fix the common areas, you know, rip out lousy carpet. You know, it might smell bad, even, you know, put in nice carpet. You put a nice carpet, paint it, now suddenly it doesn't smell bad at all, Right. And I make the place look nice, and I put the security system in. We can do all of that. You probably do all that for 20 grand.

[C]

I was going to say 20 grand. Yeah.

[A]

Yeah. And now what I'm going to say to you is that that building is worth, you know, it's more. Yeah. I mean, you say 100. Yeah.

[C]

I don't know.

[A]

Yeah. See, I was thinking 60, but, yeah, we're fictional.

[C]

$400,000.

[A]

Yeah, we're making numbers up. But, you know, if we can add that this building is now worth $460,000. Right. And I put 20 GS in. Right. And for me, I feel good about it because I know that the people are feeling safer.

[C]

And you'll get less problems in management. That's secure building.

[A]

That's good.

[C]

Less likely to get turnover.

[A]

That's Correct.

[C]

And other problems. Yeah, totally.

[A]

This is the point.

[C]

Yeah. I didn't go to, you know, Harvard Business School and started Goldman Sachs or anything. You know, like, yeah, this is a regular dude.

[A]

Yeah. This is the point. And the point of this podcast is to show the accessibility of real estate.

[C]

Anybody can do it. Yeah, totally.

[A]

Yeah. It's one of the taglines for the podcast is that anyone can do it.

[C]

But not special at all.

[A]

But not everybody will.

[C]

People don't take action. And I think that's the beautiful thing about our model, Right. We have this really simple educational program that highlights, like I was saying, you know, the end goal, and that helps you take action. People are so scared to start.

[A]

And back to the piece where I said, you can't learn how to ride a bicycle in a seminar. You're going to teach me this stuff. Even as a sophisticated investor, when you said it quickly, it went over my head and I broke it down. Okay, now I understand it. And I was going to pretend I'm not a sophisticated investor, and it's definitely going to go over my head. However, you're now teaching it to me. I'm going like, stop teaching me. I've got 100 GS. Let's go, let's go. And then while we're doing it, it's now going to make sense, right? Because the thing doesn't make sense to me. Like, you can explain to me in this podcast about how I get 3% return on the. On what you call the amateurization. Right, right. And that's why I said, okay, timeout. So here's what happens. We buy the building and, you know, what's the first payment? And the first payment, $249 goes to principal. Right. But by the time you do that times 12, essentially, it's really $3,000. Now, that's a real 3%. I understand that. Right. Over the course of a year, no matter how bad I am with math. Right? Okay. You're going to come back and you be like, all right, dude, look, see, this, here's your. Here's your statement at the end of the year. The statement at the end of the year says you do not owe $300,000. You owe 297. Actually be a little less than that.

[C]

Right.

[A]

You had three and a half percent. You see, you got three and a half percent return, right. On your hundred GS. Now, year two is going to be even greater because you've borrowed less money. So the interest is on the lower amount. And that's how this thing Changes, right? And you know, in your last month, that's where the thing flips around and you're paying, you know, $249 worth of interest and you know, whatever it was, $1700 in principle.

[C]

Right.

[A]

And that's also part of that sort of exponential piece. So, okay, you said to me, time value of money and we're going to be like, oh, okay, I'm coming to you with 100 grand. Then you said that there was the amateurization piece. Give me some of the other pieces.

[C]

So four elements of return, right? Easiest way to remember it is cat with two A's, a little acronym. Cash flow, appreciation, amortization, which we just talked about, and tax benefits.

[A]

Okay?

[C]

So you quantify all four of those together, add them up, that's your ROE every year, and they all kind of operate a little differently. You know, appreciation compounds nicely. Amortization sort of compounds. Like we talked about, cash flow doesn't. Unless you reinvest it in the property, which a lot of people do. Tax benefits, you don't get that in your pocket unless you have the financial discipline to, you know, pay yourself back for the tax savings that you would have paid at the end of the year.

[A]

Sure. But it is real money.

[C]

It's real money and compared to an alternative investment making the same cash flow cool, it's tax sheltered. So it makes sense to use that in your numbers and you're going to.

[A]

Have to pay that tax eventually. Not really. Okay, explain that to me.

[C]

So have you heard swap till you drop? Probably heard that one, sure.

[A]

Okay. Yeah. So one of the, you know, and one of the things, it's one of the ways I got through, you know, fancy law school without studying that much is, you know, stuff made sense to me, right? And one of the things they taught me in tax law, which as you might imagine, not a lot of fun, but one of the things they taught me in tax law was that really, really when you're dealing with taxes, it's. It's pay now or pay later. You always have to pay, except for. And there were two exceptions, and I'm sorry to say I can only remember one of them today, but it's the one you're talking about. And that is when you die, right? All of the stepped up value.

[C]

Step up in basis.

[A]

Yeah, step up in basis gets transferred down to your.

[C]

And that's about the capital gain. So it's important for people to understand there's two different sides of the taxation, right? There's your capital gain. Eventually if you sell the property if you exchange until you die, which is the swap till you drive.

[A]

That's right.

[C]

You never pay that. Your heirs get to step up in basis. And then there's the cash flow. That's taxed too. Right. But it can be sheltered with depreciation and other write offs and stuff like that. If you do it right, you could potentially shelter all of your cash flow. Eventually you create this snowball that, that requires you to buy properties every single year in order to accelerate the depreciation and get enough. And that gets cumbersome to, you know, deal with depending on the market and what you can do.

[A]

Right. And then I was finally ready to sell some. He's like, you know, that's still let me take a few coins off the table. And I'm like, wow, I've swapped this thing so many times that if you don't swap till you drop, you swap, swap, swap. You know, they're like, whoa, that tax bill is huge. However, it's a tax bill that you would have paid anyway. And not only, number one, time, back to time value money. Back to time value money. Not only are you delaying the tax, so if you have, you know, if you have to pay $100 in tax today. Right. Paying that $100 in tax 10 years from now is obviously going to be a benefit.

[C]

Right.

[A]

But in addition to that, when I go from one property to another, the fact that I don't have to pay the taxes now not only delays the taxation, but it allows me to buy into a bigger, bigger property. Property. And when you do that big analysis, you really realize there's so powerful, there's some amazing compounding in there.

[C]

And then that equity that would have gone to the government is compounding on your own behalf on your P L schedule of real estate.

[A]

Correct.

[C]

And you don't pay until you eventually sell or die. So it's ridiculously powerful. I mean, you're like keeping what, 30% of the equity if you're selling each building or more potentially, depending on how it works.

[A]

That's right.

[C]

It's absurd.

[A]

And you know, I have my own level of success in real estate. And one of the things that I love about this podcast is interviewing other people, learning about their experience. And sometimes I interview people that I call the titans. And you and I are mini titans.

[C]

Yeah, there's a lot of people a lot bigger deal than we are.

[A]

That's right. That's correct. And you know, every once in a while I will interview the titans, which I love to do. And you know, one friend of Mine close to a billion dollars in real estate. And I've interviewed him for other things and I'll definitely interview him for the podcast. And one of the things he said to me was that I should be swapping a lot more often. So I've gotten. I interviewed another titan, right? And the other titan was like, I'm like, well, you know, what's your advice for, you know, what would you do differently, you know, if you could roll back time? Because he's very old and I'm a version of the rolled back time. So what's back? Basically your advice for me right now? And, you know, and he said, like, buy more and sell less. And I was like, okay, everyone has a different. Yeah, buy more, sell less. Well, here's why I'm not buying more and selling less is because I actually need the money, you know, I need the money from the sale to buy more. So, like, okay, that's, you know, that doesn't help as much. So I'm buying a value add property, right? I'm adding all that value, right? You touched on this before. We did, and I'm adding all that, the value. But now the value is added, right? So that I get this massive bump in return on equity. And then I'm just holding, holding, holding, right? Like my friend Sam said, who said, buy more, sell less. Well, the one thing I can do for sure is I can sell less. Okay? Now I take my other friend who's a fair amount younger, still older, but he's a fair amount younger and he has a billion dollars in equity, and he's saying to me, you should be. You should be selling a lot more, right? And buying a lot more. Because, sure, we can always go back and look at the thing we sold. Oh, I wish. I wish I hadn't sold my house.

[C]

People get attached.

[A]

Yeah, I wish I hadn't sold my house in Dupont Circle because, you know, I've made a lot of money on it. But last time I went back to Dupont Circle, it's worth a million four. Like, wow, I wish I would held on to. I mean, we, we can always say that. But what he was saying was. And he gave me a specific example. I'll get the specific example from him when I interview him. But he put like $700,000 into a complete ramshackle piece of property in New York, which, if you would have held on to it for a long, long time, it would have been worth a lot more. However, he kept swapping it.

[C]

What did the equity do?

[A]

He kept swapping it. And he fixed it up and then, you know, he got this higher price and he sold it at the higher price and he bought something el bigger, but still ramshackle. And so he did that value add thing, which is really a big piece of what I do. Right. But he instead of what I do is I buy, I value add and forget it.

[C]

Then your. Your equity is not working as hard anymore.

[A]

That's correct.

[C]

You get deleveraged.

[A]

That's correct.

[C]

That's the difference between 100 million and a billion.

[A]

That's correct.

[C]

It's exactly what happens. Because as soon as you've done the value add, to throw a little bit of math out there on our same $400,000 profit, you do the value add, you own it for two or three years, and people move value. Upgrade some units, it's worth 600 grand. Now.

[A]

Right.

[C]

To math in our heads, easy. We're going to say we have an interest only loan, no amortization. We start a $300,000 loan.

[A]

Fine.

[C]

Our 100,000 has grown to 300,000 in equity. Correct. Still going up at 5% in your average year, 5% of $600,000 is $30,000. Correct. $30,000 divided by $300,000 in equity is 10%.

[A]

Correct.

[C]

It started at 20. Your return has been cut in half. After you did your value, you made all the money. You did great. Your return's now cut in half. And because you love the property and you know it and you're comfortable with it, it, you're keeping it. And now that equity is lazy.

[A]

Correct.

[C]

And you've been deleveraged. Correct. So what you should do is, like your friend suggests, sell the $600,000 property. I'll eliminate closing costs to make the math simple. Right? Sure.

[A]

Perfect.

[C]

Exchange the $300,000 into a $1.2 million 6 unit. 12 units, whatever. It goes up again. Same math applies. You're back at 20% again, Roe. And so you play this game where you get deleveraged over time and you refi and buy, or you exchange and buy, you don't have to sell.

[A]

That's correct.

[C]

If you refi, you could do cash. It has mathematically exactly the same effect. If you don't want to pay us greedy brokers in the room, that's totally fine. Right. And just keep buying, but keep re leveraging and manage the flow of your equity over time. And that is literally the difference. If you chart out that math over time, that's the difference between averaging 25% to 30%, 40% on your money annually. Every year for 20 years versus 10 or 15. And that has a dramatic effect on the slope of that graph again and how much you're worth in the future.

[A]

I mean, do you see why I love the podcast? It's like, oh, here, here I am. You know, this podcast is designed to like educate the masses. And I'm like, wait a minute. You know, I really appreciate that because it's a great way to make real the advice that my very sophisticated friend gave me. And he was just like, well, you should, you know, you should just sell it. And, you know, but I do get it. And I'm going to break it down a little deeper into what we talked about before because we've got the $400,000 building.

[C]

Sure.

[A]

And what I did when I first got the hypothetical $400,000 building is I spent 20 grand. It was a place smells, the door is off its hinges and it's poorly lit.

[C]

Right.

[A]

It's not really where I would want my daughter to live, even in a fairly decent neighborhood. Now, first thing I do is I take $20,000. It's such easy money spent. I clean up the exterior a little bit. I put the door on that really actually works. I put the security system in. That is bloody inexpensive, relative. And now that $20,000, okay. And let's just say that increases the whole value of the building. 80,000. Right. So now I've got a 400% return on that particular thing. Guess what I'm going to do when I look at the things, because I, I don't have unlimited money. I have 20 GS.

[C]

Right.

[A]

So where am I going to put the 20 GS? I'm going to put the 20 GS into the place that makes the most sense in that particular building. Now, I do like the security aspect of it, but so does everybody else. And that's why I'm getting that kind of return. So that's where I'm putting the 20 GS. Now the 20 GS turned into 80 GS. Now let's say I have another 20 GS. I'm not going to find a place that is as low hanging fruit. Right. So now it's like, okay, well, you know what, the windows are not, you know, it's Minneapolis or it's Pittsburgh. So we're gonna, you know, we're going to, not only, not only we're going to save on heating, but we're also going to increase the value of the building. And I kind of like that. It's more energy Efficient, given what everything that's going on. And windows are expensive, you know, Now I'm gonna put the next 40 grand into windows, right? I'm not going to get 4x return on the windows, right. I put 40 grand into the windows. It's going to increase the. The value of the building. 60 grand. So now I've made 50% instead of whatever it was, 400% on that next investment right. Into the building. And eventually you get down to, you shouldn't be putting more money into the building. Building. And once you've gotten down to that point, you've now maxed out, right. Your value add. Right. And when you max out your value add, then if you stop right there and I get Anthony to help me with the math, and he's going to say, here's what your return on equity is. And I'm like, wow, that's great. And then honestly, what I do in my own portfolio is forget it. Right? I just forget it. And I let it, and I let it go. And over time, I get all of the other things that you said I get. The cash flow starts to go up. Right. I still get the appreciation, I get the other things, but I don't get the big value of the value add and what I call it sometimes, which is a fancier term, not that fancy, but sometimes I like to use a fancy term. And I'll call it repositioning.

[C]

Yeah.

[A]

So I've repositioned the building and really what I've done is I've repositioned the building in a. An ugly, really ugly duckling building in a pretty good neighborhood. Right. I've now repositioned it to, you know, it's not the nicest building in the neighborhood, but it's a very nice building. And that's the repositioning. And that's all the repositioning I'm going to do.

[C]

Right?

[A]

Because that's. I've maxed out the amount of dollars that I'm going to get great return on. And at that point in time, that's when Anthony says, hey, freeze, you need to talk to my friend who's, you know, worth $800 million.

[C]

Right?

[A]

Because he agrees. That's where he says, freeze. We've maxed this out. Let's go ahead and sell this. You could refi.

[C]

Could do either.

[A]

Let's sell this and we'll exchange it into a bigger property that likewise has the same problems, Right? Yeah. I love it.

[C]

But I don't think there's a wrong answer to that conundrum either. Either, you know, that's great. Taking some chips off the table, enjoying the cash flow de risking your balance sheet. Those are not bad things. The cash flow from your stabilized buildings allows you to go after more value add buildings that need all the work. If you're constantly on bridge loans for everything, in value add mode for everything. And you're feeding it with your, our day job, which is brokerage, which by the way is down 50% this year because of the market, you can get yourself in a really bad situation.

[A]

Right?

[C]

That's right. So I think, you know, the compliment. My experience has been the complementary business of owning investment properties with the brokerage business has been fantastic for me because sometimes it does make sense to put some aside, get some good passive income going. And that's my rainy day income source. Yeah, we're still doing fine. Brokerage is doing great. I mean, 20, 21, you know, and 22 were the biggest years ever.

[A]

Right? Sure.

[C]

But I think that's a great way to approach it. Depending on what your primary income source is. And then if you're retired, two totally different conversations. So the answer is completely different. Depending on who you are.

[A]

And so taking a step back and not just to give you a much deserved pump for your company, it really is a very, very unique business model. So normally what I see is I see professional investors that are doing syndication. I know you're doing some syndication. And syndication is just using other people's money to fund real estate deals. And if you're finding great deals and you want to look at bigger deals or whatever that is, you want to use other people's money. And it's also a way for, you know, when I first came into your office as a hypothetical new investor and you're like, well, let me teach you about the time value of money. I'm like, dude, I'm a doctor.

[C]

Yeah, don't do it.

[A]

No, I, I don't want to hear about it. You know, that's perfect reason to get into business with somebody who's really a great syndicator. And of course there's good, bad and in between of. Right. But your particular model is a brokerage model. So we have the professional investors that are doing syndications and then you also have people that are brokering deals. Right. And the people that are brokering deals generally are not doing this whole educational piece and they're not doing this whole way. Let me show you how to do it. They're either doing it for you and they're a syndicator or they're Saying like, oh, hey, here's a deal you should buy, you know. Right. See it.

[C]

Yeah.

[A]

Right. So it's really unique.

[C]

Thank you. I mean, we see that's really what drew me to the company originally. I just think the business model is amazing. I can't believe other people don't do it if we've been around for so long. We see ourselves as a great option in between the paid education crowd, which is fine, but that can get very expensive and you kind of don't know what you're going to get. We get a lot of people coming to the office that had a bad experience with those types of people.

[B]

Take the next 30 seconds to invest in yourself with Vanguard. Breathe in. Center your mind. Recognize the power you have to direct your financial future. Feel the freedom that comes with reaching your goals and building a life you love. Vanguard brings you this meditation because we invest where it matters most in you. Visit vanguard.com investinginyou to learn more. All investing is subject to risk.

[C]

Dick's deal days are here now through Wednesday. Score epic deals online and in the app. Find exclusive scorecard and app only offers +1day only deals on Dick's.com this Tuesday and Wednesday. You won't want to miss these deals. Shop now@Dick's.com or in the Dick's app. Every holiday starts at Dick's.

And the syndications where it's great to be hands free. That's definitely has its place. It can be very effective. But again, you're investing in somebody else's deal, you're giving up a ton of the profits and you have no control.

[A]

It's not nearly as efficient.

[C]

Right. By combining the expertise and the education with the brokerage model, we can do all the education and the planning for free. We can include it in the brokerage experience.

[A]

Sure.

[C]

We do all the stuff everybody else does as far as exposing properties, getting great marketing, finding deals, creating relationships. That stuff is table stakes and we don't charge any more commission than anybody else. But what that does for us is now people A love working with us and B, they stick with us for the life of their investment plan. So we can be one person that buys this $400,000 bootlex at a seminar that we put on for free. And that might be the first of 12 transactions they do with us over the span of 20 years. And that's a great client. We don't have to do cold calls. We don't have to send mailers out for that stuff. And it's a great business. Everybody has A better time. They don't feel like it's an adversarial sales relationship. When we get together.

[A]

That's right.

[C]

At our first meeting, I'm not sliding a property across the table and say, you need to buy this one.

[A]

Right? That's right.

[C]

We're in the classroom, you know.

[A]

That's right.

[C]

And it's amazing. It's a great experience for everybody.

[A]

And I think it really does. It's interesting because, you know, I knew what you did before interview and I did not plan on the sort of tagline for this thing is you don't learn how to ride a bicycle in a seminar. And so, so what's interesting is on the paid education piece, a lot of people are totally trying to teach people how to ride a bicycle in a seminar. And you can be very good at it and you can be really, really well meaning. And it is no surprise that people will go out in the field and make big mistakes for sure. And so as I understand, what you're doing is you're saying, hey, let's go, come on in. But you're saying, hey, come on in. We're going to have a seminar, we're going to teach you the physics of riding a bicycle. And may goes over your head, or maybe it doesn't. Maybe you find it interesting, maybe you don't. But now we're going to go out in the parking lot and we're going training wheels. So you've got your paid seminars.

[C]

Right.

[A]

Sometimes people can do a phenomenal job at that. And then people go out and they go and do it on their own and it's no doubt that they're going to screw up. Right. You know, maybe they do fine, maybe they don't. But you know, screw up would be natural. So you're, you're doing, you are teaching them how to ride a bike in a seminar. But then when you're done doing that, you're taking them out in the parking lot and you know, kind of.

[C]

And we're still there right next to you.

[A]

Yeah, yeah. Holding the thing while. While. And I also appreciate the fact that when they then have a good experience, you don't have to worry about client acquisition again.

[C]

Exactly. I like 80% plus of our business is repeat and referral. Almost all of it.

[A]

I love it. Yeah. From the brokerage space.

[C]

Yep.

[A]

And do people ever worry that because you're an investor that, oh well, you know, Anthony's going to take the absolute cream of the crop?

[C]

I get that every single time I talk to a new client. It's a fair question. Yeah, I will, you know, to be, you know, blunt about it when I'm in the market.

[A]

Right.

[C]

But, you know, I only buy probably two to four buildings myself a year. And I try to get into the bigger stuff, so I'm not competing with most of our clients for that. And then the same thing with the syndicated deals. We do a couple syndicated deals just to make that an item on the menu for people that want to do that. And we try and stay above the price range where most of our clients are. So I really try not to. And in fact, for me, you know, I will often find a great deal even if I'm in the market for something. And, you know, if I've got a client who's like in an exchange, right. They've got a deadline, they have to close by the interview for taxes, whatever it is. I would way rather see a client, you know, get the deal, have a great experience, come back. For me, that's a much. That's more valuable to me than stealing a property.

[A]

Sure.

[C]

I know that real estate works over the long run and whatever I buy is gonna be fine.

[A]

Sure. You know, and the way, you know, one of the ways I would handle that if I were in your shoes is just that, that there are so many deals done in la. This is not a zero sum game. You don't have a crystal ball. You can look at three great deals and pick one and you give the other two to your clients and the other two actually do better than the one that you picked. It happens all the time.

[C]

I just closed a deal two weeks ago that I would love to be able to buy. Right now I'm thinking about doing an exchange personally by the end of the year, and I want to duplicate that deal. And my client got it. Great for him.

[A]

Yeah, Love it, you know.

[C]

Absolutely. All good. My timing didn't work out.

[A]

How do you source deals for your clients?

[C]

For us, it's a great question. You know, a lot of people say you got to hit the phones, you got to do the mailers, so and so we don't do a lot of that. We do almost everything on relationships. And for us, you know, we start with a lot of people on the buy side. We do plenty of listings too, for people that are reselling properties and re leveraging or they come in with a house that they're renting, whatever, you know. But because we do so much on the buy side, we really pride ourselves in having incredible relationships with the brokerage community around town. So, you know, I have the ability to call somebody, they probably know me already and say I've got so and so. Paul is at a client of mine. He's great. We've done three deals before. He's in an exchange. I really need something. What do you have? You know, and we will still be able to get off market deals for people that we wouldn't have listed ourselves. And then we can still be in their corner on the buy side and you know, our fiduciary duty is to them.

[A]

Sure.

[C]

We're not double ending something. Right.

[A]

What percentage of your properties that you get for clients are actually on the market versus like a pocket deal off market?

[C]

I would say 70% of the deals we do are on the market.

[A]

Okay.

[C]

Maybe 30% are off market. You know, I think there's this notion out there that if it's not an off market deal, it's not a good deal. In my experience, that couldn't be further from the truth. I've seen a lot of terrible off market deals.

[A]

Sure.

[C]

And it's a great, you know, marketing strategy on the broker's side to chop an off market deal, get people really excited. It goes for a bigger number than it would have otherwise, you know, but the market really is going to tell you the price does it. And once it's been on the market for a while and it's out there for 90 days, you know, suddenly pricing expectations come down to reality, especially right now, you know, the market has turned and seller expectations are sky high. Right. So off market deals these days, my experience is they're a little, they're a little rarer. I'm looking for myself right now and I'm going through all the stale stuff. I'm starting with listings that are at least 60 days old and I'm the only call they're getting that's correct. And the red carpet rolls out. And what do you want to do? You want to do some seller financing? Where do you think the price decline? You want some repairs? I've seen some of the most amazing deals in my career happen. For deals that got passed over by somebody else. Maybe they went out too high on price, whatever. Maybe they had bad timing, you know, maybe it wasn't marketed great. And those are easily just as good, if not better than the off market stuff.

[A]

That's where you and I are totally in alignment. And people that you know, I have clients or friends that say, hey, I'm interested in a deal. They want the off market deal. And most of the stuff that I bought is on market. And the, the great deals that I've gotten are on market. Right. I bought two duplexes on Doheny, it depends. And Doheny is literally the dividing line between Beverly Hills and West Hollywood. I was on the other side of the street, so I'm not in Beverly Hills, but literally across the street from Beverly Hills. And here are these two duplexes and they sat on the market forever.

[C]

Perfect.

[A]

And what happens is, what that means is every investor, professional, non professional neighbor, every single person has looked at these deals and has passed.

[C]

Right.

[A]

And how could this possibly be before I even looked at it?

[C]

Right.

[A]

And, and how could it possibly be a good deal? And the answer is information. Yeah, they were rent control. That was one of the things that stopped people. They were ramshackle. That was another thing that stopped people. And I just knew that it's not in my karma to buy a rent control and like try and figure out how to get rid of the, you know, the aging tenant. Like it'll happen when it happens.

[C]

Right.

[A]

But generally I think that things like rent control depress the price more.

[C]

You can get a great deal.

[A]

That's correct.

[C]

Buying a rent control building.

[A]

And then you wait it out.

[C]

You wait and you make incredible returns.

[A]

And it will totally. And you gotta be patient, but it works, that's for sure.

[C]

And you know, people have this mental block with. I've seen that one.

[A]

Oh yeah, right.

[C]

When you're, you're flipping through CoStar.

[A]

Yes.

[C]

Or the MLS. And even if a property had a million dollar price reduction, you don't see that little million dollar price reduction. You see the photo that I saw last week?

[A]

Sure.

[C]

So I'm not going to buy that one.

[A]

And the other thing too is that, you know, I loved your idea about calling the ones that have been on the market for so long because you don't know how much the seller motivation has changed or what's happened in their life. And you know, oh, it's a family trust and they, they couldn't agree on a price so they picked this sky high price and then they did nothing. And you know, here it is three, four, five months later and you know, the two siblings are all like, okay, that's price it reasonably. You know, got talked to the higher price, they're like, okay, hey, you know what, let's go. And then that phone call unlocks a great deal.

[C]

You know, the other thing I've seen a lot, especially lately, the market's turned. Right. And pricing has gone down in the apartment building market, at least here. And the Market norm basically over the last 10 years has been whatever the list price is, that's the starting place tenant either needs to go at that number or above.

[A]

That's correct.

[C]

So don't even look at a building if you wouldn't pay list price or above Ford or somewhere in that range. And so we've trained all of us as investors and buyers to ignore a good property that I wouldn't mind owning for 10% less. Nobody even makes that phone call to the point earlier.

[A]

Right.

[C]

Why wouldn't you pick up the phone, call the broker? It's been on the market for a little while. What are the motivations? Like, I like the building. Can we make this work? We've got like, you know, million dollar plus discounts on properties.

[A]

Oh, absolutely.

[C]

Just by making picking up the phone and calling. And the agents just, they love it. Right. Because they've got this deal, they can't sell. It's hilarious how the norm has shifted so much.

[A]

That's correct. And being on top of it right now and knowing that it's going to create a lot of opportunity.

[C]

Totally.

[A]

That leads me to another question and I'll just hit you with a couple of more. I probably have dozens more before we go to our fire round.

[C]

Absolutely.

[A]

But one question for you, which I'm hearing a lot of, I guarantee you are as well, and that is, hey, shouldn't I wait because, you know, the market shifted. You know where interest rates gonna go? Aren't they going to come back down? Aren't sellers going to finally realize they're overpriced? I have some money, I want to get into the market. But. But don't you really think I should wait?

[C]

I love that. I mean, study after study shows like investor sentiment is just prone to that kind of thinking. Yeah, we have a saying. People like to take a stock market mentality to real estate, which is just a mistake. Every time you want to buy low and sell high and I'm going to time it and I'm just going to be the genius, I'm going to find the bottom of the market. And the reality is you don't know when the bottom of the market was there until at least six months later, maybe 12. Correct. And once it's passed you, everybody else is piling back in too. So you're really not going to get that amazing deal that you thought you were going to get. And at that moment when everyone else is so afraid to jump in, that's the moment when you get the amazing deal. That's correct. When everybody Else is waiting. That's the moment that you get it. And beyond that, if you chart the math out again. Right. To go back to the math, the cost of you waiting with the money sitting around, especially in an inflationary environment.

[A]

Correct.

[C]

You have to get the most amazing deal in the world to eat that up.

[A]

Up. Correct.

[C]

We did a little study years ago and we did some business in Lawndale, which is a little city in the south.

[A]

Right.

[C]

And we took the very worst deal on the year, the most expensive deal from a year prior. This was like in the 1980s. And we charted out what that would look like over 20 years. And then we took the very best deal on the market the next year and charted out what that would look like over 19 years. So somebody waited a year. Right. Like as if we were pretending somebody was sitting around and they stole a property a year later. Sure. The person that bought earlier made more money than the person that waited a year to steal a property. It just doesn't work. The time value money is way more powerful than you getting the deal of a century. Yeah. Sometimes they come around, but it's just not the right thinking.

[A]

And I have a couple of things. I totally agree with that. I have a couple of things to add to that. And one is unless you can really time the market, which you cannot as professionals, we know we're really closer to the top than we are to the bottom. I will then tend to shift and be a little bit more caut.

[C]

Totally.

[A]

I'm definitely still buying, but I'm buying. I'm being a bit more cautious.

[C]

Right.

[A]

And then when you buy, and let's say, you know, I think the market's going to correct, but I'm not quite sure when. Now I buy the market doesn't correct the property. Let's go back to a $400,000 property, right. About $100,000 down. The market did not crash yet, so I bought it. I know we're near a crash, but didn't crash here yet. So guess what? It does. It went up 6% that year. That much more. Right. And then maybe it's only another six months, you know, so now I've got another 3% on top of the 6% on top of exactly 400.

[C]

Yeah.

[A]

And now where am I now? I'm like 11%. And then. And then even if the market crashes, then you know how much the market crash, you know, And. And I've already. Unless you're literally the last person, which is possible, by the way. And I have that experience. One of my Greatest real estate purchases I bought one second before the market crashed. But I bought it with my philosophy. It was my own personal house. And I bought a dump, you know, in Santa Monica one minute before the market crashed. Just to give you a quick rundown on that deal, you know, I paid 2, 150, I think, and I put like $500,000 down and the market crashed. As soon as I closed that, it was a dump. Okay? And so I know it's a value add, and I also had the money. It's conservative in the sense that I had the money to rehab, right. And then the market crashes and this particular property crashed harder than the rest because it's a dump. So generally they will. And I think maybe the Property is worth 1.6 million within like six or eight months. So back to your leverage. It's not that I lost, you know, $600,000 over 2.1. I actually lost 110 of the money.

[C]

Right.

[A]

You know, and so am I freaked out? And I had already been a real estate professional, right. Am I freaked out? And the answer is I shouldn't have been. And the answer is yes, I was, of course. Yeah. And, and I even went to some of my buddies like you, and I'm like, what do I, you know, would like, should I really put this million dollars on top of this thing, like throwing like good money on top of bad? Why not just sit on that? And, and they all asked me the same question, like, hey, is this a long term hold?

[C]

Yeah.

[A]

Because if it's a flip, you're in trouble, okay? But if it's a long term hold, and it's because it's where I was living, it is a long term hold. So I went ahead and I fixed the place up. I enjoyed living there a lot because the price doesn't mean anything until you sell, Brad, you don't realize it. And so I really enjoyed living in the house for 10 plus years and then I sold it for $6.2 million dollars. Hard to say that's a deal. That's correct. So, so, you know, this is the, you know, follow your principles long term and don't worry about it. The other thing that I like to say in this instance is you can definitely. I talked to somebody and it wasn't my deal, it was a friend of mine that went to a realtor in my firm and they said, hey, you know, know, you referred me to Sally and Sally showed me this deal looked really good. But I talked to my accountant and my accountant said, you know, now is not a good time to buy because of, you know, X, Y and Z. And I said, okay, great. So let me ask you, did your accountant see the deal? And he said, no, my accountant didn't see the deal. I go, okay, let me tell you, that is ill informed advice. Now it may in fact, fact be true that you should not buy that deal. Right? That may be true. Maybe you shouldn't buy the deal. But what the national market is doing is a factor. But it's a smaller factor in a particular deal totally than what's going on in that particular deal. So I can guarantee you when your accountant says that it's a great time to buy, there are a lot of people, friends of mine that I know know that make terrible purchases, right. They're making bad purchases when it's a good time to buy and there's so much property out there that you've got to look at the particular deal. Right. So as soon as I knew the accountant didn't look at the deal, I didn't know it's bad advice. But if it's good advice, it's by accident.

[C]

Right.

[A]

It's accidentally good advice like, oh well, you know, I read all the economic forecasts, let alone the economic forecasters rarely get it right. Right. Leave that alone.

[C]

They must be right about everything.

[A]

Even if they got it right, it still is not telling me whether this is a deal you should buy or not.

[C]

Right.

[A]

I can look at the deal for you. And you know, I never want to tell somebody my accountant says not to buy it and ever. So I buy it anyway. Be like, okay, it's tough, maybe I'll buy it.

[C]

Yeah, that's a good one though. And then if you do they look around.

[A]

Yeah, there you go. Thank you so much for your.

[C]

Absolutely.

[A]

For your time and energy. I really do think that we should do a follow up and we'll get out of the stud, we'll get out of the chairs, we'll get into the seminar mode where you know, I like to work on a big sheet of paper. Yeah. Maybe we'll even take a piece of property that, that we could go look at example and really use it as an example and teach some of those concepts that are, that are very hard to learn in a seminar but when you get out and get into it. Yeah, makes sense.

[C]

Yeah, I'd love to.

[A]

I'm going to do fire round.

[C]

Let's do it.

[A]

And for somebody as interesting as you are, this could take hours. So, so I'm asking a question and the idea of the Fire round is.

[C]

Just keep it quick.

[A]

Give me the answer before I do the fire round. There's one other question that I wanted to ask you from the podcast that I had to ruin my parking lot, and that is there are people that teach that you shouldn't use leverage no matter what. And so, hey, they're smart people. There are smart people. They've got a huge following, and they're like, absolutely no leverage. What do you say to those folks?

[C]

I think there's a right answer for everybody. You know, that's a super conservative way to go about things. Your leverage is probably not. Probably. It's the most likely element to get people into trouble. Oh, for sure.

[A]

I agree with that.

[C]

Especially at times. Right now we're seeing that happen. It's starting to unfold. I totally get that line of thinking. That's fair. That's probably the right answer for some people. It depends on your risk tolerance. I don't think there's a right answer to that question. Personally, I think you're leaving a ton of money on the table. You're leaving so much return. There's a conservative level of leverage.

[A]

Correct.

[C]

That doesn't add a lot of risk.

[A]

Correct.

[C]

There's an aggressive level of leverage for people that really want to go nuts. And it just. It totally depends on where you are in life.

[A]

Yeah, I agree. And when I look at the portfolio that I've built and the equity that I've built in it, I haven't done the math, but. Oh, the math would be scary in terms of if I didn't use leverage.

[C]

So much less.

[A]

So much less. Yeah. And I've really never had a period of time, even during some very significant downturns in the market, where the leverage hurt me at all.

[C]

Right.

[A]

Yeah.

[C]

That's great. Well, then you took a good, prudent approach to the leverage.

[A]

Sure. Because my investments are in multifamily. Right. They're all in good to very good neighborhoods. They are where there's an economic engine. Right. So they have a lot of downside protection. And I've never been in a point where, you know, what are we going to do with the mortgage?

[C]

Hard to go wrong there.

[A]

Yeah.

Okay. Fire round. Here we go.

[C]

All right.

[A]

So, Anthony, what is your idea of perfect happiness?

[C]

Oh, wow.

Tough question to answer. If I can spend time with my family, if I can help other people out, if I can feel good about, you know, giving back back. Teaching other people how to be successful, I'll be a happy guy.

[A]

What's your greatest fear?

[C]

Greatest fear.

[A]

Wow.

[C]

I don't even know. Maybe to be forgotten.

[A]

Oh, wow.

[C]

I don't want to be forgotten. I would love to leave a mark behind and help people in the future.

[A]

Wow, that's cool. What is the trait you most deplore in others?

[C]

Oh, greed. The scarcity mindset.

[A]

What's your greatest extravagance?

[C]

My greatest extravagance? Oh, man. Well, I bought a boat in the last year or so. So lately that's on the mind. And it turns out boat does stand for bring out another thousand, as they say. It's pretty extravagant.

[A]

What do you consider the most overrated virtue?

[C]

Overrated for perfectionism. It's the enemy of good, as they say.

[A]

Right. What's the quality you most like in a friend?

[C]

Honesty.

[A]

When and where were you happiest?

[C]

Wow. I have to say, with my kids and my family at our house.

[A]

Which talent would you most like to have?

[C]

I would love to be a virtuoso piano player. Wow.

[A]

That's cool. What is your most treasured possession?

[C]

Great question.

[A]

Question.

[C]

You know, my mom gave me a journal that she kept when my brother and I were babies.

[A]

Wow.

[C]

And she wrote in that every day.

[A]

Wow.

[C]

And that was amazing to have.

[A]

That's cool.

[C]

Really amazing to have.

[A]

If you climbed a mountain at the very top of the hill with, you know, all of your people or friends and relatives at the bottom, the people, you know, you get to the pinnacle of that. That mountaintop, what would you shout?

[C]

Hey, guys, it wasn't that hard.

[A]

I love it. What's your. I know. I know you love music. Yeah. What's your favorite band?

[C]

Favorite band ever. I gotta go with Pink Floyd.

[A]

Nice.

[C]

Yeah.

[A]

All right. Hey, man, seriously, such a pleasure. Really, really, really appreciate it.

[C]

Thanks for having me. It's been a lot of fun.

[A]

And, you know, like I said, the point of this. This podcast is to take the great information that people have about building wealth in real estate. And I think of myself as, hopefully as a great conduit to bring that information to people. And then I. I just sit here and I'm, like, learning while I'm sitting better, which is so. It's so cool.

[C]

Yeah, it's been great diving in, and I don't get to go deep a lot on these things. They're usually, you know, 20 minutes and they're done.

[A]

So it's been a pleasure.

[C]

Thanks for having me.

[A]

I love it. Well, we're going to put a pitch in to keep this one long format.

[C]

Let's do it.

[A]

All right, man.

[C]

All right.

[A]

Thank you. Thank you. Yeah.

Thank you very much to Anthony Walker for joining us at Radical Wealth Plan brought to you by Entrepreneur Media. I feel like we could have done three episodes with Anthony because he's such a wealth of knowledge about how to get people from zero real estate investment into the game and then also once they're in the game, how to get them more and more wealth built through real estate. He breaks down the math for us. He breaks down the process for us. And I really appreciated having him here today. My name is Paul Morris and this is Radical Wealth Plan brought to you by Entrepreneurship Entrepreneur Media. Looking forward to seeing you next week with more insights on how to build wealth through real estate.

[C]

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[A]

Yeah.

[C]

Give it a [e-mail] Switch upfront payment.

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