D (2:24)

Ken McElroy, thank you so much for coming on the iced coffee hour. You own about 8,000 units of real estate with $1 billion in debt. Does the $1 billion in debt scare you?

B (2:36)

No, I. I've been more in debt than that.

D (2:39)

The.

B (2:40)

I get scared when it's not covered by somebody paying it. So, you know, I have 10,000 tenants, so they basically pay it off.

D (2:48)

Doesn't $1 billion scare you at all? Like, that's. That's a lot to be owing.

B (2:55)

Yeah.

D (2:56)

To the banks?

B (2:56)

Well, it's. It's kind of like the frog in the pot. You know, you buy one and then you buy two, and then you buy three, and next thing you know, you got 8,000 units and you've accumulated debt. And one day I added it up, and it was a lot, but, you know, it's one at a time. So each one. There are individual projects that scare me, but certainly not the number.

D (3:15)

And how much do you have in assets?

B (3:18)

Probably 1 1/2 to 2. Right now, we're probably valued at 1.5 billion, I would say.

D (3:24)

How do you. How do you have one and a half to two? That's a pretty large swing.

B (3:27)

That's based on. Yeah, yeah. So you know how cap rates work.

D (3:30)

Yeah.

C (3:31)

Okay, so cap rates went up and values went down.

B (3:34)

That's it.

D (3:34)

And when cap rates went up, how much money did you effectively, on paper, lose?

B (3:39)

When cap rates went up? Easily quarter, quarter, quarter million, probably 250 million, 300 million, 400 million, easy. So when cap rates go from 4 to 5, that's a 20%.

D (3:52)

And so how did it.

C (3:53)

How.

D (3:53)

How does it feel to lose, well, hundreds of millions?

B (3:56)

It's a great question. I think a lot of their hat on how much equity they have in a home or something that they own. I don't do that. It's important. I want to have equity, but I'm more concerned on cash flow. So it's just like. Like the single family housing market right now. It's not great in a lot of areas. It's great in some areas, but it's not great in other areas. So when the equity goes down, you know, it was. It was fake equity in the first.

C (4:21)

Place, then why not sell if it's fake equity in the first place? You see the values maybe starting to fall. That would be a good time to exit.

B (4:28)

It's a. I'm a cash flow guy. Like, I'm very. Than you guys. Like, I get where you're coming from. I get it. But I like the cash flow. I like the reoccurring revenue. And, you know, we get millions a month coming in and cash flow. And so if I sell, yes, I get the money, but then what do I do? I stick it in an index fund. You know, I mean, I would Rather have it in hard assets that somebody else is paying off for me. And plus I get the tax benefits. Plus it's levered, which I like. I like low leverage, but I do like leverage.

C (5:00)

Now. Warren Buffett has a great quote when it comes to leverage. Can we pull that up? I'd love to get your thoughts on.

B (5:05)

Sure. To make money they didn't have and didn't need, they risked what they did have and did need. And that's foolish. That is just plain foolish. I don't make any. What your IQ is. If you, if you risk something that is important to you for something that is unimportant to you, it just does not make any sense. I don't care whether the odds are 100 to one that you succeed or a thousand to one that succeed. If you hand me a, with a thousand chambers out, a million chambers in it, and there's a bullet in one chamber and you said put it up your temple, how much do you want to be paid to pull it once. I'm not going to pull it.

C (5:39)

What do you think?

B (5:40)

Well, I. It's no surprise he's not a real estate guy at all. I mean, if you pull up Zamzell or some of the other people that I follow, they would say something very different. I think the difference here is you guys are paper and I'm not, I don't, I don't love the paper asset world. You know, I don't like the volatility of it. I don't feel like I can control it. I can control what debt I have. I can control the interest rate. I can control the monthly payment on whatever I borrow. I don't over leverage. And, and I can largely control my apartments. I can control the occupancy that I can control the rents to a certain extent, even though they're also market driven. I can control a lot of the expense. So you know what we're really talking about here is control and, and the paper asset market. I don't understand it to the point to where I can control. I, it doesn't have the predictability as real estate.

D (6:39)

But still, for just a peace of mind perspective from just like a philosophical perspective, if you exited all of your real estate, you're not even exited. You just paid off of your paid off your debt consolidated. So you had $500 million in real estate or whatever it may be, $600 million. Your life doesn't change between $600 million debt free and one and a half billion dollars in real estate with 900 million in debt.

B (7:01)

Correct.

C (7:01)

Right.

B (7:01)

That's why it doesn't bother me.

C (7:03)

But having more wouldn't necessarily change your perspective either, right?

B (7:07)

Having more cash flow, assets, debt. Oh, so. So like, when am I. When am I done and how much is enough? Is that what you mean?

C (7:16)

To a certain degree?

B (7:17)

Oh, sure. Well, right now I'm, I'm. I'm rolling out, really, a legacy play with my kids. So my kids are involved now and they're gonna, you know, succeed, and they will. It's more of a succession. So really what I'm doing is I'm handing over the reins. But you're right, I don't personally need more.

C (7:35)

And what do you think is the biggest misconception about money that tends to hold people back?

B (7:40)

That you need it? Actually, I think that's the issue. I think people believe that they need it to invest. Now, in your world they do, but in my world, you don't. You just have to find an ass that actually has a tremendous amount of value, add to it something that's broken, that you can fix, and then you need to go find the money, either debt or equity.

D (8:03)

So, so how can people practice that in their own life if they don't have the kind of money that you have? Sure.

B (8:09)

Well, it's no different than what you did here, Jack. You bought this place where we're in right now. It used to be a church. You rented the front, you got the back for free. That's a value add. It's exactly what I do, except on a bigger scale.

C (8:24)

But Jack had a decent chunk of cash ready to deploy.

D (8:27)

It took everything.

B (8:28)

It took everything.

D (8:29)

I maybe borrowed a little bit of money from a very good friend. Free interest, free loan, but I. He's not paying anything for this.

B (8:37)

So now you're just talking about syndication. So this is exactly the point. Like, this is a great deal. This space you guys have is amazing. And that's all I do. I look for things like that. And I'm very selective. Very selective. I mean, in the last four years, we actually haven't bought very much.

D (8:55)

So how much then did you buy this year?

B (8:57)

This year we're. We'll. We'll do about somewhere between 6 and 700 million, depending on what we can close by the end of the year.

D (9:05)

So. But how did you say we haven't done that much in the past few years if this year alone you've bought 600?

B (9:09)

Well, this year, yeah. But if you go back three years prior to that, we only did a few deals.

D (9:13)

And where's the Opportunity this year. Why this year are you expanding your portfolio by that much?

B (9:18)

It's a great question. So what's going on in my world is when interest rates got spiked after inflation in I think it was June of 22nd, I believe went up to nine and the Fed raised their rates really, really high. They got really, really aggressive. And so if you were going to build something, buy something, refinance something, you weren't, you couldn't because rates were up so high. So that changed the landscape. And what it did is it stopped people from actually pulling out construction loans to be able to build aggressively because construction loans are 8, 9%. And of course they all have to make sense. If you're going to build something, the loan is a big, big piece. Not just the land and not what you're going to build, but the loan is a big piece. And so they pulled back. So if you take a look at what's happening in the market right now, things that are, that are being leased up today actually got started three, four years ago. That's how this, that's how the deals work. So you break ground, you don't even really open for a year and a half and then you have another year to two years of leasing depending on the size of the property. So we have a long Runway. And so what's happened is there's over 500,000 units hit the market in 24 and 25, the largest ever in history in 50 years. So what you have is you have a big glut of units that got hit into various markets and it's all a result of low price debt, then the debt repriced. So and the interesting thing about construction is that in construction loan you don't actually have fixed rate, doesn't exist, it's a floater and it's personally guaranteed. So we have all these units that are being built right now all over the US and it's creating, it's actually creating really an advantage for the renters because you know you can get month free, 2 months free all over the place. That is a result of the excess supply. Then what is going to happen is come let's say 26, just you got to look at the permits. When you start building these things, it's pretty easy to track. It drops off like a hockey stick. So what you're going to have is you're going to have a housing shortage for apartments again in 27, 28, 29. And then what'll happen is you'll start to see rent growth again. And so it, this, this, this business is somewhat predictable if you're paying attention on certainly nationally and, and submarket driven. And that's, that's why particularly we're buying now because there's blood in the streets right now because people started building with 3 and 4% debt, 5% debt, construction and it got repriced while they were under construction and so their mortgage payments went up a lot and so they finished the projects. In some cases they didn't finish them at all. And they're everywhere. And so these new projects are all over the place and they can't get out of them fast enough because of the high price debt right now.

C (12:27)

Is that, is that only for multifamily or does that apply for single family?

B (12:31)

It's mostly multifamily. Right. Which is the space I'm in.

C (12:34)

Got it.

D (12:34)

I thought you saw that a little bit with single family homes and like the developments that occurred here in Vegas like they were trying to like sell off their, their land at a discount or they were offering incentives because they were hurting or was that. Not really.

C (12:46)

Those are home builders. So we're talking like Toll brothers Pulte. What they do is they buy a whole mountain here and then they create these sub communities within the mountain and they sell the lots and then they build the house. So they're making money on the land, they're making money building the house, they're making money on the house. But when they have so much construction going on, they just need volume.

A (13:07)

Hmm.

B (13:07)

Yeah.

C (13:08)

So they don't have this high overhead. So what they're doing is they're, they're buying down rates or what's very common right now is that they throw in free upgrades. So let's say the house itself is going to cost you a million dollars to build. But they say hey, we'll buy down your rate to four and a half percent for 30 years and we're going to throw in this really nice refrigerator, you get these really nice appliances, is really nice backsplash. We're going to throw some money towards these upgrades. That's how they get you. Now really quick. I just want to say that running a business on a clunky old phone system is like competing with one hand tied behind your. And every time you miss a call, that's money left on the table. That's why today's episode is sponsored by quo, formerly OpenPhone, the modern alternative built to help you work smarter, build stronger relationships and never miss an opportunity. For those unaware, Quo is the number one business phone system built for 2025, not 1995 rated the top choice for customer satisfaction with over 3000 reviews on G2. Forget juggling phones or using a landline. Quo works right from an app on your phone or computer and your whole team could share one number, collaborate on calls and texts like a shared inbox. And result is faster responses and happier customers. But here's where things get cool. Quo's not just a phone system, it's a smart system. This means built in AI logs for your calls. It writes summaries and even helps set up the next steps automatically. And if you can't answer the phone, then Quo's AI agent can. This means they could qualify leads, route calls to the right person and make sure no customer is ever left hanging. Even after hours, Quo helps keep the lights on while you sleep. That's why over 90,000 businesses already run on Quo. From solo operators to growing teams. It helps you stay, stay connected and look professional. So start your free trial today and get 20 off your first six months at quo.com coffee that's q u-o.com coffee if you already have a number, Quo will port it over for free. Again, that's Quo. No missed calls, no missed customers and without lowering the price because if they lower the price now all of a sudden that creates a comp for every other house. So instead they keep the price high and then they, they never want the price to dip below because once it does, it starts that cascading effect of like I'm not going to pay, you know, more than my neighbor did.

B (15:14)

And the, is the rate by now. Yeah, well I guess it's not new but, but I, I looked at the Lennar, the public reports and they, what they, they're doing is they're putting up under marketing fees. Right. But if you look at the net it's, there's a massive discount on what their profitability is based on. On all those things that you mentioned.

D (15:33)

Yeah.

C (15:33)

But multifamily is getting hit especially hard right now for sure saying yeah, yeah. What about office space?

B (15:39)

Yeah, well I've looked, we, I've owned office. I got, I sold my, my when the, after the pandemic I, But I think that one's going to be in flux would be my guess because of the, not only the work from home, but you know there's, there's a lot of the class A space that was priced out really, really high that they're just not seeing a lot of the numbers.

D (16:03)

So on the topic of property management, what are the most important Things to getting the highest rent possible and what are the worst roi things to spend money on.

B (16:14)

It's a great question. I, I, first of all, I don't believe that we should always have the highest rent possible. So there's a time to do that and a time not to do that. So I actually believe that we should be under market in a good, good way. That could be 20, 30, 40, 50 under market. I'm fine with that because what's going to happen is my occupancy is going to be higher. If I'm trying to get that extra 40 or 50. I'm not, I'm not getting anything for it. Maybe higher vacancy because now I'm pushing into more comps. There's other people trying to, trying to find that renter. So I'd rather, especially because I'm a long term hold guy and low debt, I would rather be highly occupied than have maximum rent. I always know it's there, but it could go away, you know, I mean, rents go like this. So I always know it's there. But, but I would rather I just left a place before that On a condo project I did in Vegas. I have the same person in there for 15 years and I had a conversation with the guy today and I said, what do you want to do? He goes, I think we should just keep the rents well below and renew them for another year. I go, I completely agree because he's in 15 years I've had zero vacancy. Now when that guy moves out, that thing's going to be a mess. Right? I'm going to have, I already was calculating, I'm going to have probably 10, 15, $20,000 worth of work for sure. But they've been there for 15 years. So that's a better philosophy. When the jack, when, when, when you're trying to maximize rents, that's actually when you're trying to get a refinance. So for example, I'm refinancing a property right now that I've owned for 15 years in, in Flagstaff, Arizona. And, and so six months before, six months ago, we're like, let's refinance this project, you know, and we got so much equity in it. Let, let's do that. And so we said to the manager, let's push the rents on the one bedroom, let's push the rents on the two bedrooms, let's push the rents on the three bedrooms at the expense of vacancy. I don't care If I'm at 90% or 88% or 89%. Because the lender's going to look at the rent roll and if I'm renting units at that, then the whole rent roll is going to be priced and I'm going to get a better loan now on a hold. I would rather be at 96, 97% cash flow all day long. And even though I might have some rent growth in the rent roll, it's not worth it. I'd just rather provide a good value for the person in the market.

C (18:46)

What was the first property that you bought?

B (18:48)

That was a two bedroom, two bath condo. And how much was it? Oh my God, it was $116,000. And I used my own cash. And this is, I was actually in the property management business how I started. And this, this crazy Canadian came down, he was, he's buying this project and, and he's like, hey, we're going to do a condo conversion in Scottsdale. And so I was helping him put the whole thing together and he brought the money and the debt and I didn't know, you know, I was young, you should buy one of these. I'm, I'm like, well, I got like 20, 30 grand in the bank, man, there's no way. But I did, I ended up doing it and I barely. Cash flowed. I mean probably, I want to say early in 50, 50 bucks a month, then 75, then 100, and then after a couple years I sold it, which again, I was chasing the equity, right? But then I paid tax on that and then I was like, okay, now what, where do I, where do I put this now? And so that kind of. Well, it did, it gave me the courage to kind of move forward and start doing this on a bigger scale. I started buying more like that.

C (19:51)

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C (20:57)

Paid for by Public Investing. Full disclosures down below in the description. And why did you succeed when so many other people fail?

B (21:04)

The biggest reason, when I, when I look at that, I just look at this last, this last run with all these syndicators.

C (21:10)

Oh yeah, it's been brutal. A lot of people pausing, distributions, capital calls, oh my gosh.

B (21:18)

So we're. Okay, so it's a great question at a perfect time when, when somebody who raises money online, like you know, I call them tick tockers or whatever you want to call them and they hand it over to somebody, they oftentimes they don't know like, you know, what are they really investing in? What are the, what are the blind spots? What are the risks? And that happened, that was happening for syndications and, and, and so what's happening now is, so I've been doing this 25 years. I've been through some ups and downs. I went through 2008, you know, and the, the, the thing that solves every, every issue is fixed rate debt, lots of cash and, and transparency to the investors. That's it. So have I reported bad news? Of course, a lot over the years. You have to, you have to say this is going on, we're going to, you know, withhold distributions or this is going, this is where we, so a lot of it is transparency, but a lot of it is also based on what they paid, what kind of debt they used. Because what I was seeing, and so when I said to you earlier that I wasn't buying during that period, it's because I was losing out to syndicators. So I'd be in deals, I'd be literally at best and final with deals, 20, 30, 40, $50 million deals. And you know, I have a, but I have a 25 year track record. I have our own financials, obviously. I, I know the operating expenses and we have a, analysts and we have investor relations people that help to figure out what, what they should be running at. And what was happening is people were buying these at 1, 2, 3, 4, 5 million more than my top price. So I have a, I have a going in price, a medium price. And then, then you know, I got A shutter down price, as most people do, that have been in the game a while. And so I saw this coming when, when we were losing deals because don't forget, I get the rent rolls, I get the financials. I'm looking at the exact same thing as somebody else. And, and so I was seeing these trades at these high numbers. Now, we couldn't have foreseen the interest rates going up for sure, but one thing that you could have foreseen is getting fixed rate debt versus floater. That was a choice.

D (23:40)

So if you were to simply then explain what led you to succeed while many other people fail, how would you answer that?

B (23:47)

Property management.

D (23:50)

So you manage properties more effectively than others do?

B (23:53)

Well, also I see what I'm buying, so that's the, you know, operations is everything. So hopefully that's super simple. It's, it's all it is. It's, it's math. It's rents minus expenses.

D (24:07)

So how are you getting the math right while other people that are professional real estate investors get it?

B (24:11)

Are they. But what's the difference? What's a professional real estate investor to you? Is it, is it somebody that has property management experience and understands operations? I don't think so. They're, they're money raisers. What is a professional investor? Seriously?

D (24:24)

So you're saying the syndicators fail because they're not necessarily professional real estate investors. A lot of the times they're just marketers, they're money raisers.

B (24:29)

Well, of course, for sure. Look, look how, look, look at their track record. I mean, some of these people have been in business a year, two years, three years, of course. And they hire a property manager, if not try to do it themselves, but they don't know what to ask. It's just like you guys. I mean, you know, you've been doing YouTube forever, right? You know. Exactly. The ins and outs based on your personal experience. Somebody knew what. That's how I looked at it.

C (24:54)

Yeah.

B (24:55)

This is somebody new in the space. That's it.

C (24:58)

How did you get into property management? Why that of all things?

B (25:02)

Yeah, it was not strategic. So I will tell you so.

C (25:06)

Seems very stressful. No, no.

B (25:09)

Well, let me, I'll just walk you through it. So I ended up, I, I ended up getting offered free rent in college for exchange of collecting checks, doing the maintenance, cleaning units. And I, I did that on a 60 unit building up in Washington, which is where I'm from. So for me it was a way to not pay rent. And, and my, I grew up in construction. My dad was in the actually in, in the Navy, in the Seabees. And so I always knew how to fix stuff that was not a problem. So I went in there and I fixed everything I could and I, it's. Property management is not that difficult. It's, it's not, it's. If you rent a really good people with really good credit and you manage the expenses and you have to learn how to do all those things, you can be super successful with it because high turnover, bad tenants are what everyone talks about. So there's all these things that you can mitigate as a property manager. And so, so, so what? I would go jack to a property. We pass on so many properties.

C (26:23)

Why?

B (26:23)

Because like I went to one recently and it was, it was a good price in a horrible neighborhood. And based on all my experience of having to manage and stuff like that and knowing I'm not going to get good tenants, they're just not going to move here because of the school system and the crime and all that stuff. I pass because you can't manage your way out of a bad neighborhood. So there are things that you learn as you buy and, and so those is what to buy, what price to pay. And you know, is there, is there forced equity? I love forced equity in everything I buy. I don't buy and hope the market goes up. I buy with a whole plan. I buy with vacancy. I buy with 25 year old units that need 10 or $15,000 in them and I can slowly over time, you know, improve the, improve the, the rent, the rent base. It's very strategic. It's not short term, it's not three, four, five years at all. It's 10. You know, it's even more than that.

C (27:25)

How did you meet Robert Kiyosaki?

B (27:26)

I'm in a group called EO YPO and, and one of my friends said listen, this guy just wrote this book called Rich Dad, Poor Dad. I had not read it. I was already doing my thing and at the time, like I said, when I was syndicating, he said, you really, you really need to meet him. He's exited some stuff, he's, he's doing okay. And, and so I went and met with Robert and Kim and I started showing them deals and almost a year later they invested in one of our deals. But what he did was he said, you should come to one of my events. And, and I went and I was, I said, wow, this is really something. He had four or five hundred people there, he was teaching them and he, he, he, he, he, I, I went up and started talking about real estate and of stuff in cash flow and he ended up, we ended up becoming really close friends after that.

D (28:20)

And what's your relationship with Robert like today?

B (28:23)

It's great. He's texted me three times this morning.

C (28:25)

So what are those conversations? Like, like what is he texting you about?

B (28:29)

Well, it just depends, right.

D (28:31)

Like Robert's a character. I was not expecting that. We had him here on the podcast and he was saying some like he's, he's funny.

B (28:39)

Well, I think you guys will, you know, as you get old or you just have that, you know, I don't care. I don't give a long time.

D (28:46)

I don't know if that's a few money. If that's like, what are you gonna say to.

B (28:50)

It's a little bit of both, I think. Also yes, I, I, you, you know, we have, we study together, we go to a ranch a couple times a year literally in West Texas and study together. We study books. We're on a, we're on a zoom every week talking about, right this next week is actually Thursday is going to be why did silver hit $50? You know, we always were picking something, so it just depends. Most of Mo, obviously he's an investor with me and, and so I talk to him about those kinds of things, but mostly he's just a, he's just a good friend, but he, he can be a loose cannon at times, that's for sure.

C (29:30)

Now I think for the average person, they just want to get started buying their first home.

B (29:35)

Yeah.

C (29:35)

Do you think that home prices today are sustainable at the levels that they are?

B (29:39)

Not at all, all. No, no, no. I, I, well, here's the interesting thing. It's if you look at, let's say Phoenix, Atlanta, you know, Nashville, some of the areas that were overbuilt, Austin being another one, what, what goes up must come down. Right. And so not every market is like that to me, Graham. It always has to be cash flow based, 100%. So if it, I, I don't buy on a capital gain strategy, don't like it. So I always want to have that, that cash flow. So, so where are prices? So I don't look at the home price like a stock. I don't look at it that way. Do I want home appreciation? Of course. Doesn't everyone the same, same way that they want stock appreciation. But what I look at is, is cash flow. So, so if I can buy a $500,000 house, which you can still buy in Scottsdale and it, and, and the Rent, it rents at 3, 30, $500 a month. Month. And you know, I can figure out my expenses and then I tie it back to my return. That's a, that's on an investment standpoint. One of the, One of the problems I think we have going back to the same example I used with multifamily, is when rates went up, it also affected home builders. It slowed everything down. And, and so what? The way to cure high prices is high prices. And, and the way to cure the rent price, bring that down. The way to cure home prices and bring that down is supply. That's it. So, so if there was a lot of supply hitting the market like I went through in 2008, 2009, prices came down, you know, like a balloon boom. And we haven't seen that yet, which is really, really interesting. In fact, I think we've had a little bit of rent growth, 1 or 2% or something this year. I want it to come down now. The problem is, is that if it does, everybody's gonna. Oh, it's down, right? We cut. Now I've lost my equity. But again, I look at cash flow. So, you know, sometimes I, many times I bought things where it. Cash flows and the price goes down. It happened to me in, in, in Austin, actually. I bought apartments in 0506 and the. They. The values went down, but what saved me were the tenants, the cash flow. And it got me through. And then eventually Austin came rocketing back and, and that's when we did a 1031 and moved the money.

C (32:04)

What about for the person who's not looking at cash flow? They just think, is it worth it for me to buy a house today at these prices, at these interest rates, or should I continue renting?

B (32:13)

It's a heck of a point. This is exactly why I'm bullish on renters, you know, and you. I know you've known. I've. I've talked about Renter Nation. I don't like this. It's not. I have two kids in their 20s and they're supposed to be able to rent, build, credit it, buy a home, but they can't. It's. It's unaffordable. And so the, the reality is, is it's. It's far better to rent today than. Than to buy. Far better from a, you know, from a cash flow standpoint. Right. And that, that's not even covering the. The mortgage is one thing, but then there's the. I bankrate did a great study that said it's fifteen hundred dollars A month just to cover all the other stuff, insurance and Capex and all the other things. So the real cost is actually quite high. And so what we, what we need is we need better priced homes, you know, and I think people are trying to solve that right now, but it, it's a, it's a problem. And, and so if you take a look at it, what's really interesting, one of the fact, one of the things that I follow is homeownership, right? Rate. So home ownership rate under Obama got to 69.1%. Okay. And if you look at the presidents before that, it was Bush, he's like American dream. Even Clinton. American dream. American dream. And it pushed home ownership rate up. Extra value meals are back. That means 10 tender juicy McNuggets and medium fries and a drink are just $8 only at McDonald's for a limited time only. Prices and participation may vary. Prices may be higher in Hawaii, Alaska and California. And for delivery. Well, it's also what created the, the great financial crisis. Now there's a whole story there. Of course, we don't need to go down that road, but essentially it popped, right? And then it went all the way down to 63, 64%. Now while that might not seem so meaningful, when you go that far down, you're, you're talking about millions of people went from home ownership to rent, rent. And that's actually what created the rent growth that we just had. You know, it's not because, you know, I magically started doing it. Like what, what happened with these, is all these people, home affordability got out of reach and, and all of a sudden it, it didn't become a choice as much as, as a necessity, unfortunately. And so we had all these people being forced over into the rental side and just from 2020, it's over 4 million people. People. I'm with you. I believe that people should, I believe that rental should be a step toward homeownership. And I believe that people should be in hard assets and not be renters for life.

C (34:56)

How concerning is it? The average home buyer right now is 40 years old.

B (35:00)

That's horrible. Yeah, the median, I saw that. Yeah, the median. It's, it's super concerning. And that's another reason why I think, you know, I, I'm not, I didn't start this freight train. I'm just trying to be somewhere out in, in the middle of it. The reason I'm buying rentals right now, the reason I'm bullish on multifamily and rentals right now, is because I don't see an affordability solution yet. And so when I've, when I've seen that in the past, it certainly happened with Clinton and Bush. They said, listen, everybody needs to own a home. And then they moved from apartments to home to single families. They bought single families. Now that didn't end well for a lot of people. But the, the reality is is it's heading that way now.

C (35:48)

What do you think of Ben Shapiro saying that, you know, homes aren't necessarily unaffordable, it's just you can't afford to live in Manhattan or Beverly Hills and there are plenty of houses out there. Yeah. You could buy right now for $200,000. It would be cheaper than renting and it might not be the best area, but you could buy a home today in your price point if you were willing to move there.

D (36:07)

In Las Vegas you can find places for like in the 200000 range. Obviously it's not going to be in the nicest area. It's not going to be or realistically condo. You can still find places for 300.

C (36:17)

Yeah. And they're nice houses. Everything in Vegas is like a 20 minute drive. 300 grand. You get a great house.

D (36:23)

Cole, if you're listening to this, that's my brother. I'm trying to convince him to move to Las Vegas because he lives in Seattle and Seattle is horribly expensive.

B (36:32)

My hometown. Horribly expensive. My hometown. You're right.

D (36:34)

And it's just out of reach to buy a place there. And I'm telling him he should move to Las Vegas cuz he works remotely and he can buy a piece of real estate.

C (36:42)

I would say he should rent because the rents are so affordable.

D (36:45)

In Vegas he is renting, but he's like, I want to have a garage, I want to have a backyard. So those are luxuries.

B (36:51)

Cole.

C (36:51)

So I was looking at a house that was down the street from me like a half a mile away and they're selling for like $500,000. But you could rent the house for like 2100. I would rather rent the house for 2100 than buy it. That math works. So, so I think just. Cole, I would, I would rent instead. I think a lot of people should be renting in this market.

B (37:11)

What do you think? What's he going to do?

D (37:13)

He, he wants to buy, but buying is going to be difficult in, in Seattle. I hope he can buy because I know a lot of people, they have this like emotional attachment towards buying. And I would say the exact same thing. I have a Friend that lives in Manhattan, Sean Rizwan, if you're watching this, and he wants to buy over there, and it's not a good idea. And we were talking with Ryan Sirhan about it because he's the New York real estate guy. And I was like, my friend in New York wants to buy a. It's too difficult.

B (37:38)

Yeah.

D (37:39)

And there are co ops there, and then you have to circumvent the co op, and they have very strict rules, and you're just. You're overpaying for a piece of real estate you have no control over.

B (37:47)

The interesting thing is, is when I was your age, I would go to New York and it was the same. Like, every else was the same. Like, it was always, like, significantly above everywhere. Right. Seattle wasn't, by the way, like, it was less expensive. Yeah, yeah. That's where I grew up.

D (38:02)

And I imagine Las Vegas was dirt cheap.

B (38:04)

Las Vegas was dirt cheap. I lived here 20 years ago. It was crazy. I come back, I'm like, I cannot believe the.

C (38:10)

I got a funny story on this. In 2010, I made an offer on a property in Las Vegas, sight unseen. It was listed for $69,000. And I got the offer accepted. It was a short sale, so it had to go through the bank to get approved at that time. And the bank could take, you know, a year, two years, whatever. So I get the offer accepted, and then I drive to the area after it was accepted. And I think, this is in the middle of nowhere in Las Vegas. Who would live out here? It was like 20 minutes from the Strip. I didn't see it. It was dirt lots around. It's like, to me, it was so far out. It was on the edge of Las Vegas. And then by the time the short sale was approved was like, two years later, I had already bought something else. And I declined it. The bank, I think, at the time wanted like 75 grand. I thought it wasn't worth it, it was so far out. So I declined on it. I looked it up recently.

B (39:05)

Oh, you're not supposed to do that.

D (39:06)

Just.

C (39:06)

Just for fun. I didn't realize that was Summerlin.

D (39:10)

It was Summerlin.

C (39:11)

It was Summerlin.

D (39:12)

How much was it?

B (39:13)

75 grand.

C (39:14)

Now it's probably about 400 and something. Thousand dollars, so not awful. But it was in the middle of Summerlin, and I remember seeing that 15, 16 years ago and just having it be in the middle of nowhere. There are places to buy real estate that right now are very, very, very cheap if you want to buy it seems like buying is A very emotional decision at this point and not so much based one.

B (39:39)

Yeah, for sure. Yeah, yeah. In the path of growth would be one of those places, I would think. But yeah, you never know.

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D (40:59)

So if you think that housing prices right now are not sustainable, what are you expecting then for the price of single family homes? Do you think that there will be a correction? They will go down, down?

B (41:09)

I don't, No, I don't. I don't. I. First of all, I think 60% of mortgages are under 40% or 4%. They refinance. So. So you got a tremendous amount of people sitting on, on the, these low rates. And so what we're seeing right now is we're seeing broken Airbnbs or, you know, Flippers or something like that that got caught and that's kind of adding to a lot of inventory. But, you know, if you go back and look at mls, what's, what's supposed to be average is four to six months on the mls. That's supposed to be average. That's historical. We're not even there yet. So, you know, do we have a supply problem? Pro, in some areas for sure. But not in all areas. And so, so I don't, I don't, I don't see home prices going down, down in the foreseeable future. And I think the, the only thing that's going to make them go down is more supply or there's gonna be a massive shift somehow.

D (42:10)

So what's driving up the cost of real estate if it's just not a smart thing to be buying? What is keeping that outside of that smart to invest?

B (42:19)

Yeah, well, and that's why we're buying below replacement costs actually is because that is the play right now, we believe is, is if we can buy things that are, you know, like, you've all driven by things that look amazing when they're built and 10 years later it's vacant, well, you're going to buy that for pennies on the dollar. So the question is, can you make it cash flow? So to answer your question, the, the components to, to build something are, are not a secret. It's land plus the construction plus the interest rate rate to build it. That's it. And then is there margin on there or not? There's only three things now inside of the. What does it cost to build it? There's lots of things you can do on the framing, on the, on the appliances, on the flooring, on the roofing, you know, on the drywall, the concrete and all that stuff. All those components mean something. And they ran up during the pandemic, as you know, the supply shortage. You know, we're a builder too, so we have, have, we have hundreds of units under construction right now. We got caught with that. You know, cost went up a lot. Now we've seen a repricing and so why would we see a repricing? We've seen a repricing because just like anything. Well, my, my partner said we're getting electricians. They're calling us back. You know, less construction means more contractors looking for less work. And so you, you have a little bit more negotiating room. So, so believe it or not, are actually much, much better than they were just several years ago. The interest rate's still high, though.

C (43:59)

How much does government policy affect housing prices?

B (44:02)

Everything. It's everything. Regulations are everything. You know, rent control, big one, Rent caps, big one. Property tax, big one. All those things. You know, government has their hand. Utilities.

D (44:18)

What is the worst thing a government could do for their local real estate market?

B (44:23)

Well, I think if what's happened is when, when we saw Oregon Pass rent control, for example. And I understand why. Listen, I mean, I'm A, I'm a massive proponent of affordable housing. It's just can't. We can't build it. It's just, it costs too much. So when Oregon passed that law. Law, and California, of course, has a lot of those laws and so does New York and so does some of the other, you know, so I was talking to one of the bigger lenders in the country out of San Francisco, and I said, hey, like, where are you guys? Where's the money going? Right? Where's the big money going? He's like, not on the coasts. And what he basically said there was, you know, when you cap your ability to profit from the market, rent, rent, and then you are exposed to the property tax increases and the other things. So the government can essentially increase your expenses and they can also cap your income. The money, as you guys know, you know, money goes where it's treated best. I mean, that's why you're talking to your brother about coming to Vegas versus Seattle. It's the exact same thing. People, you know, people are smart. They make those kinds of decisions. And so I've had people call me and say, you know, I can't sell my, I can't sell my property in Oregon, in Portland, Oregon, specifically, because, you know, it, it falls under this rent control. And, and he said, I'm getting, I'm getting hammered on the expenses. And so his profit has gone significantly down. So he's worried. So when you talk about regulations, that that's the first thing that comes to mind.

C (46:02)

What do you see to the people who say it's unethical to own so much in real estate?

B (46:07)

Yeah, well, they're, I mean, I understand. I mean, if they don't own anything that, I mean, that's actually what's happen now. Just take a look at, you know, what, what just went down in New York, right? Like, I mean, shouldn't rent be free? Shouldn't transportation be free? Shouldn't everything be free? I mean, right? This episode is brought to you by indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure you your listing is the first candidate. C. According to Indeed data, sponsored jobs.

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B (47:28)

That'S the mindset, correct? That's recent, but it's not recent. Right. That's been going on forever.

D (47:35)

So what would you say to people that claim that it's unethical to own that much in real estate or say.

C (47:40)

That the corporations shouldn't be buying real estate?

B (47:43)

Who should own it then? I guess would be my question back to you. Somebody has to own it. You want to own it.

C (47:48)

Well, their, their logic is that corporations should not buy real estate, investors should not buy real estate, that real estate is a human right to have housing and therefore the only people who should be buying real estate to our owner users or people buying one proposal property, one property, one person.

B (48:03)

Yeah.

C (48:03)

Let's just say.

B (48:04)

Well I know there's a lot of people that believe that the, if you take a look at, you know, government has failed on housing. I mean there's history just proves itself. We don't even go down that road. They're not good at it. Right. So then where do you go? You go to the private sector. So if you want to throw regulations around that, then go ahead. But right now there aren't any. But you know, few corporations have gotten the game for sure. I mean they started buying up single families, you know, after the JFC and you know, but listen, I get the argument but what they don't understand is who's going to build them. Seriously, like answer that question. We have what, 5, 6 million under supplied right now? I mean that's where we are. Are, we have. Depending on the study. I mean if the low income housing Coalition is, is even higher. But National Multi Housing Council, the National Apartment Association, Realtor, Zillow, they all say it's 4, 5, 6 million. So okay, so where's that going to come from? Who's going to do it? Somebody? So is you going to do it by one offs? Like it's not going to work? The math doesn't work. You know, if, maybe, maybe you get it to stability and then you implement a regulation, I guess. But you know, we have a, we have a supply problem.

D (49:26)

So to better understand this, your claim is that if they make it harder to, for people to buy multiple houses, for institutions to buy real estate and there's, you know, people with less money bidding on houses, it will decrease the cost of Housing, which will disincentivize builders from building more houses, which will disrupt the real estate market.

B (49:47)

Well, I don't know if it's a claim as much as it's a fact. Like you take a look at. We're undersupplied. Let's just, let's cross that box out first. Do you guys believe we're undersupplied?

C (49:58)

You know, we've talked to several people in real estate who say there is not a housing shortage. Ah, it's just people can't afford to live where they want to live. And if you look throughout the country and you go to other areas, there's plenty of housing for everybody. Everybody.

B (50:12)

So the reason I think that's not right is because of the 40 year median that you brought up. Why is it?

C (50:18)

That's. But that's more to do with prices and it's more to do with people not making an income to support the house.

B (50:23)

Correct.

C (50:23)

But they could point. But those people could buy a house somewhere else in the country.

B (50:27)

But supply is everything. Like, like if, if you guys, you want to go to the super bowl, you're going to pay a lot for the tickets because everybody wants them, or they're going to go to one that nobody shows up to. Well, the tickets are going to be half off. Off. It's a supply demand problem.

C (50:43)

Yeah, but you can't add more supply necessarily to dense cities like let's just say the coastal areas without tearing down what's already there and building up.

B (50:53)

That's 100. Which is why we have urban sprawl. Right. It's been going on a long time for sure. But this is a supply problem. It's, it's, it's. We have. If you go back and look at one of the things that you guys, when in 2008, I don't know, you guys were 18, I guess.

C (51:13)

I was 18.

D (51:14)

I was 10.

B (51:15)

How old?

D (51:16)

I was 10.

C (51:16)

Jack's like, all right, say it again. Jack, how old are you?

B (51:19)

10 years old.

C (51:20)

10 years old.

B (51:21)

Well, so here's what happened. And I went through this in 2008. It was bad, right? People were losing their homes and, and it was, that was not good. Right. And there was a big reprice. Here's what did not happen. Building 2008-2009-2010-2011, 2012. So when there's big, when there's big corrections. And by the way, here's what did not stop. People kept being born. People, people kept graduating from college. You know, you know, the population growth as you guys know is, is, is growing by a million to 2 million year. Okay? So the math, it's really simple. Like you have, when you have that many people during that period of time. We needed, we needed housing. So we never corrected from about 2008 to about 2018. And then it started again. Actually we started getting going again. Right. And, and we, we, we started and then pop, we had the, the pandemic. And then now, you know, now we're in the situation we're in, but we never caught up. This is, this is a, you know, this is going back to nearly a 20 year, the start of nearly a 20 year problem. And if you look at the 20 years prior to that, we didn't have problems. And you know, there, there's a, there's a flow. When, when people are born and people graduate and people go move into their parents or out of their parents or whatever, there's a flow. Household formation is another big piece, but there's a flow. And, and if you restrict the supply of the flow of the demand, which is the people, you're going to have high rent, high prices. And, and then that's, that's just a fact. And that's where we are today. And you know, the last time we saw low prices was after the GFC or during the gfc.

C (53:19)

Can you make an argument against why institutions should not own homes?

B (53:24)

Yeah, oh yeah, yeah. First of all, all I, last I looked there, they only own like 600,000 houses, which is still a lot. Don't get me wrong. I think that's too many, you know, and, and, but you know, I don't believe, I think real estate should stay at main, at Main street and Wall street should stay at Wall Street. That, that's what I believe. And it is a, it is a lucrative business, real estate. And, and I think what happened, Well, I know what happened because I've been in this business for 30 some years. In 08, when there was all those single family homes on the balance sheets and there was a lot I want to say at one time, was it 6, 8 million homes on the MLS or something, the, the Wall street got involved, they started buying them for pennies on the $$ and they didn't know how to manage them. And I had friends getting into this business trying to figure that out. They were, they were actually managing for some of these big, big institutions and then they started exiting. And then of course you saw Zillow kind of got into that game and open door and some of these others got into the game and this, who knows if they were price fixing or not? Who knows? But at the end of the day is, is that a corporation? You know, and so I think, you know, I, I, I don't think should be there personally, you know, I don't think so.

C (54:52)

I did this whole analysis on Wall street buying real estate and when I came down to it, just unbiased. It is really unpopular to say this, but they have very little to no impact on housing prices at all.

B (55:03)

I agree.

C (55:04)

And it's really hard for people to accept that Wall street isn't to blame because it's so easy to point and be like, oh, this faceless corporations buying single family home. No, they're not, not, they're not buying it. They don't care about Susie down the street listing her single family home and bidding against you. It's 75% other owner users.

B (55:23)

Right?

C (55:23)

That's it. And then another 10% mom and pop investors and then everyone else is like a mix between someone buying like a vacation home or you know, a second property for themselves. The corporations really only buy about 1% of properties and most of what they do buy by are development communities that were never meant to be for sale to begin with. It's not profitable for them to like buy Susie's home over there, buy Joe's home over here and like manage them separately and imagine like Black Rock going and trying to like fix up someone's faucet. It's like they're not going to waste time on this. They're not going to waste their time. So people want to say like, oh yeah, LLC shouldn't own a home. Well, everyone owns their house in an LLC for liability purposes. And then a corporation comes in, they buy a whole complex to rent it out that never would have existed if not for them. So I actually think I'm going to say it. I think they're actually doing a service to the housing market by providing a lot of homes that never would have existed otherwise.

D (56:19)

So you're saying they're guaranteeing some sort of income for developers and then the developers will, based off of that note or whatever it is, build a community.

C (56:28)

Correct. So you have more houses, you have like invitation homes which will, will buy all this land and they'll make like 200 single family homes. They're not interested in going and developing, developing all of that to sell them individually, but instead they do it with the contingency that like, you know, a, another large conglomerate is going to buy this whole community and rent it out because they could operate at scale that never would have existed had it not been for the development and the corporation going in. And that corporation's not doing it with their own money, they're taking investor money. And so like you could go in, or grandma could go in, invest some of her pension in this fund that rents out the houses. It's not like some evil dude pulling the strings. It's really unpopular here, say people, people hate the idea, but instead the biggest competition is your neighbor, is your friend, is your cousin going and getting a 7% mortgage and buying the house and overpaying for it because they fell in love with the house. That's the reality of it.

B (57:26)

Yep. It's worth mentioning.

C (57:28)

So in terms of ethics, I, I, it really does not, it doesn't matter. If anything. Okay, I'm going to be one, one last thought here. I do think it makes sense if someone buys a second, third or fourth home, that property taxes should not be as subsidized as they are in a primary residence. So maybe if you buy a primary, you get, you know, a property tax decrease, but the person buying their third home as an investment, they get a slight increase every year, something like that. So it's a small little tax.

D (58:02)

But with that being said, you should also be able to carry your note if you were to buy a new.

C (58:07)

Property, that would be awesome. That's impossible to, to actually implement. But I'm, I'm in favor of that. But it wouldn't be possible.

B (58:14)

It just won't happen though. No.

D (58:16)

So for the average person out there to get into real estate, it's incredibly unaffordable. How does someone who, who doesn't make that much money get into real estate, buy their first property?

B (58:26)

Sure. Well, to live in would be very difficult to, to invest in. Not so difficult difficult. So, you know, again, I always go back to the basics. I have, I have friends right now that are crushing it in Ohio as an example, and they're, they're raising money, somebody else's money, and they're using that as the down payment and they're signing on a debt and it cash flows and then they split the cash flow with the investor. So that's how you buy real estate with no money. It's not about money. And I, and I think that if there, if, you know, if there's one thing that people like to hang on, it's that I need money before I can do something. It's just not true. You actually have to find something that has, could you can create massive value with, or cash flows and, and then find an investor that will ride along with you, you know, just like you did here. It's the same.

C (59:27)

Is there any area you won't invest in?

B (59:29)

Oh yeah, yeah. Which ones? Areas that are highly regulated, for sure. We've never invested in California.

C (59:36)

Why not?

B (59:37)

Because of those reasons, mostly around the eviction laws. Now I just believe that they're pretty heavily weighted toward the land or toward the renter. I, I know personally people that owned small places, two, two units, four units, eight units that they, they rented to the wrong person and they stayed in there for a long time and they couldn't get them out and they still owed the mor, they still owed the expenses and they lost the property, had to file bankruptcy. So, you know, those kinds of things are big. Property taxes are big. Insurance is one. So I almost bought in Florida, but the insurance rates are over double what they are in Arizona. If you buy in the Gulf of Texas, like say Houston, Baytown area, they're double. And Dallas is less than Houston as an example. So there are, there are things that you know, and you find out over time that you know, you want to be careful of, but government regulation, anything that capture income and, and expenses that, you know, could, could go out of control. The other one, of course on a, on a smaller level are these HOAs. You know, we're, you know, what's happening right now with the hoas is that they're, you know, they're managed by people that are just regular people, right. They don't understand, you know, like a 10 year CAPEX study is, and, and how much money should be put into the reserve account every month. And so what happens is you're starting to see these big assessments hit.

C (61:10)

Oh yeah, I got hit with so many.

B (61:12)

So that's what it is, right? It's just my, it's just poor management and, and you know, I've done a bunch of these types of buildings and, and so, you know, that's another one I, I know. You know, my wife has had a, a listing. She sells real estate and the, the, the price was, was a one bedroom was like 300 grand for a nice building with an elevator and beautiful building, but little dated. The HOA was 800. The HOA, not the payment, you know, not, not any, you know, so, so that's just the hoa. So the seller was having a tough time selling it. And there was also, also a, an assessment. So, so, so I think, I think hoas and condo projects are going to be the next ones that you see poorly run where you're going to start to see, because as these properties get older, they need roofs, they need paint, they need parking lot, they need all that kind of stuff. I just walked on to, you know, this morning and I was looking at the, I was looking at the trees and I was like, you know, that's what I do when I walk properties. I look at the deferred maintenance. It drives me nuts. And, you know, immediately I'm calculating all the costs that somebody has neglected, whether it's the pool, the common areas or whatever. And that rolls up for a condo owner into their, into their pocket.

D (62:35)

So I had an interesting HOA story. I didn't share this with you recently, but a couple years ago I got a letter on my front door that said, you need to trim your palm trees. And so what did I do? I called my landscaper, I said, hey, could you trim the palm trees? He said, yes. And then he came over, he trimmed them. I solved it in a few days. I emailed evidence to the local HOA and I said, hey, look, I trimmed the palm trees. Here's a picture. And then they said, oh, thank you so much. I'm forwarding this over, I'm just going to use the name Jim. I'm forwarding this over to Jim. Jim says, thanks so much. I appreciate the evidence. Everything should be good to go. And then I emailed back and I'm like, just confirming everything is good to go. Never heard back from Jim again. And then I assumed everything was okay. Fast forward two years to a couple weeks ago and I get a letter in the mail from the hoa and they said, just letting you know you owe a bunch of money in fees because we increased the HoA dues. And I didn't know that I had it on autopay. I assumed it was like Spotify, like Netflix. When they increase the monthly subscription description, it just automatically pulls the correct amount. They never notified me of a higher hoa. It was only in the documents that they provided for the new budget of the year, which I'm not going to read. It's like a 20 page document. That's where they informed me of the new dues. And so I had all of these back fees for not paying it. And then they had penalties, they charged interest. They did everything to make me owe hundreds of dollars because they didn't, they didn't notify me except in this new budget document that they sent out like 10 months, months ago. I go into the HOA office because they don't answer their phone. I Tried calling them for weeks. I. I show up to the HOA office, wait in the waiting room, go into the ladies room, and she says, oh, on top of these fees, you also owe fees from two years ago for this palm tree incident. And I owed over $1500.

B (64:25)

Yes.

D (64:26)

And this is because they started charging me $50 a week for not trimming my palm trees, even though I sent evidence.

B (64:33)

Evidence.

D (64:34)

I said, here's my email chain. I had it solved. Here's all the evidence you need. And then she said, who are you talking to? Jim? And I said, yeah, I was talking to Jim. And then she said, I don't know Jim. And I was like, well, what do you mean? This is who I was forwarded to? And she said, oh, that Jim passed away. And he had actually passed away, and he never fully confirmed that I had submitted evidence of me trimming the palm tree trees.

B (65:01)

Whoa.

D (65:01)

And then I show. I was like, well, I am so sorry to hear that. That's awful, because I was all up in a rage. Like, I was ready to, like, okay, well, then I did this, and I did this, and you told me to do this, and I did this, and she told me he passed away. And I was like, oh, my gosh, I'm so sorry to hear that. But also, what are we doing about these fees?

B (65:17)

Yeah.

D (65:17)

And then she said, it should probably be okay. I'm like, what do you mean probably? Like, I did what you told me.

C (65:24)

Imagine she passes away the next day, too.

D (65:26)

And then I just have to deal with this again in two years. And I have $10,000. So I don't know. HOAs whole pain in the butt because of things that are so simple to solve. Notify me instead of just. They never notified me that I was not paying the full fees.

C (65:40)

They do it by mail? No, they did.

D (65:41)

They never sent it. They never emailed me. They never sent me a notice that I was not paying the correct amount in fees. It was only in the budget. And then finally I got this notice saying, you owe hundreds of dollars in fees.

C (65:50)

By law, it has to be over mail. You probably got.

D (65:52)

They never sent me in the mail. I went up to them and they said, oh, yeah, we never sent it to you, so maybe there's something there. If you guys know a lawyer. I'm kidding. The HOA is fine. It's not that expensive. But it's this whole ordeal that you have to deal with with HOAs that you don't have to deal. You don't have an hoa.

B (66:05)

I think it be great to do a parody, like a movie, you know, like an HOA board. Would that be the best?

D (66:10)

Gosh, it was actually comical. It was comical. Walking into the HOA office. I go into this lady's office, and there are boxes of paper stacked floor to ceiling in this tiny, tiny office. Papers strewn across her entire desk. There's a check sitting right here. There's another check over here. And it's just like she sounds, okay, let me find this. My desk is cleaner than that. It's still messy though. But it's. It's a complete mess. Like, there's no organizational skills going on whatsoever. I was, I was honestly impressed. I thought it was a governmental agency.

C (66:40)

Based off of how the DMV on my hoa. This was like two years ago. I. I saw the budget and I was blown away at how much they were spending on things that you could just get done for way cheaper. Like, I'll give you an example. We have a whole exercise room. They are leasing the equipment. And for the cost of the lease, you could just buy the equipment outright within six months. So why lease the equipment? And they say, well, it's for maintenance issues, but you could own all of it in six months of the cost of the lease. That doesn't make sense. And then I saw they do decorations on the front gate leading up, and they put Christmas lights on some of these things. That was $12,000. I was like, $12,000? It's millionaire. Maybe $500 worth of Christmas lights. And it's maybe two days worth of someone time. How is that $12,000 to Christmas lights? The other one is that they have a roaming patrol car that goes around the entire neighborhood 247 the lease cost of that, you could just buy the car outright within about a year. Why lease it? And again, they say, well, it's for maintenance, so that, you know, it's under warranty and it doesn't matter. You own it outright. You could just keep buying a new car every year for the same cost as leasing it, and you get. Have an extra car left over. So it's all these little things that, like, when you have a budget of all these, you know, hundreds of homes going together, you know, over. I think it's just people are getting crazy bids because it's an hoa. And they're like, all right, well, let's just do it. We have the cash for that. Yeah, let's just do it. All right, that's fine. No one's like sitting nickel their own money.

D (68:13)

Someone else's money.

C (68:15)

It's inefficient to sit there and be like, all right, I'm gonna get three bids and then I'm gonna go and negotiate all of these line by line. Line.

D (68:22)

And it's easier to just charge 20 more dollars per house, 50 more dollars.

B (68:26)

And they, they don't know how either. Right. Because most of them don't maybe even own real estate, except maybe the one that they're in.

C (68:31)

RHOA is comprised of other homeowners. Oh, but there is an over, like seeing management company on top of that.

D (68:39)

Profitable hoa.

C (68:40)

No, I don't believe hoas can be profitable. Like, there's going to be money left over in reserves.

D (68:45)

They can pay the hoa, like board members, correct?

C (68:48)

No, no, they, they don't.

D (68:51)

I did not know that.

B (68:51)

That's why you had such good service.

C (68:53)

That's interesting. Yeah. They donate their time to do this. It's like you don't get paid to be on the hoa. You do it because you want to better the community.

D (69:02)

There's no way that my HOA office does not profit.

C (69:06)

They maybe, they maybe can deduct maybe like a salary or they can conduct.

B (69:11)

Office space, but no one deposit some of those checks.

C (69:14)

Yeah, but no one's making money.

D (69:16)

No one will notice.

C (69:16)

Yeah.

D (69:17)

Charge me a few, a few extra fees and whatnot.

C (69:19)

Yeah, I don't think they're making money.

D (69:21)

Okay.

C (69:21)

I don't think it's something that's like a profitable. Typically run an H. Right.

B (69:25)

Normally they're non profit, but what they fail to do is the, the, the deferred maintenance piece. Right. Like the, you know, the capex we call it, or capital improvements that, that, you know, what the normal HOA dues are supposed to cover are just your normal operating costs, like the landscaping and the water and the sewer and electric and the, that kind of stuff. But the buildings, the roofs, the parking lots, you know, all the, the stuff. Maybe a big, big break in a, in a water line or something that's typically not covered in that. In that monthly. That's called a reserve. And that's what most of them fail at. And, and then of course, they're in a precarious situation too, because they're your next door neighbor and they're like, hey, it's 100 more a month or 50 more a month. And you know, then you don't want to meet them out by the mailbox. Right? Yeah. So you have that too.

C (70:11)

I got a dude that surveillances houses and email that says, hey, we have a violation of Course he'll just walk around and kind of like look and, and see, like if, if I have dead plants in front, he'll be like, just cite that. Oh, I've gotten cited for having a trash can by my. Of course, a trash can left out. That was, that was a. No, no, can't do that. You know, it makes the neighborhood look nice and uniform. But it's like sometimes a little wiggle room here might be kind of nice.

B (70:43)

Yeah, I know. We had one where all the cars had to be in the garage.

C (70:46)

Yes.

B (70:47)

Every night now I like cars like you, so that became a problem. You know, I had four car garage, but you know, sometimes they spilled out, right. And I was getting notices all the time, so that's another one. And especially if somebody comes and spends a night, you know, let's say a family member, and they're there for a week or something, I would get notices. What cars do you have right now? I. Well, I have a 57 Porsche Speedster, I have, have a 458 Ferrari and I've got a Range Rover. So just the three.

D (71:21)

Now the Speedster is awesome.

B (71:23)

Great car.

D (71:24)

That is super cool.

B (71:25)

Phenomenal. Yeah.

C (71:26)

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D (73:17)

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Sign up for a $1 per month trial at shopify.comich. that is shopify.comich guys, it's only $1 a month to give it a shot. I couldn't recommend it more. I've had a Shopify store. Graham's Coffee company was ran off of Shopify. We've had so many people that have came on this podcast that have had very successful Shopify stores. It's $1 to try it out for a month. Couldn't recommend it more@shopify.com ich. Thank you so much to Shopify for sponsoring this episode. What do you think of the 50 year mortgage? Do you think that that would benefit most people? Is that a good thing?

B (74:41)

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C (76:05)

It's called basically cash and short term high interest debt. So before the 1930s it was customary for people to either save up and buy a home in cash or what they would do is take out a short term loan that would was let's say 6% money loan or something. Yeah, basically like 6% for five years. And the expectation is that you know, by the time the loan comes due, you would either have the money to pay off the a loan or you would just get another loan.

D (76:31)

Was the most collateral for the loan, correct?

B (76:33)

Yeah.

C (76:34)

But what happened is that in the 1920s, Great Depression, people were losing their homes because they couldn't afford to pay back these loans. The government got involved because so many people were becoming homeless and they started to develop the 30 year mortgage that was initially for new constructions that you would be able to buy a new house, get a 30 year mortgage. That was a success. And then they rolled it out to older homes, homes as well.

B (76:56)

Yeah, but pushing a mortgage out just means in debt longer. Right. So that's not good. But it also gets people in What I would consider to be a hard asset, I believe that we're going to see inflation, you know, in the next 10 years. Right. I mean even, even the Fed, I think they're right around three. They're on their website, they say they, they're, they're good with two. So even that is 20 to 30%, depending on how you pencil it. So I think if somebody can be in asset, no matter what, I think that they're going to benefit from inflation.

D (77:32)

Yeah.

C (77:32)

The other thing I do want to mention that going back to the 1930s to 50s is that the average home size at the time was like 1300ft. My grandparents, they bought their house in West Los angeles. They paid $36,000 for their house in the 1950s, but it was 1100 square feet.

B (77:51)

Oh, wow.

C (77:52)

And that was for a family of five. Five, by the way, that's. It was them with three children in a three bedroom, one bathroom house. Eleven hundred square feet, five people. And now people want a 4,000 square foot house.

D (78:10)

A starter home is like 2800 square feet.

C (78:13)

That's probably even small for a start. A starter home now is probably minimum 3,000 square feet.

B (78:18)

My mom has a house I grew up in.

C (78:20)

Really?

B (78:20)

Yeah, yeah. They bought it for $10,700 in the late 50s.

D (78:24)

What's up worth now?

B (78:25)

Oh, it's worth over 700, you know, and my mom was a hairdresser, my dad was in construction and, and you know, they paid it off like, you know, this before the, you know, Dixon took the dollar off the gold standard. Right. But things change after that. But before then, paying off your house meant something. Right. And I, I actually remember when they did it. And she still owns it today.

C (78:51)

Now, did you not tell her to refinance at like. Yeah, she sells equity.

D (78:54)

Buy a wedge deal.

B (79:00)

Here's. This is very, very interesting. When my, when my dad passed away, I had the uncomfortable task of my brother and sister too, to dig into their stuff, right. And we dug into their estate and my dad had bought, and I remember him telling me this, he bought a $10,000 life insurance policy policy around in the 60s. So he had a 10,700 house and a $10,000 life insurance Policy. So fast forward this seven or eight years ago, I pull it out, the policy. 10,000, that's what it was. It wasn't inflation adjusted. And so he had a $10,000 insurance policy. And so, so I was talking to my friend about this and he said, so basically the insurance policy was equal to the time that's the way my dad thought. Right. But that's what inflation did to that policy. Obviously I'm taking care of my mom, but she still owns the house. And then she fell during COVID and so we were in this weird situation where we had to help her and f, you know, she, she broke some bones and in her hip and, and so what we did was we put her into a place where she wanted to go, an assisted place. And we rented her house to cover the cost. And so she, she is very happy because her home is actually paying for her care. And so that, that's how that worked out.

C (80:27)

But what do you think of the future is going to be with the dollar?

B (80:31)

Ah, that's a really, really, really good question. I've studied this a fair amount. I don't think in my lifetime that we will see a change from the US dollar because of the trust in anything else. So it, it boils down to trust. So dollar is only as good as, or currency is only good as the trust in the currency. So if you look at bricks or you look at, let's say some of the other things like bitcoin, just in the last week or actually 10 days, it's gone down over 10%. So, you know, it's not there yet. Could it be? Yes, of course, course. But in, in my lifetime, I just don't see it changing. There's, there's too much disruption to, to move to the peso or the euro or the renminbi or, you know, whatever, whatever country you want to pick. Somebody has to be that central bank or there has to be something that everybody agrees on. And the euro didn't, didn't work. Yeah, really.

C (81:33)

What do you think of bitcoin?

B (81:34)

I don't mind it. I mean, we own some, My wife and I own some. You know, I'm not heavily into it, but I think it's little volatile for me. I, I, I, it's not. I, I don't know why it goes up and down other than hype. And so I look at it more like a stock. And I know a lot of people probably aren't going to be happy with me saying that, but that's how I see it. Even though I have some, you know, I'm not heavy into it. I, I, I, I, I'm diverse, so I have lots of different things.

C (82:03)

What's a piece of money advice that you would give yourself 30 years ago to be able to grow faster?

B (82:09)

Compound interest. I think it is an incredible thing and I think leverage, low leverage and, and I Know you guys aren't.

C (82:18)

Don't love leverage, but, But I'm indifferent to it.

B (82:20)

Yeah, I don't mind. I think, you know, if you really look at the, the way money works is, and this really hit me once, you know, everybody works their butts off and puts their money into a bank. Well, that money becomes a problem with, for the bank, they owe you interest, period. It's an expense to them. So the bank's sitting there with your cash or an insurance policy or a pension or whatever, a retirement fund. Somebody owes you something if it's your money. So what do they have to do? They have to repackage it and put it out somehow into, into some kind of loan or something, some kind of vehicle that makes money to pay you, because they don't just pay you. The money doesn't come out of thin air. So, so when we're talking about other people's money, it's already there. You know, Wall street, the whole reason for Wall street is to, is to reach in the pocket of Main Street. And that's what they do. They do it through the banking, they do it through pensions, they do it through insurance, they do it through retirement plans. And, and it is a way to take people out of the education piece of finance. You know, which is why I love your show is, you know, you guys are a stuff around that. And I think people need it. I really think people need. That's the only reason I'm doing mine is, is for that reason. And, and so I would, I would say to them, just look how money works. It, it's your money. Like, you know, if, if you're putting money away somewhere. Like, I'm borrowing from life insurance companies, I'm borrowing from pensions. I bought a, I bought maybe 3 or $400 million of real estate in Texas using the RRSP savings plan out of Canada. That money, that's how Wall street works, is, is, you know, it all gets funneled, if it's a local loan, where the, where does the money come from? Comes from, you know, the, the, the strength of the depositors. So, you know, it's all based on Main street anyway. So, so I would, I always tell people, you know, take a look at how money works. It's, it's actually not, it's actually quite simple.

D (84:36)

What's the best investment you, you've ever made?

B (84:38)

So the best investment by far has been into myself, right? I. There's a lot of stuff I had to clean up from a kid, as I think a lot of people do, and And I poured myself into personal development from the very first time I discovered it, which was in college. And then I never stopped. And you know, through books and podcasts and speaking and going to seminars and conventions and things like that, which I still do. I was just at a YPO convention last week in LA listening to Michael Milken and some other really, really cool, cool people. So that's something that I always try to do is try to stay ahead of what's really going on in right now with, with the markets, with the interest rates, with the financial markets, with tech, with crypto, all of those things. And so I always try to stay ahead of that. From a, from a finance development, it definitely has to be 182 unit building that I bought. Senior project that has hardly any turnover. And I bought it for 9.7 million and it's worth maybe 40 today. And we're, we still own it. Wow.

D (85:39)

How did it go from 9.7 to $40 million?

B (85:42)

Inflation. Inflation and rent growth. And, and you know, again, like, again, go. Let's go back 15 years ago, what was the price of a house? It's the same question, right? So, exact same question. You know, why, why, why did a house go from 200 to 400? So same thing. It's just, you know, with, with apartments, it's just math. It's literally math.

C (86:03)

I like that a lot. You know, I was just thinking the 50 plus communities are so nice. The people that move into them usually have the money that they just don't want to be bothered, but they have the cash flow. That to me seems like a really good opportunity.

D (86:19)

Like they never want to move.

C (86:20)

Right. And they just want stability and peace and quiet. They're gone half the time traveling. Can you discriminate though against age? Is that one of those things? So you, you. So technically though, if I wanted to move in a 50 plus community, could I.

B (86:36)

So the, the property that I'm talking about specifically is actually age restricted by the covenants of the area. So it's, it's Sun City, which is an area of Phoenix that a lot of seniors live in already. So they already, it's already a community for seniors. And this apartment property is, is inside of that.

C (86:54)

So.

B (86:55)

So we are governed by that. And so they have to be 55 or older. And they're. But to your point, last year we had 42 move outs. Like that's not much. That's, that's 2, 3, 4amonth. That's nothing compared to another 182 unit project like in Vegas we might see, you know, 150 move outs. So the difference between 42 move outs and 150 move outs is 60. Significant because you have turnover costs, you have marketing costs, you have cleaning, you have maintenance, you have vacancy, all of that. So, so finding communities that, you know, people want to live in and stay in long term, those are the ones that obviously I want to have.

C (87:41)

So could you not just go and buy a 50 unit apartment building in like a decent area and just say, hey, it's 55 plus.

B (87:48)

You probably could. Yeah, we haven't, we haven't done that. But you know, we, we bought four now at age restricted areas. And the seniors, typically, it's been my experience, they, they like to hang out in senior communities. That's been my experience so far. So you could try it. But this area has like nine golf courses, three community centers, a bunch of pools. It, it does have an hoa. You know, there are things that it has that, that, that they can enjoy inside the community itself, not just in the property. In the property. We have all that too. We have pool, fitness center, all that kind of stuff.

C (88:22)

Stuff.

B (88:23)

But they, and then we also have a 20 person van with, with a driver that drives them around to grocery stores and, and you know, the hair, getting their hair done or the doctor or whatever it might be. So those are things that they need.

C (88:36)

That sounds so nice.

D (88:38)

Graham would want to live in an age restricted.

B (88:41)

Well, you could buy one and then buy the one you want and then.

D (88:44)

Just make one car.

B (88:45)

By the time, by the time you move in, you'll have the penthouse and, and you'll own a free and clear.

C (88:51)

It sounds nice. I was just thinking too, you could offer cleaning, cooking services and, and actually.

B (88:59)

Beyond that, once, once. Depending on their health. You know, we've seen some people are extremely healthy at 75, 80, 90 years old, very, very mobile. And some aren't. Right. So you have to have, you know, those kind of services available to them.

C (89:13)

What separates those people? Do you ever get down to the weeds and you see someone who's like 90.

B (89:16)

I've talked to so many of these people, by the way. They're just incredible. Like they're, they have stuff, such wisdom and you know, they're present, you know, they're looking at you. It's the greatest thing.

C (89:25)

But like the people who are 90 plus and really just like doing well, active, like what separates them? How are they different?

B (89:31)

I think it's a combination of a few things. My mom by the way, is 93 and, and I always Ask her. You know, we go to this place and, and, and, and she's like, you know, everyone thinks they're so old in here, you know. You know, she thinks she's young. My mom thinks she's young. And I think that's it. I think the mindset is that, you know, they, they walk, they eat well, you know, they, they're, they're, they're healthy mentally and physically, you know, as much as they can be. Right. What happens is they fall. You know, I've seen that happen a few times. And, and then that could be a bit of a game changer.

C (90:09)

Yeah. When you were talking to Dave Asprey, he was saying that the biggest thing for longevity and living a long time, long time socializing and exercise and that if you cut yourself off socially or you retire and you, you stop working, your cognitive ability goes down, and then you stop socializing, you start getting out there, you start exercising, you stop exercising as much, then you're more prone to injury, and then you're more likely to pass away from the injury.

B (90:35)

Yeah.

C (90:36)

And so it seems like the more social you are, the more engaged you are with, with work, the longer you could live.

B (90:42)

Yeah. My, I, I, I'll tell you a fun story. My, my uncle Dwayne, he passed away recently. He was in his 90s, and he called me and he's like, hey, you got any 1031s? And I'm like, what, what are you talking about? He goes, I just got out of a deal. And he's in his 90s, and he's like, you have a deal. I need to roll this in. I'm trying to avoid tax. And I, I called his sons, you know, know, and I'm like, that's awesome. Like, your dad's still going at it. He's like, oh, yeah, he gets up every day. He still manages his stuff. And, and, you know, he's still active. And he was that way, you know, right up, right up to the time he passed in his, in his 90s. And, and I, I, I think it just connected him to things and, and, you know, to your point, community is everything.

C (91:25)

I had a buddy whose grandpa I really, really liked. He owned Walk right off of Beverly Hills. All of the retail was his, and he was in his mid-90s, and he'd show up to the office every day to manage the buildings, even though there was really nothing to manage, but he would show up there, he would walk out and, like, find things to fix, and we'd be like, all right, we're going to repaint this. We're going to repaint this. And he said his favorite thing to do was he had a vending machine. And he would sit at the office watching the vending machine as people would go by and put a dollar in the vending machine. And this guy' probably worth, like, 200 million bucks.

B (92:05)

That's awesome.

C (92:06)

The guy would put the dollar in the vending machine, he would see what the guy would get, and then he would come out to open up the vending machine to take the dollar and put it in his pockets.

B (92:16)

That's awesome.

C (92:17)

And apparently, this guy also would go to restaurants and steal the silverware, and he just wanted to feel like he got one of the restaurants.

D (92:25)

That sounds like you.

C (92:27)

I wouldn't steal the silver.

D (92:28)

Graham would not steal the silverware. But he always walked out with him.

B (92:33)

Value.

D (92:33)

Graham wants to be like, I feel like I got ahead, you know, I got away ahead from whatever transaction the.

C (92:38)

Most I've done, and I haven't done this in a while. But if I lose money at a casino and they've been serving me drinks, I'll just take the cup.

B (92:45)

Nice. Yeah. Just because.

C (92:47)

Why would the cup. I drink from it. I still have my little coffee cup that I got, the little nice glass one that I fill up sometimes. That's from.

D (92:56)

Really?

C (92:57)

I think that was from Red Rock Casino.

D (92:59)

Are you in Crimson yourself?

C (93:01)

I don't care. I lost so much money that it's.

B (93:03)

What?

C (93:03)

It's.

D (93:04)

You've never lost a bunch of money. You maybe have lost 150, 200.

C (93:07)

It evens out in the long run. So sometimes I lose 300, sometimes I'll make 300.

D (93:11)

Whatever. You're shouting them out right now, so hopefully they.

C (93:13)

Red Rock Casino. I got your cup. It might have been Arya, by the way. I don't know.

D (93:18)

It's one of the casinos. You probably don't want him as a tenant. But what would be the worst investment you've ever made?

B (93:25)

A gold mine, actually, in Nevada, of all things. Yeah, I, I, I, I think as I was trying to diversify. This is going back a while. I was probably your age, actually. I, I was trying to figure out, oh, I had money in the stock market. I had some money in real estate, and, and, you know, I'm, I'm trying to figure things out, and I invested into a gold mine that would just went poof. And it, you know, they, it just all went away like, like an hour or, or about a year later, it was gone. An hour later. An hour later. No, no, it Was about a year later I was got. They just stopped communicating and the, the money was out and no email.

D (94:02)

Yeah.

B (94:03)

Basically could have been. Obviously what I should have done is I should have physically gone there, physically done the due diligence. It was, you know, through a buddy. Right. You invest in this gold mine and it wasn't a ton of money because back then I didn't have a ton of money. But I, it was a great lesson and it actually, you know, it can happen and I, it, I've seen it in oil and gas. I've seen it in other things. You know, that's, that's precisely why I, I like hard assets, like to something physically I can touch even my gold and silver today. It's physical. I have actual gold coins with Brinks. I keep it in, in at the Brinks and, and I've been buying, you know, since it was under a thousand and now it's over four. But that's luck. It's not. I don't buy it for an investment. I buy it as a hedge against the US Dollar. Right. Yeah. That's why I buy it.

D (94:51)

How much real estate has you sold from your portfolio?

B (94:54)

I, I want to say it's probably close to a billion.

D (94:58)

A billion dollars worth of real estate that we've sold. And would you have been better off just holding?

B (95:04)

Oh, for sure. Yeah, for sure.

D (95:06)

That's so interesting.

B (95:07)

Sometimes I look at those, I'm like, oh, it's like, it's like that place that. Yes, I, I, I did. I, I actually looked at a building today in Vegas and I was just. Oh, and, and I did, I had another one in Portland that I, that I sold. And you know, what happens is like a of lot, lot of us is you see the equity. You want the equity, right? You think you need the money and sometimes you do need the money. But I, I look back at some of those deals and I, I just shake my head.

C (95:31)

But do you think that's going to be the case in the future? Because you could make the argument that that is true because interest rates since the 70s have constantly just gone down at the same time is under building over decades and that's what's really led to this discrepancy.

B (95:45)

Yeah, that's fair. I, I think, you know, if I, if I just bought something, let's say here today and came back in 10 years, I think it would be worth more because of inflation. And, and you know, and obviously that's not what I would do, but I think inflation is, you know, it's what my made my mom go from $10,700 to over 700,000. You know, she's not a real estate investor. My mother, you know, over. She held real estate for a long period of time, paid it off, lived in it, raised a family, and it still owns it. You know, there's nothing wrong with that. My sister is a bookkeeper, and at the ever clinic, which is where I grew up, she did the same thing. You know, she, she bought five rentals over a long period of time. And, you know, now they're worth, I don't know, a few hundred, few million, I think. You know, a few hundred. 2, 3, 4, 5, 600 each, probably. And, you know, it's far better than she would have done, you know, just trying to live off a bookkeeper salary.

C (96:48)

So would you have been better off investing in the S P 500?

B (96:52)

It's interesting. Yeah, I, I've looked at that, you know, the index funds, I would say that's obviously one of the bigger ones. Most notable, I looked at over 90 years. It's been 10, I think, right? Seven. That's nominal, though, 7% adjusted for inflation, I think. So maybe, you know, that the thing is, if I'm, if I'm, if I'm cashing that out, I'm paying tax on it as well. And in real estate I can make more than 7% and I can get it out. I can get my money out tax free. So I get the tax benefits from real estate. I get leverage, of course, and I get the tenants pay my loans off and I get inflation. So I get all of those things on, on the real estate side. So I think the index fund is easy. Certainly doesn't take a lot of knowledge to do that. I'm certainly not averse to it at all. I do believe in diversification and I'm heavy in real estate right now.

C (97:56)

See, it's interesting, you, you talked about being better off not selling anything, because I remember when I got into real estate, I would ask all these people that were buying multimillion dollar houses is what their thoughts were on the market and their advice for me. And they always said my biggest regret is selling this piece of real estate that I bought. And I wish I had just never sold anything. And I'm at a point now where I'm starting to sell off my rental properties because they're located in California for one. But also, I don't want the headache, the liability, the management, the headache. And I'm looking at my income that I make from those rentals and it's not bad, but I look at it in proportion to everything else and I say what bother when that's taking up 80% of my mental stress for these things that just really don't yield anything else in comparison to what else I could do.

B (98:47)

No, you have to look at it that way. I agree. Actually. I look at my equity against my return no matter what I bought. So I call it imputed equity. Whatever the equity is today, you know, obviously it's gone down in the last few years. Apartments have for sure. So. But I always look at that like what is, you know, how much money do I have sitting there and what is it making and what could I be doing with that? Then I calculate tax and all that kind of stuff in there. So I'm not averse to that at all. I'm continually. We just did a, a very, very big five property. It's called a recap. So I took five properties that I've owned a while and we had a significant amount of equity in there. We actually pulled 77 million out of that of those five. And I had refinanced them multiple times. And I had a tax problem too because you sell it, you got a depreciation recapture and all that. So, so we did a 1031s into new assets. So I was basically taking 80s property, 80s and 90s property and rolling the equity tax free into, into new stuff. 2022, 2021, 2023 Construction less cash flow initially, but I'm upgrading. And what the reason I did that is because the, the amount of equity sitting in those assets versus the return was, was not what I thought I could do by, by moving because again, I'm looking at aging properties, you know, in 80s property is, you know, know it's, it's 45 years old. And so you start to have these serious big things that happen from a capex standpoint and properties that you own for a long period of time, it starts to creep up, things get older and it costs money. And so you start to take a look at that and, and you start to calculate, you know, where's this money best, how do I, how can I move it around? And that's all I'm doing right now. It's, it's like the end of a Monopoly game, you know, when you're, you're just moving stuff around and that's essential what I'm doing and that's why I'm here actually. This is a, this is a 1031 exchange into this property that's what it is.

C (101:06)

Is there an ideal amount of money to have to do mostly whatever you want to do? And what do you think that number.

D (101:12)

Real estate is just a good net worth to have?

B (101:17)

I think it's all excessive, honestly. I mean, you know, I, I think at some point we brought on a full time director of philanthropy and she works for us, she's a. On our payroll. Eight years ago we started doubling down on that. You know, there's, there is a point where you're like, okay, we have enough, right? And, and then the next question is, is how do you preserve what you have? Do you. Should I grow it? Should I not grow it? Should I educate? You know, why do I do my YouTube channel? That's precisely why. So I'm having fun doing all that. You know, I, I think it depends on what different people believe their beliefs are, you know, so some people never stop, you know, and I think that's dangerous. Some people, you know, stop too early and I think that could be dangerous. You know, I just heard a story the other day where, you know, somebody stopped at $5 million and they live in Newport Beach. I said, well, that's going to be maybe 10 years, you know. Right, okay, well, so there you go. So five's too little. It seems like a lot to me. Like, you know, so I think it also depends on what expenses are and what you spend money on. Right.

A (102:30)

You.

B (102:31)

I used to have a lot of cars and lots of houses and stuff like that. And I, I don't anymore. Right. I'm like, I, I'm going the other way. I'm paring down, I'm simplifying.

C (102:39)

Now we've heard from other guests though that, that say that, you know, with 10 million you could do pretty much whatever you want. With 50 million you could get 98% of what a billionaire has access to just outside of like mega yachts and flying private.

B (102:53)

Agree with that. Yeah, I completely agree with that. Yeah, yeah, I know the math. I mean, that's right. I mean, aside from, you know, those kinds of things. But the reality is, is I still rent those yachts. I, you know, I mean, just for a week or two and then you throw the keys and same thing, right. Like my wife and I, we just went down to Manhattan beach and you know, rented a huge house on the beach for a couple summer summers ago. There was a big check to write, but boom, done, move on. And so I don't have to own a 20 million dollar home, you know, when you can rent it for 60 days in the middle of the summer. So. Yeah, and, and part of that is, you know, I was getting to the point where it was a pain in the butt. Like you feel guilty, you buy something somewhere and you're like, I need to go use it, Right? So you go use it. Or then you have a whole team of people, they're watching it and all this crazy stuff and it's just, it's turns into nonsense. It's precise. I had nine cars at one time, same thing. You, you got to drive them, you got to run them, you need somebody, you know, I mean, the batteries die and you know, there's all kinds of things that you realize as you start to get excess and, and then there is a point of excess too.

D (104:08)

What was the biggest pain in the.

B (104:09)

Butt to maintain the main house is all the houses. Yeah, just the pains in the like. So with my property properties, you know, I have, I have 300 employees. So I, I have maintenance guys, we have leasing people, we have managers. You know, we have really, really, really smart people running everything. I, I own the management company and the asset management company and the development company and the construction company. So we have four main companies. The ones that are paying the butts are the, are the single house over here that I own that I have had nobody. Right? Because then I had to find somebody that I didn't trust or know yet maybe, or, you know, in some remote area. And you know, you're trying to cobble that together, like the landscapers or the maintenance people, and you're not there. You got to fly out there. And so, so there's all these things that, that you have. So there's that. And then we would show up sometimes. I had a big home on a lake in Lake Calan up in Idaho, right downtown. I would get up there, there and it'd be two to three weeks of meeting with all those folks to try to get it back to, you know, stable, you know, whatever stuff from the winter or whatever it was. And, and we've lived in the house for a month or two and then, and, and finally my wife's like, you know, like, you know, half your time is bet on the maintenance of this house. So, so, so I said, you're right. So started cutting back on all that stuff.

C (105:35)

What net worth do you have to have or that you should have to buy a $10 million dollar house? I.

B (105:40)

Well, a lot of it depends on your cash flow. So if you have. No, if you, if you're. And I will get there, you can be an extremely high Compensated person in a tech business with a lot of equity on paper and buy a house like that, as long as you have the income coming in. Same thing with a surgeons or whatever. But if, if you're going to, if you're going to retire on something like that, it depends on your age, but I think you need easily, you know, 30, 40 million would be, would be probably comfortable for me and that, that, you know, I, I don't have debt on anything personal. That's the interesting thing. All my cars and houses and anything that I have is, is paid off. Boats, all that stuff, it's all paid off.

C (106:25)

I was always under the assumption that the house should be one fifth of whatever our net worth should be. So if you buy a $10 million house, you should be worth or have liquid assets, 50 total. We were talking to someone recently who was saying that of a lot, lot of people will stretch, they'll, they'll max out whatever they could buy and their net worth could be way less than something like that. But they get in because, you know, they can afford it every month, but they're one paycheck away from losing it.

B (106:48)

That's really dangerous. Yeah, extremely dangerous. Yeah, I, I don't agree with that at all. I, you know, if, if you have significant cash flow coming in and it's consistent. So as an example, all the properties I own pay my management company every month. So I'm the general partner and I own the management company, so I pay myself. That's how that works. So, so that company does 3, 400 grand a month. Then I have an asset management company, same thing. So, so the assets I own pay the. So so I have a guaranteed stream of income coming in from, from assets that I already own indirectly. Plus I get distributions from them too, right in cash flow itself. But somebody has to manage it and, and so the management company, so, so does. And so when you have certainty in something like that, then, then I think buying something like that, where the payment might be 20, 30, 40, $50,000 a month, which is about what it is, is not a problem. You know, again, it depends on the cash flow. But if you're, you know, like what you describe, I think that's risky.

C (108:06)

Does money buy happiness?

B (108:08)

Oh God, no. Not even close. Not at all.

C (108:11)

Have you found though that your life satisfaction has increased the more money you make?

B (108:16)

No, it's gotten more complicated. For sure, for sure. The more money you make, the more complicated it is.

C (108:23)

The why then why keep going? Why not scale back to a point where it's Just the ultimate balance.

B (108:30)

Yeah. Well, so, because I don't equate money to happiness, I equate money to time. That's it. So. So time is the reason I do this. So time is super important. Time with my kids, time coming here, you know, time away. Time with my wife. I'm here in Vegas with my wife. That's. That's really where it's at. So if you have money coming in, then, you know, then, then that's what you use it for.

C (108:59)

And why do people have money but don't feel wealthy? Where's that?

D (109:04)

Like this guy, like Graham.

B (109:06)

Yeah. Well, I think it's interesting. It's a phenomenal question. I go back to mindset. I think.

A (109:15)

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B (110:15)

I remember as a kid, I. We would be checking out somewhere. My parents and my mom would say, we can't afford that. And, and it was true. You know, they couldn't. Right. They. They're good people, don't get me wrong. But you know, we shopped at their stores and that, you know, that we. A lot of our stuff, that's what we did. So, so how. So you break through, you have to break through the mindset. That mindset. Right. I had to. And now of course I want to. Like, what is risk? You know, what is risk? Risk really is it. To me, it's predictability. And that's why I get freaked out a little bit with stocks and crypto is I feel like I. Because I understand the management, I understand I can predict to a large degree the direction of an asset, especially if I buy it correctly. So, so, so getting Back to the. The money and the mindset. I think that it's the belief system. The belief system creates the. The mindset, for sure. It's. It's how you think, and then from there it's habits and routine. Right.

C (111:23)

Is there any dark side of success that people don't talk about?

B (111:26)

Oh, health, I would say, is a big one. Mental health, physical health, for sure.

C (111:30)

What have you seen?

B (111:32)

Oh, all kinds of bad things. Like, I mean, I think, well, money. Money makes people have big egos. They think it's money. Like, somehow they think, look at this, I've. I've made it. And all of a sudden they're. They're better than someone else. I see that a lot. Doesn't really mean you don't have to be really wealthy for that. I usually see it in the first time. Like, I see it in young people. You know, a lot of young people, they make something real quickly, and then all of a sudden they feel like they're better. The problem. Problem is it goes away pretty quickly unless they can sustain that. But on the dark side, to answer your question, so ego often times doesn't allow you to shut off the health and the mental piece. So, like, what's. What's most important? If you were to ask me what success is, I would say that it's family and health, period. Right. And those are interswitchable at times. But I would say without your health, you got nothing. So I see. There was a time I went to, in my ypo, I went to a talk where a guy owned a series of these health spas like these, you know, and it was pretty big. And he was putting them on cruise ships, and it was a real big brand. And he would say, this is. This really hit me. He said, the CEOs will roll in here. Extremely unhealthy. Big guts, poor health, can't even walk up a hill. And they come here for a week and they want me to fix them. And it kind of summarizes everything. I think what happens is people prioritize money over relationships and health, and I think that's a huge danger.

C (113:27)

Do you ever get people just asking you for money?

B (113:30)

Oh, yeah, of course. All the time.

C (113:32)

All the time.

B (113:32)

I have a rule, and. Yeah, and I give money out.

C (113:35)

What's the rule?

B (113:36)

It's really simple. I got this from my good friend who started California Closets. And when he exited, you know, we were talking one day, and he's like, this is my rule. I go, that's a great rule. So if somebody comes and says, hey, I need, I don't know. Usually it's a low number. Right, right. I, he's like always take it, always take the first one and say, listen, it's not a loan. It's a one time gift. So you give them the money and you don't have to pay it back, but you can't ask a second time. So. And that's worked.

C (114:12)

Can I have $50,000?

B (114:13)

Yeah, one time deal.

C (114:18)

What do you mean no one time? No, it's one time. It's a gift.

B (114:21)

No, it's a gift.

D (114:22)

You didn't ask first. All right, I'll take 50.

A (114:25)

1,000.

D (114:26)

No, I wouldn't know.

B (114:28)

But that's it. That's it. It's, it's simple.

D (114:31)

And so have people ever came back to you after you gave them that?

B (114:33)

Very rare. But because I, I, I give them the release. Like, you know, I listen if they need it, I'm good with it. Like, you know, if they're, if they're friends and depends on what they want it for, I do ask.

D (114:45)

So I am curious though, if everything you do is to get back time, purpose of money is time.

C (114:52)

Time.

B (114:52)

Yeah.

D (114:53)

Aren't you at the place now where you don't have to pursue money anymore and you have enough to be able to do whatever you want with your time?

B (115:00)

Yeah, yeah. But see, now what I, that's a great question. Now, you know, but I, I got my company on autopilot. Like, I don't have an office in the office.

D (115:08)

You are here in Vegas.

B (115:09)

Yeah, I know.

C (115:11)

Well, you got a free water.

B (115:12)

Well, it's, here's why again, it's, it's, I'm managing my money. Right. It's, it's coming out of a 1031. So do I want, I definitely want to see where it's going. Right. It's moving into a new asset. So that's worth a trip, you know, and we're going to get to come to Vegas and we're going to a show tonight.

C (115:30)

So what are you seeing?

B (115:31)

I don't know. What are we. Comedy. Yeah, comedy.

D (115:34)

How much do you work?

B (115:36)

10 to 20 a week. A lot on the YouTube. Actually, probably half of that is YouTube. I know because I'm trying to figure it out. Like, it's so bizarre to me.

C (115:45)

It's fun.

B (115:46)

Yeah, I, I'm enjoying that piece a lot.

C (115:50)

Your YouTube videos are really good. I found you a while ago when you made a video about having FU money. Yeah, I remember seeing that. I'm really enjoying it.

B (115:58)

Thanks. Yeah. Yeah, I wish I could say it was my idea, but I had a youngster that said, this is a great video, we should do it. We did it. I'm on my, on my jet.

C (116:08)

Yep. Yeah, I remember seeing that and I loved it. Yeah, it was really well put together.

D (116:14)

When did you realize you had FU money? And what is FU money?

B (116:19)

Well, I have a really good friend that took his company public and I was playing golf with him a couple months ago and he's like, I can't spend what I have. And I think that's it. You know, you can't. Like, you get to that point where there's so much cash flow coming in, you got so many assets that you know it's basically going to transfer to some other much.

D (116:43)

So when did you realize you had that?

B (116:46)

Over 10 years ago.

D (116:47)

And did anything in your lifestyle change because of that realization?

B (116:51)

No, the only thing that changed is I, I, I figured out my trusts for my kids. Right. And I want to make sure that they're taken care of. I did buy a jet because I'm flying around and you know, I like, like a flu here today for, you know, for, to, to check these out and, and, and I actually, it's, it's nice, it's nice to, you know, pop in somewhere and fly back me. We'll fly back in the morning.

C (117:19)

How much was the jet? How much does that cost to run?

B (117:21)

Yeah, was it, it costs us about 400 a year. Ish. Yeah.

D (117:29)

And how much was it to purchase?

B (117:31)

We, we paid about 3 million for.

C (117:32)

It's not bad.

B (117:34)

No, that's a, it's a, it's a Phenom 100 and that's Hangar pilot fuel, everything. And by the way, my partner and I own it together. And so you split it.

D (117:45)

Yeah.

B (117:45)

So you know, call it 20 grand a month each.

C (117:49)

And that's really not bad at all.

D (117:52)

How far can you go in it?

B (117:53)

It's a, we fly to, it's like 1200 nautical miles, I believe. So we can fly to Dallas, we fly to Houston. And, and so what, what Sometimes what I do is we'll fly somewhere, land in the morning in Austin, let's say, and while the car picks up, we'll go look at four or five of our projects and then we'll, we'll literally be heading back at 3, 4 o' clock that afternoon.

C (118:18)

That would save us so much time. I mean the travel that we do, we, we spend an extra day getting somewhere because we know that we have to book on these times and we finish the podcast, there's not a good flight and then we have to wait a few. It's a dream to be able to go.

B (118:31)

That's what I'm saying. It literally, you start to think of these things like, you know what, what is time worth?

C (118:37)

So when can you buy a private jet? How do you know you're ready?

B (118:41)

When you have the cash flow coming in. So I had. We have cash flow coming in on all our businesses and I wanted to make sure. So I, I like. You don't like to take. I don't like to dip from my, my nest egg. Right. I want there to be enough cash flow to be able to pay for whatever I'm going to do next. I very rarely take chips off the table. I'm usually right at this point moving money around from asset to asset.

D (119:03)

So that's the same thing that Graham kind of does and I try to do, which is however much money your investments make, that's the amount of money that you can spend as opposed to like your active income. The active income.

C (119:17)

I don't, I never count any of this as income because it like, I've seen it disappear so quickly and like.

D (119:23)

Store as much of it as possible and then spend maximum 4% of what your investment portfolio is.

B (119:29)

Yeah. So I'm, I'm very similar, believe it or not. It's just that we have so much coming in now because of our assets.

D (119:34)

So what are the best things to spend your money on? The highest roi. Not necessarily from an investment perspective, but just from a quality of life.

C (119:41)

Yeah.

B (119:41)

I think Naturopath. Your blood work. I'm on a cleanse right now. Like literally. Yeah. In the middle of one. It's a 10 day one, so it's not that far, but I've done 21 days, certainly. Anything health related? Gym for sure. Relationship stuff. I just took my kids two weeks ago. I did a big fundraiser for the Navy Seals in San Diego, Coronado. We, we raised 300 million or 300,300,000 for them. Beyond the brotherhood. Great organ. Brought my kids. We did some Navy SEAL training. So those kinds of things. Like where can I take my kids? I'm taking them to Mexico soon.

C (120:24)

How old are they?

B (120:25)

They're in their 20s. Okay. They both work for me too, so it's very exciting. Not directly.

D (120:30)

Yeah. Do you feel like you need to overpay your children?

B (120:33)

I don't even know what they make like. I swear they, they're, they're paid market, whatever that is.

D (120:38)

So it's, there's no nepotism. Involved here? They're just getting paid market.

B (120:42)

I. Yeah.

D (120:44)

Do you think nepotism is a bad thing?

B (120:46)

It can be. It can be harmful to the culture. So, yes. I mean, obviously parents love their kids and, and they want them to work with them a lot of times, but sometimes they're, you know, if they're sit. If they're rubbing shoulders with, you know, a C suite person or somebody, a director or a manager of a department, and they're not kids capable, then for sure the culture gets pulled down.

D (121:13)

Was there intent and purpose behind the way you raised your kids to make sure they wouldn't become the person to rub shoulders with a C suite or executive?

B (121:21)

Well, they're on different paths. But I will tell you how I started. I started with barter. I never, I have never given my kids money or allowances or anything, so I always started with, okay, like, you guys can figure out how to make money. Like. And so we started with barter. So really simply, I, I belong to a golf club up in Idaho, and they used to get. We used to go out and get golf balls at night. Now doesn't seem like much, but when you're 6 and 8 years old, you know, they would make a thousand dollars a summer, right? And then I would take half of that money and I stick it in a jar. And I said, okay, you can spend half, but we're going to take half. Now you need to decide what's the next business. And then they would go on YouTube and go figure stuff out. The next business was duct tape wallets. I was like, okay, great. So we take them to Home Depot. And there were lessons in all these things. Okay, how much is the tape? How much is the cutter? How much is this? How much is that? Okay, so you need to sell 10 wallets to get this back. And so there's. And then, then the next thing is we, we actually created a website for them called createyourowntune.com and so by the time they got in high school and college, they were, they were buying stuff on ebay, selling it. They were, they were, they were doing things for, for money. My son was repairing iPhone screens back when you could and making whatever and, and so by the time they. And by the way, that's not all foolproof either, but by the, by the time they, they got to the company, you know, they, they just appreciated things because they weren't giving them.

D (122:58)

That's interesting. I resonate with that as well, because when I was growing up, I didn't have an allowance When I finally did get one, it was only achievable through.

B (123:07)

A bunch of chores. Yeah.

D (123:08)

Throughout the house. So I kind of had to earn it. It wasn't anything that was necessarily gifted to me. And I remember the only other job I could have was I could pick up palm fronds. When wind would blow, it would blow these long, skinny palm fronds onto our front lawn. And for every palm frond I lifted up and threw away, I got one penny.

C (123:27)

Oh, penny.

D (123:29)

One penny per. And you can confirm with my dad next time you see me, it was one penny.

C (123:33)

How old were you? Like 13. Oh.

D (123:35)

Like I literally this was like one of the only ways I could make money. So I would do this as long as I could.

C (123:41)

More just picking up change off the.

D (123:43)

It was annoying cuz I had to like count them too. And so I would be able to pick up a couple hundred though. So I get like two or four dollars maybe max. They. They were not huge. They were like skinny a lot long.

B (123:53)

So.

D (123:53)

But yeah.

B (123:54)

And that actually lesson, though, the lesson.

D (123:57)

Was the value and importance of money and hard work and how money can only be achieved through work.

B (124:02)

Yep. And it worked. Obviously. Look at you did.

D (124:05)

Thank you.

B (124:05)

Seriously, your dad. Your dad raised a good kid.

D (124:08)

Thanks. And this guy will sometime soon. Isn't that right, buddy?

C (124:12)

Well, one day. So.

D (124:14)

Okay, that's it. Thank you so much for coming on the iced coffee hour. That was a great conversation.

B (124:20)

Thank you.

C (124:20)

Yeah, we'd love to have you back on at some point again in the future. I'm sure everyone watching would like to have you back on like a year from now.

D (124:28)

Cap rates change, make another $500 million.

C (124:31)

I don't know.

B (124:32)

I don't know. You know, more charities. Right.

D (124:34)

So we'll see. Thanks so much for coming on the show.

B (124:36)

Pleasure.

D (124:37)

Thank you guys so much for watching. And you may notice the shot looks a little bit different. We're filming in a new location.

B (124:43)

Yeah.

D (124:44)

We still haven't really revealed much about this except to the members. If you want to join the members down below.

C (124:48)

Yes. Oh, you know what? For the members, if you join, you're going to see a full office tour. We haven't done it since. Should we.

D (124:55)

A new one?

C (124:56)

Yeah, let's do a new one.

D (124:57)

Do a new one. Just behind the scenes content. But also, thanks for coming on. Thank you guys for watching. We're only able to do this because of you, so this warehouse is because of you guys. We could not. Thank you more. Thank you for watching. Till next time. See.

C (125:19)

Your business is one of a.

B (125:20)

Kind, so your website should be too. With wix, it's easy, almost too easy to create a website that's perfectly yours. Just tell AI what kind of site.

C (125:30)

You want to build or choose from.

B (125:32)

Thousands of templates, change whatever you want, whenever you want, and get everything you need to start running your business your way. No matter what you sell or what.

C (125:41)

You aspire to be, you can do.

B (125:43)

It all yourself on wix.