RPF0281-Why_Ive_Chosen_to_Invest_in_Real_Estate
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00:00:30.400 | Today on Radical Personal Finance we talk investing.
00:00:32.840 | I'm going to give you my investment story and tell you why I have decided to become
00:00:40.160 | a real estate investor and what I intend to do about it.
00:00:44.080 | Hopefully you can laugh a little at my experiences and learn a little bit and possibly develop
00:00:51.480 | your own investment strategy that is exactly right for you.
00:00:55.320 | Welcome to the Radical Personal Finance Podcast.
00:01:14.600 | My name is Joshua Sheets and I'm your host.
00:01:16.440 | Thank you for being with me today.
00:01:19.200 | I love talking investing and I thoroughly enjoy real estate.
00:01:25.160 | Take from today's show advice.
00:01:29.800 | Do take some ideas though and then go and seek the advice that you need to build your
00:01:35.040 | own investment plan.
00:01:44.800 | Pretty excited to talk to you today about real estate investing.
00:01:48.440 | I've tried to be, you know, this show Radical Personal Finance is a mix.
00:01:52.820 | It's a mix of advice.
00:01:54.100 | It's a mix of stories.
00:01:55.360 | It's also a mix of my story.
00:01:58.220 | And I don't claim to, it's not all about my story, but I do try to share with you some,
00:02:05.320 | at least some of what I'm personally doing and my personal approach.
00:02:09.760 | It's always frankly really tough to know how much to share.
00:02:12.880 | I'm a pretty private guy.
00:02:14.000 | I like privacy.
00:02:15.880 | But yet I've decided to take kind of a public role here and share a lot of details about
00:02:20.760 | my life.
00:02:23.440 | Sometimes I lie awake at night and I say, "Why on earth do I tell people what I'm doing
00:02:27.320 | with my money?"
00:02:28.320 | Or, "Why on earth do I let people into my family life?"
00:02:31.680 | Because it's a little scary.
00:02:32.680 | I'm a pretty private guy.
00:02:35.320 | But I think my reason for doing it is just to try to show that you don't have to be an
00:02:42.840 | extraordinary person in order to do some things.
00:02:46.640 | What often happens, what frustrates me is many times gurus and popular personalities
00:02:50.880 | paint everything as easy.
00:02:52.800 | And you only see them after the fact.
00:02:54.440 | You only see them after their big successes.
00:02:57.520 | You only see them after they're multi-millionaires.
00:02:59.400 | You don't get to see the process.
00:03:00.960 | So I try to share a little bit of the process, share some of the things I do know or that
00:03:04.240 | I can teach, but also share some of the journey.
00:03:06.880 | And so today we're going to do that.
00:03:08.960 | Today's show is going to be in three major parts.
00:03:11.160 | Part one is going to be my investment story about kind of what I actually know about,
00:03:18.080 | what I've actually pursued for my own personal investments.
00:03:21.200 | And then part two is going to be what I'm looking for in investment opportunities for
00:03:25.520 | me, for my life, what I'm looking for.
00:03:28.480 | And then part three is going to be what is my strategy and plan as regards my real estate
00:03:34.080 | investment plan going forward.
00:03:37.680 | So if those topics seem interesting to you, I hope you enjoy this content.
00:03:40.880 | Let's begin with my story.
00:03:42.600 | In many ways, I think my story would be similar to many of you who are listening in terms
00:03:49.060 | of what I've invested in, what I've learned along the way.
00:03:52.800 | I've always been interested in money.
00:03:54.360 | I don't know why.
00:03:55.360 | I can't explain exactly what.
00:03:57.240 | Probably I just wanted to be rich.
00:04:00.000 | You know, a little of that lust for money is probably at the foundation of it.
00:04:03.600 | But I've always been fascinated by money.
00:04:06.360 | And I've always had the benefit of being the youngest child.
00:04:11.120 | And as the youngest child, I'm the youngest of seven children.
00:04:14.020 | And one of the big benefits of being a youngest child is you can learn from the experiences
00:04:18.660 | and mistakes of other people.
00:04:21.720 | Now I don't know whether this was causation or correlation, but I always tried to watch
00:04:26.840 | what my siblings did and did well and copy those things and what they did poorly and
00:04:32.760 | avoid some of those things.
00:04:34.800 | And somehow along the way, I think due to the fact that I was educated at home through
00:04:39.320 | seventh grade, I realized that just I like to learn.
00:04:42.960 | And I didn't have to face the meat grinder that many people face of school where your
00:04:48.780 | love of learning is just hammered out of you and you become a listless fish flopping around
00:04:54.460 | saying I'm not interested in anything.
00:04:55.620 | I never had that problem.
00:04:56.980 | I had enough time to engage with my surroundings and realize that I could learn about things
00:05:01.860 | I cared about when I was younger, that by the time I did go into a formal school environment,
00:05:05.740 | I was able to maintain my love of learning.
00:05:08.340 | And once I realized that I could learn anything I needed to learn in order to achieve whatever
00:05:14.840 | kind of a result I wanted to achieve, it was, I mean, it opened my eyes.
00:05:20.160 | It was a life-changing revelation.
00:05:23.000 | When you understand that you're not stuck with who you are, but you can change and you
00:05:26.560 | can learn and you can adapt and you can build new skills and you can learn new things, I
00:05:31.480 | mean, that changes everything because it means you're not stuck.
00:05:35.760 | You're not stuck in life.
00:05:37.560 | And so I know for me that was a big, big deal.
00:05:41.080 | I think in many ways it's that love of learning that causes people to, or that realization
00:05:46.120 | that you can change things that causes people to become interested in money.
00:05:49.700 | And so I was interested in money and I started reading.
00:05:53.180 | I read books on finance and I read books on investing.
00:05:57.360 | I dabbled here and there with my reading in different topics of investing, but I was always
00:06:02.280 | drawn more to the question of the personal finance discussions.
00:06:07.160 | I've always found that to be more of my interest than the tactics and specific strategies of
00:06:15.120 | investing.
00:06:16.980 | And so when I was 18, I knew two things.
00:06:19.800 | I wanted to build my financial foundation and I needed to invest.
00:06:24.440 | I had read enough personal finance books.
00:06:26.120 | I didn't have a lot of money earlier.
00:06:27.680 | I didn't know quite what to do with it.
00:06:29.440 | So I knew I needed to open a Roth IRA.
00:06:31.200 | So on my 18th birthday, I sat down at the kitchen table and I filled out a credit card
00:06:35.920 | at two credit card applications to start building my credit score because I'd read the personal
00:06:39.480 | finance books on how to build your credit score.
00:06:42.040 | I knew exactly how to do it.
00:06:43.800 | And I also opened my first investment account.
00:06:46.640 | USAA at that time, which was my bank I had banked with for years, was offering mutual
00:06:51.780 | funds that you could invest in with a starting transfer of $25 a month.
00:06:56.120 | And so that was what I did.
00:06:57.480 | I opened a Roth IRA and I started putting $25 a month into a USAA mutual fund.
00:07:01.680 | I was very proud of myself and probably rightly so.
00:07:05.840 | I was doing some things better than some other people.
00:07:11.520 | Well, I was interested in different things, but I didn't really become seriously interested
00:07:17.500 | in real estate until I went to a seminar when I was in college.
00:07:21.120 | A buddy of mine, his dad was a real estate agent and he was a real estate agent.
00:07:25.520 | And so they invited me to go to a motivational seminar with them down in Miami, Florida.
00:07:30.440 | We went down.
00:07:31.440 | It was one of these big ones.
00:07:32.440 | They worked out the American Airlines Arena in downtown Miami with a one-day motivational
00:07:36.480 | seminar.
00:07:37.480 | And the way these things work is if you ever get an invitation to go, they're good, but
00:07:42.680 | you got to be aware of what's going on.
00:07:44.660 | They bring a bunch of really quality speakers together in the room and each of the speakers
00:07:50.040 | will give a presentation.
00:07:51.040 | It might be an hour, hour and a half.
00:07:53.140 | And they're supposed to do a good job with their talk.
00:07:55.920 | And then at the end, they have an opportunity to sell from the stage and to sell the next
00:08:02.380 | step if you're interested in their topic.
00:08:05.640 | Well, I was entranced by the real estate guy who was giving his presentation from the stage
00:08:13.880 | talking about the financial independence that could be built with real estate and how great
00:08:17.620 | his life was and how they were offering another seminar.
00:08:20.740 | So I went to the next seminar and I don't know if I paid for it or if it were free.
00:08:25.960 | If I paid for it, it wasn't much.
00:08:27.780 | But that three-day seminar was a really important seminar for me.
00:08:34.480 | Number one, I was sure that I was going to become a multimillionaire in about the next
00:08:39.380 | two years based upon what I learned in that seminar.
00:08:43.860 | It was a seminar that was put on by – they're bankrupt now – but it was a guy named Russ
00:08:48.640 | Whitney who was a real estate investor guru based out of Orlando, Florida.
00:08:54.080 | And he was put on these seminars and he had his teachers teaching.
00:08:56.540 | And in retrospect now, I've learned a little bit more, but it was a masterful psychological
00:09:04.580 | presentation, carefully designed to stimulate that lust for money, to stimulate the buying
00:09:10.780 | desire and to stimulate all of our desires, but to teach us a little bit about real estate
00:09:14.980 | as well.
00:09:15.980 | I was intrigued, so just amazed by what I learned.
00:09:20.500 | I learned you could buy real estate with no money down.
00:09:22.500 | I learned how you could invest in real estate with other people's money.
00:09:25.900 | I learned how leverage worked.
00:09:27.020 | I learned how I could get rich in just a couple of years without much hard work.
00:09:31.380 | And I was so impressed by it.
00:09:34.620 | I was so motivated and enthusiastic to continue on.
00:09:38.380 | I was ready to buy every course that they offered.
00:09:41.100 | I was this close to putting down a credit card and getting a $30,000 private coaching
00:09:48.740 | package.
00:09:49.740 | I almost did it.
00:09:53.860 | And thankfully, I was so excited and enthusiastic about how I was going to become rich.
00:09:58.540 | I sat down and told my dad all about it.
00:10:01.220 | And thankfully, he advised me not to buy the $30,000 private mentoring program.
00:10:08.000 | And thankfully, I listened to him.
00:10:10.340 | Hopefully you heard the slight sense of sarcasm in the term "advise."
00:10:14.300 | He put his foot down and said, "Don't do it."
00:10:16.460 | And thankfully, I obeyed.
00:10:17.860 | And I'm so grateful to him that I did.
00:10:21.300 | But it was a big opening to me where I realized, "Wow, I can invest in real estate.
00:10:25.940 | And this is really exciting to me, all these things that I can do and all this money that
00:10:29.460 | I can make."
00:10:31.220 | The major challenge was I didn't have any money to start with.
00:10:33.980 | I was basically broke all the way through college working my way through.
00:10:37.180 | And I never really had much money where I could go out and buy real estate, nor did
00:10:42.060 | I have a good enough advice or confidence to go out and build it the way that some people
00:10:47.580 | have been able to do it with no money down from the beginning.
00:10:50.980 | I wasn't knowledgeable enough and I wasn't getting good enough advice to do it.
00:10:54.820 | In retrospect, I'm thankful that I didn't pursue it at that time because I sat back
00:10:59.020 | and I watched several of my friends who had been in similar circles proceed to build their
00:11:06.340 | real estate empires and then lose them in the real estate crash of the late 2000s.
00:11:12.900 | And it really taught me a lot.
00:11:14.380 | See, I'd gotten really into it.
00:11:15.700 | I bought all the books and all the DVDs and the Carlton Sheets thing and read all...
00:11:22.020 | I went to the Rich Dad seminars and read the Rich Dad Poor Dad books and Dolph D'Arou and
00:11:26.860 | all these gurus that were prominent at the time.
00:11:30.660 | And I was convinced that they were my ticket.
00:11:34.260 | I didn't yet know how to filter good advice from bad advice.
00:11:38.940 | I didn't yet know how to protect myself.
00:11:41.980 | So I was casting around looking for who to listen to, but I didn't know how to choose
00:11:46.740 | the right person to listen to.
00:11:48.300 | Well, I fast forward.
00:11:50.060 | I went through a few different crises in my college years trying to figure out, "Okay,
00:11:56.140 | what am I going to do?"
00:11:57.140 | And I studied abroad.
00:11:58.140 | And so I let most of those financial things go for a little bit until I came back my junior
00:12:03.280 | year and got a hold of Dave Ramsey's stuff.
00:12:07.940 | Dave Ramsey's book, Total Money Makeover, decided to go ahead and dig in and pay off
00:12:12.280 | my debt, worked like crazy to do that.
00:12:14.480 | Got a good job, lived on nothing, saved, paid cash for my senior year of school, and then
00:12:18.820 | paid off all my student loans a couple of weeks before I graduated by working like a
00:12:22.940 | maniac.
00:12:23.940 | And that opened my eyes up to see some of the things that I could do.
00:12:28.340 | Well, I graduated from college.
00:12:32.060 | And at that time, I was just...
00:12:34.620 | I'd been so focused on paying off debt.
00:12:36.460 | I hadn't gotten involved in any other major investment plan.
00:12:40.580 | I opened up my 401(k) at work.
00:12:42.300 | I was putting still some money into my Roth IRA.
00:12:45.620 | Worked one more year for the company that I worked for when I graduated, the company
00:12:51.520 | had been in college.
00:12:52.900 | But there was a little bit of a crisis there.
00:12:54.440 | So I was kind of getting ahead a little bit and then falling back.
00:12:56.700 | And the crisis was that the deal they had made with me was that they would give me a
00:13:01.900 | little bit of extra tuition money if I would consider working there in a different capacity
00:13:05.660 | after I finished college.
00:13:08.220 | Well, I finished college.
00:13:09.220 | I said, "Okay, what's the job we're going to do?"
00:13:11.820 | And they said, "Well, we don't really have another job."
00:13:14.060 | But at that time, I had been working in their graphics department, creating graphics for
00:13:17.580 | their client presentations.
00:13:19.500 | And I just said, "Well, I'm not going to keep doing this.
00:13:20.900 | I need to get the big shot job."
00:13:22.660 | So I quit the job.
00:13:23.660 | They said, "Well, call us."
00:13:25.260 | And my plan was I quit the job and took a road trip all around the U.S.
00:13:29.900 | Took got in my little 1993 Honda Accord and did a 13,000-mile road trip all across the
00:13:34.780 | U.S. and up to Canada, visiting my friends all along the way.
00:13:38.180 | Came back and we set up a job as an analyst.
00:13:41.780 | That worked out for another year.
00:13:43.220 | I was getting ahead financially.
00:13:44.620 | I was able to save money.
00:13:45.980 | I had just made it.
00:13:48.300 | I didn't have more than a few thousand dollars saved in savings accounts when I graduated
00:13:51.940 | from college because I'd been so busy paying off my debt.
00:13:55.020 | And then the road trip had used up most of my money.
00:13:57.820 | Worked there a year, was able to save up six months of my expenses in that year, and then
00:14:01.700 | I got laid off.
00:14:03.000 | And that left me in a situation where I'm just saying, "What do I do?"
00:14:06.940 | And so that was when I wound up getting in the financial services business, joined Northwestern
00:14:11.700 | Mutual and started my financial planning practice.
00:14:18.660 | As I built my financial planning practice, I built it based upon financial planning expertise.
00:14:24.400 | And so always over on the personal finance or financial planning side of things.
00:14:29.860 | Never really made a lot of progress on the investment side.
00:14:34.000 | Focused for the first three years on insurance sales and developing my financial planning
00:14:37.480 | knowledge.
00:14:38.480 | And then finally, I went through the basic license and got my investment licenses.
00:14:41.760 | But just because you're a licensed investment broker doesn't mean you have a clue about
00:14:44.380 | what you're doing with regard to picking stocks or anything like that.
00:14:50.460 | And I just said, "Well, I'm not an investment expert, but I do understand the mutual fund
00:14:55.760 | market."
00:14:57.120 | And I was a real expert with the mutual fund market, but not from the perspective of knowing
00:15:00.580 | when to buy and sell, knowing how to time the market, knowing how to do that.
00:15:04.120 | I never once told a client that I could do any of those things.
00:15:06.880 | I just explained what we could do.
00:15:09.220 | Never focused on that seductive side of the industry of promising the things that you
00:15:16.200 | can't promise.
00:15:17.200 | I was an expert at financial planning, and we had enough company experts that I could
00:15:23.660 | be confident in on the investment portfolio management side of things.
00:15:29.820 | Along the way, my own personal investments were fairly mainstream.
00:15:32.920 | I had my Roth IRA, which I had funded a little while.
00:15:35.500 | I had my 401(k) from my job.
00:15:37.780 | I had my pension plan as a financial advisor.
00:15:41.520 | I bought some mutual funds, but everything was basically mainstream.
00:15:46.400 | Took a while until I could build the financial foundation under myself as a financial planner.
00:15:50.940 | Took several years to build that, and I was sitting there looking and saying, "Okay, now
00:15:54.140 | what am I going to do?
00:15:56.060 | How am I going to invest my time and invest my money?"
00:15:58.820 | The biggest benefit of being a financial advisor was that – well, one benefit of being a
00:16:03.800 | financial advisor was that I had a lot of income potential, but it was all based upon
00:16:10.020 | the business.
00:16:11.020 | I could talk with the older financial advisors.
00:16:12.500 | I could clearly see how I could go from $50,000 a year to $500,000 a year in the next five
00:16:19.420 | to ten years.
00:16:20.420 | I could clearly see how I could make a million, $2 million a year.
00:16:23.700 | When I would compare various investment alternatives to that income potential, I generally found
00:16:30.540 | that my best bet was to focus on the income potential.
00:16:34.640 | It would be silly for me to spend hours away from my financial planning practice focusing
00:16:39.700 | on investing in a little real estate deal that was going to make me $50,000 when by
00:16:44.740 | investing those same hours into my practice, I could go from $100,000 a year to $400,000
00:16:51.260 | a year.
00:16:53.040 | So I stuck with mainstream investing, mutual fund ownership.
00:16:57.740 | Along the way, I did try from time to time to get interested in the technical side of
00:17:02.660 | things.
00:17:03.660 | I considered becoming a chartered financial analyst.
00:17:07.580 | My main attraction to it, though, I had to admit to myself, was not that I actually cared
00:17:11.620 | about being able to understand the nuts and bolts of stock analysis, but rather that it
00:17:18.060 | was just super hard.
00:17:19.100 | And I liked the fact that I could build prestige if I were able to do the stuff that was super
00:17:24.060 | hard.
00:17:25.740 | And I just finally realized I didn't care that much about learning the in-depth company
00:17:33.300 | picking approach type of thing.
00:17:36.800 | So I just said, "That's all right.
00:17:38.060 | I don't need to.
00:17:39.060 | I'm good at asset allocation.
00:17:40.540 | I'm good at financial planning.
00:17:41.620 | I'm good at explaining these things and being the in-between."
00:17:46.140 | Years passed, and as I just watched the financial planning industry, those of you who know my
00:17:50.940 | story, I came to the conclusion, I said, "What we're doing just isn't working very well."
00:17:55.660 | The vast majority of my clients were never going to be rich.
00:17:58.220 | And it wasn't because I was doing anything bad for them.
00:18:02.060 | It wasn't because I was necessarily selling them a bad investment or doing a bad job with
00:18:08.900 | their tax planning.
00:18:09.900 | It was just that their whole financial plan was weak and impotent.
00:18:15.220 | It wasn't...
00:18:16.220 | I mean, what's the point?
00:18:17.780 | You put aside money in your 401(k) and you see everyone stuck in mediocrity, stuck working
00:18:23.740 | jobs that, well, they're doable, but they're not that great.
00:18:27.300 | We don't care that much.
00:18:28.920 | People not really applying themselves to their business or to their career.
00:18:32.180 | It's just, "Well, I'll get a little bit better, mediocre.
00:18:35.140 | A little bit of credit card debt here.
00:18:37.340 | Put a little bit of money in the 401(k) there.
00:18:39.860 | Buy some mediocre investments that might go up at 7% per year over time, which means that
00:18:45.020 | in theory I might have a few hundred thousand dollars when I'm 65 years old."
00:18:49.580 | It's not an exciting plan.
00:18:51.540 | And I would find that I was very good at showing people another way, but that then they would
00:18:57.040 | fall apart.
00:18:58.040 | And I was excited about my financial plan because I'm sitting there looking at my business
00:19:01.120 | and saying, "Well, I can go from $100,000 a year to a million dollars a year."
00:19:05.020 | And as I started to learn about the impact of savings rates, I'm looking at my expenses
00:19:08.660 | and saying, "Well, I can cut these things down.
00:19:10.960 | And look, I can be financially independent."
00:19:12.820 | And I was excited, but I couldn't.
00:19:15.380 | Just the standard American financial plan sucks.
00:19:18.660 | So that was where the show came from.
00:19:22.980 | Just some of the conversations I have with people and I'm like, "Somebody should teach
00:19:26.720 | somebody how to integrate these things."
00:19:28.340 | Not that mutual funds are bad.
00:19:29.540 | Not that 401(k)s are bad.
00:19:31.260 | They're just weak.
00:19:32.860 | It's like telling a 400-pound fat person that, "Well, if you just do one little thing, if
00:19:39.220 | you stop drinking one soda a day, you're going to lose weight."
00:19:41.980 | Is that a good start?
00:19:43.620 | Maybe.
00:19:44.620 | But that's not the kind of thing that's going to have them on the cover of a fitness magazine
00:19:48.020 | three years later.
00:19:49.900 | So that's what's so difficult with the message of radical personal finance.
00:19:53.940 | Not that there's anything wrong with those things.
00:19:56.260 | And for some people, they might be right.
00:19:57.900 | But I just got sick and tired of it and said, "This is not as good as it should be."
00:20:02.660 | Well, I learned that I love business.
00:20:05.740 | In that process of learning myself, learning a lot about finance, learning a lot about
00:20:09.500 | investing, studying a lot of things, reading a ton, being interested in different areas,
00:20:14.260 | I learned that I love business.
00:20:17.980 | I love deals, but I don't love charts and ratios.
00:20:24.020 | I don't love technical analysis that has to be done on an ongoing basis.
00:20:29.340 | I tried to get into trading.
00:20:30.860 | I tried to get into these things and I'd read the books and just, "Ah, this isn't for me.
00:20:34.660 | I'm bored."
00:20:35.660 | But I still love business and I still love deals.
00:20:39.620 | And then I became over time dissatisfied with the ethics of many of the large companies
00:20:47.160 | that I own.
00:20:48.160 | I'd read the newspaper and I'd read what the CEO of this company said or the CEO of that
00:20:52.580 | company said and I'd be like, "Well, I don't want that person getting any of my money."
00:20:58.260 | And I'd read what this company was doing here or that company was doing there.
00:21:01.740 | I'd say, "Well, I don't like that move."
00:21:03.740 | And read about the amount of money that my own company sent up to Washington to change
00:21:11.180 | the politicians' mind.
00:21:12.660 | And I was like, "Well, why are we doing this?
00:21:17.100 | The entire system is corrupt.
00:21:19.700 | This system of crony capitalism in the United States where the companies run the government,
00:21:25.380 | it's just utterly corrupt."
00:21:26.900 | And finally, I got to a point where for that reason among other things, I just became disillusioned
00:21:34.020 | with the ethics of many of the companies.
00:21:37.020 | I don't want the blood money.
00:21:41.100 | I don't want to profit from the activities of this company.
00:21:47.940 | I don't want to be in a position where I've got to stand before God one day and say, "Oh,
00:21:52.340 | yeah, I was rich and fat and happy because we built an economy that exists based upon
00:21:58.420 | the war machine and I sit back and collect my dividends while we bomb everybody around
00:22:02.940 | the world, keep the entire war and global conflict and I just sit back and profit from
00:22:06.460 | it."
00:22:07.460 | That doesn't make me feel really good.
00:22:09.700 | I don't want the blood on my hands.
00:22:13.520 | And I just finally came to the point where I said, "I can't take it anymore."
00:22:18.260 | And so I sold all my stocks, sold all my mutual funds and have sat in cash for over a year
00:22:24.140 | just kind of sitting and waiting.
00:22:26.140 | Now I'm not trying to impose those things on you.
00:22:31.240 | You have to deal with your own conscience.
00:22:34.300 | But that was a surprising turn of events for me.
00:22:36.860 | I didn't expect to have to face my conscience on many of those things.
00:22:44.460 | So I came to the realization that I want to know what I own and why I own it.
00:22:52.820 | And I started to build my own investment plan.
00:22:54.900 | This has been a combination of years.
00:22:58.300 | And as I talk about investments here, I'm talking about the major growth assets.
00:23:03.140 | I'm talking about investments that are designed toward wealth.
00:23:05.860 | I'm not talking about savings or insurance assets.
00:23:09.100 | On today's show, I'm not talking about savings account or precious metals or cash
00:23:12.780 | values and life insurance policies or any of that stuff.
00:23:14.500 | I'm talking about growth investments.
00:23:16.460 | And I started to build a philosophy of what I want in an investment program.
00:23:23.020 | I'm a little annoyed that I'm 30 years old and I didn't know this at 20.
00:23:27.240 | But hey, some people did.
00:23:29.620 | I sometimes get a little jealous that other people had it figured out, but I didn't.
00:23:34.260 | But I figure, well, I'm 30 and there's probably a lot of 40-year-olds listening to me that
00:23:37.740 | are jealous that they didn't figure it out when they were 30.
00:23:39.820 | So I better just figure it out.
00:23:42.420 | And so now I want to tell you about kind of what I want in an investment plan.
00:23:45.780 | Before I do, sponsor for the first half of the show, Jay Fleischman, Student Loan Show.
00:23:50.780 | Jay is an awesome guy.
00:23:51.780 | He's a student loan attorney.
00:23:53.180 | He also hosts a podcast called the Student Loan Show.
00:23:56.340 | He's been on Radical Personal Finance twice.
00:23:58.860 | Both of those interviews were packed with content, packed with information.
00:24:05.220 | And if you have student loans, I urge you, I personally urge you, sit down with Jay for
00:24:13.220 | a consultation and spend some time just looking to see if there's an intelligent strategy
00:24:18.220 | that can help you.
00:24:19.820 | Many, many people in today's society have tens of thousands of dollars of student loans.
00:24:25.240 | And there might be a unique and creative strategy that you can find that will either help you
00:24:29.700 | to lower the interest rate that you're paying, lower the payments, and maybe even have some
00:24:33.340 | of the debt forgiven.
00:24:35.020 | Jay is a real expert on these things and he knows his stuff.
00:24:39.620 | He is an attorney who teaches other attorneys how to do this type of consultation.
00:24:43.860 | So if you have student loans or if you know anybody with student loans, you have a brother
00:24:48.220 | or a sister, a buddy, a friend, a son or a daughter, if you know anybody who has student
00:24:54.000 | loans, I urge you to get a personal consultation from Jay.
00:24:58.980 | Go to studentloanshow.com/radical, studentloanshow.com/radical.
00:25:03.880 | There you'll see Jay's multiple packages there.
00:25:06.100 | He offers a $25 discount on the email consultation with listeners of Radical Personal Finance.
00:25:11.160 | You can start there.
00:25:12.360 | That's a discount on a consultation for your federal student loans.
00:25:16.720 | Or if you have private student loans, you might want to go ahead and sign up for one
00:25:19.860 | of his higher packages.
00:25:21.720 | But that would be money well spent.
00:25:23.580 | And if Jay can't save you any money, I've gotten good response that Jay's been able
00:25:28.980 | to help a number of people.
00:25:31.400 | If Jay can't save you any money and you waste your 50 bucks, it's not a waste.
00:25:37.720 | It's called being intelligent about what's going on.
00:25:39.600 | But so far, the feedback that I've gotten has been very favorable.
00:25:44.340 | So studentloanshow.com/radical.
00:25:47.160 | While you're there, make sure to subscribe for his podcast and subscribe in iTunes.
00:25:52.200 | Check it out if you're interested in the topic of student loans.
00:25:54.720 | And also, if you have need for – if you're in any kind of litigious situation with a
00:25:59.400 | creditor on student loans, remember Jay does that type of work as well.
00:26:02.920 | He's admitted to the bar in California and New York and he has a team of attorneys all
00:26:07.320 | over the country that he can refer you to.
00:26:09.080 | So studentloanshow.com/radical.
00:26:13.040 | I'm sure that my investment requirements will change going forward.
00:26:17.620 | But for today, I have five important pillars that I've built for my own personal investment
00:26:23.680 | strategy, things that are important to me in my investment activities.
00:26:28.800 | Nothing magic about this.
00:26:29.920 | Maybe some can go away, some can come in the future.
00:26:33.400 | But here are mine.
00:26:34.400 | Number one, I want to own investments that I understand fully.
00:26:44.760 | I want to do stuff with money that I understand.
00:26:46.520 | I think this is one of the biggest mistakes that people make is they invest in things
00:26:50.200 | they don't understand.
00:26:52.040 | And this can be on the crazy spectrum or the not crazy spectrum.
00:26:56.080 | But time and again, I've done a couple of shows when the market – stock market is
00:27:00.840 | volatile and things.
00:27:01.840 | And I just say, "Do you not understand your investment strategy?"
00:27:04.960 | The people who get nervous when markets are wonky are those who don't understand their
00:27:11.400 | strategy enough to follow through.
00:27:13.840 | And I want to do stuff with money that I understand.
00:27:16.000 | I've heard other pundits and gurus make that advice and I believe it makes all the
00:27:21.200 | difference in the world.
00:27:22.320 | Do things with money that you understand.
00:27:26.440 | Now the challenge with me building my own personal investment plan has been I needed
00:27:31.280 | to get a little bit of time from my financial – for my financial interests to disappear
00:27:38.360 | into the past.
00:27:39.360 | It's so difficult to be able to face your opinions and to be able to face your – the
00:27:44.280 | things that you believe if they're biased based upon a financial interest.
00:27:50.400 | So that's one of the reasons why I've taken so much time to comment about things, just
00:27:55.440 | to kind of test and see, well, do I really believe the things that I used to teach people
00:27:59.880 | two years ago when I had a financial interest in their actions or not?
00:28:04.320 | Most of them I do believe.
00:28:06.640 | Some of them I question.
00:28:08.840 | But it's important to me to do things with money that I understand.
00:28:12.880 | I don't think any of us should do anything with money we don't understand.
00:28:17.480 | We get screwed when we do things that we can't fully understand.
00:28:21.520 | If we can't – if I can't explain to my 10 or 12-year-old niece or 15-year-old nephew
00:28:27.920 | or something like that, if I can't explain what I'm doing with money, I probably shouldn't
00:28:32.200 | be doing it.
00:28:33.740 | So if I understand my investments, then I'll be comfortable with what's going on.
00:28:38.600 | If I understand them, I'll be comfortable with understanding the forces that are acting
00:28:42.960 | upon them.
00:28:44.720 | If I understand what I own and why I own it – this is one of the reasons why mutual
00:28:48.760 | funds I think can be so dangerous, is many people don't understand what's in their
00:28:52.040 | mutual funds.
00:28:53.480 | All they see is the mutual fund statement.
00:28:55.200 | So the numbers start going down.
00:28:56.320 | They don't know what it is.
00:28:57.680 | If I own investments and if I own quality assets, then when markets get bumpy, then
00:29:03.160 | I'm not so worried about it.
00:29:05.040 | If you own shares of Coca-Cola Corporation and you know that Coca-Cola Corporation has
00:29:10.200 | a strong business plan, they've got this incredible global market presence, they've
00:29:15.560 | got this incredible reputation, if you read your annual reports and you stay a little
00:29:20.460 | bit abreast of what's going on with Coca-Cola stock, and all of a sudden you wake up and
00:29:24.680 | you open up your brokerage statement, you see that your Coca-Cola stock has declined
00:29:27.840 | in share price by 20 percent, you don't worry about it.
00:29:31.600 | You just say, "Bummer.
00:29:33.400 | The market's down.
00:29:34.400 | There's a lot of stuff going on.
00:29:35.400 | People don't like this right now, but I'm okay with it because it's a really quality
00:29:38.600 | company."
00:29:39.600 | So I think understanding leads to comfort, and comfort is what makes all the difference
00:29:44.720 | in the world to be able to stick through difficult times.
00:29:48.400 | So I want investments that I understand.
00:29:54.720 | Number two, I want investments that I can control and/or I can influence.
00:30:03.120 | Now I'm using the term investments broadly here, but I'd want investments that I can
00:30:06.960 | control and/or influence, if possible.
00:30:11.920 | So the best example is radical personal finance.
00:30:13.760 | I have invested a tremendous amount into radical personal finance.
00:30:18.120 | I've invested primarily time and energy and sweat and tears and labor, and also a good
00:30:24.940 | bit of money, but I control it and I can influence it.
00:30:29.040 | I know the things that if I do these things each and every day, this will lead to the
00:30:34.560 | growth of the business.
00:30:37.320 | So private business is one of the biggest things where I can control or influence, but
00:30:41.600 | I also want this in my investments.
00:30:45.280 | So I want this in—this is why I'm personally very attracted.
00:30:50.480 | I'm not attracted necessarily to technical analysis of large public-traded companies.
00:30:55.800 | I'm very attracted to venture funding.
00:30:58.760 | I'm very attracted to private business investment and local private businesses.
00:31:03.960 | During my time as a professional financial advisor, I got to meet some people, and I
00:31:08.120 | got to meet some cool people here in my local community that were doing fascinating things.
00:31:11.840 | I met people who were investment managers at family offices, private family offices,
00:31:17.160 | and multifamily offices.
00:31:18.600 | I met people who were just wealthy people who were running their family's trust funds.
00:31:22.600 | I met people who were investing in all kinds of interesting things.
00:31:25.440 | There's one guy that I met that I thought was fascinating.
00:31:28.560 | He invested in a local supermarket chain.
00:31:33.480 | Somebody came to him.
00:31:34.480 | That person needed funding, and they invested, and the investors made a ton of money, and
00:31:40.080 | the owner of the supermarket chain has made a ton of money.
00:31:43.000 | And I thought, "Wow, that's the kind of stuff that I want to do.
00:31:45.080 | I want things that I can influence."
00:31:48.080 | So for me, that's a big deal, control or influence, because if I can control or influence it,
00:31:53.360 | then I can take my human capital, my labor, my contacts, my influence, any of those kinds
00:31:59.720 | of things, and I can push them at that, and I can affect the real estate—excuse me,
00:32:04.240 | I can affect the growth of the business, hopefully positively.
00:32:08.760 | I could affect things negatively, but hopefully positively.
00:32:12.200 | So for me, that's important to me.
00:32:15.240 | And I've recognized I can't do that with many investment strategies.
00:32:20.600 | Next thing that's important to me, I want to invest in a way that I can get high returns.
00:32:26.960 | Returns matter in investing, big time.
00:32:32.280 | And recognizing, back to the radical personal finance framework of wealth building, remember,
00:32:37.960 | the only three things you control—how much money you make, your income; how much money
00:32:42.680 | you spend, your expenses; and the rate of return you earn on the difference.
00:32:47.300 | And if you control that rate of return, and you can control it in the sense of moving
00:32:50.820 | from bonds to stocks—I always worked hard with my asset management clients to move them
00:32:55.720 | from bonds to stocks in an appropriate way, but because that decision alone, over a long-term
00:33:02.420 | investment career, will make a bigger difference than probably anything else.
00:33:06.280 | It's the asset allocation decision.
00:33:08.520 | So returns matter, and I want to invest in areas where I can get very high returns.
00:33:13.080 | Challenge you something.
00:33:14.220 | Take the amount of money that you have invested currently and ask yourself how much money
00:33:19.500 | that would be worth if you invested at a 5% return in 20 years.
00:33:25.740 | How much it would be worth if you invested at a 10% return for 20 years?
00:33:30.220 | A 15% return for 20 years?
00:33:32.100 | A 20% rate of return for 20 years?
00:33:34.780 | 25%?
00:33:35.780 | Go to 50% and ask yourself that question.
00:33:38.500 | Now, here's the problem with returns.
00:33:40.820 | I do not believe that if you, as a normal person, get involved and buy a piece of software
00:33:48.140 | over the internet that's going to teach you a cool stock-picking strategy that you're
00:33:51.820 | going to be able to magically create 30% annualized rate of returns each and every year, fast,
00:33:58.140 | cheap, and easy, just by using the computer program.
00:34:01.700 | That doesn't work.
00:34:02.700 | But yet, there are people who routinely create 30% annual rates of return on their investments.
00:34:11.660 | And that will be everything from the car dealer who's buying cars cheap and flipping them
00:34:16.220 | and selling them at a profit.
00:34:18.780 | That's a business, but it's also an investment.
00:34:20.980 | That's the local real estate investor who's structuring a note and discounting a note
00:34:25.380 | that he owes in such a way that it creates a 30% growth rate.
00:34:30.820 | That is some people who are investing in publicly traded companies, but there are investment
00:34:36.780 | opportunities out there.
00:34:38.380 | And if I lock up all my money in areas where I can get average market returns, it's going
00:34:43.100 | to take me a really long time to build wealth.
00:34:46.260 | So if I can get high returns, I should be pursuing that because returns matter.
00:34:52.820 | Next thing for me, number four, I want an investment plan where I can leverage my investments
00:34:58.700 | safely, because leverage matters.
00:35:03.300 | To use probably a simplistic metaphor, ask yourself how much you can pick up by yourself
00:35:09.460 | and ask yourself how much you can pick up by using a crowbar as a lever.
00:35:13.900 | It's a big difference.
00:35:15.340 | Leverage matters.
00:35:16.540 | There are many types of leverage.
00:35:19.380 | Financial leverage through the use of debt is not the only type of leverage, but it's
00:35:24.380 | one type of leverage that you can use.
00:35:27.500 | That you can leverage your time, you can leverage your influence, you can leverage your contacts.
00:35:32.380 | Radical personal finance for me is a leverage business, because what I grew annoyed with
00:35:38.540 | as a financial planner is I could never multiply my time and efforts.
00:35:42.460 | If I was sitting face to face with one person, I couldn't be sitting face to face simultaneously
00:35:46.340 | with another person.
00:35:47.680 | So it drove me out of that business.
00:35:49.420 | One of many things that drove me out of that business is I can't find the point of leverage.
00:35:53.100 | I can't find the lever to push on that makes this thing grow.
00:35:56.520 | Now as an example, radical personal finance, I have massive leverage.
00:36:01.020 | I'm still creating things, but I can bring other people's work in, leverage my business.
00:36:06.260 | And if I go from 10,000 listeners to 100,000 listeners, it requires zero additional time.
00:36:13.740 | It requires just the tiniest bit of additional time for me to make sure that the technology
00:36:18.020 | is robust enough to handle it.
00:36:19.980 | If I went from 10,000 to 100,000 listeners, it would require zero additional time.
00:36:23.900 | If I went to millions, it would require something different.
00:36:26.780 | So that's leverage.
00:36:28.700 | But financial leverage is important.
00:36:31.120 | And so I want investments where I can use financial leverage in an intelligent and careful,
00:36:36.860 | safe way, because I personally am a very risk-averse person.
00:36:40.540 | I want to control my risks.
00:36:41.900 | I want to plan for them.
00:36:43.340 | I want to have backup plans.
00:36:45.060 | It's funny, I talk to people who say, "Wow, so risky for you to start radical personal
00:36:48.220 | finance."
00:36:49.220 | I haven't had risk all along the way, because I've controlled for it.
00:36:52.660 | I've known what it was, and I was able to handle it.
00:36:54.580 | I had backup plans.
00:36:55.700 | Yes, there is a risk the business would fail, but that didn't put my family at risk of bankruptcy.
00:37:00.380 | That didn't put us at the edge.
00:37:02.580 | So I've controlled for the risk.
00:37:05.800 | And so I want to use financial leverage in an appropriate and careful way.
00:37:10.340 | And there are many ways to do that.
00:37:11.580 | Number five, I want to own investments that I'm proud to own and I'm proud to profit from.
00:37:18.900 | I want to do things that I'm proud of telling my children about.
00:37:23.100 | I want to do things I'm proud of being seen publicly, in the sense that if things are
00:37:28.780 | disclosed, I want all of my actions to be honorable and above reproach.
00:37:35.940 | I want them to be things that I'm proud of.
00:37:41.500 | I'm not proud of owning Citibank stock.
00:37:44.580 | I'm not proud of some of those types of things.
00:37:48.500 | I want things I do to be things I'm proud of.
00:37:50.620 | So here's my strategy going forward.
00:37:53.940 | Number one area of focus for me is to invest in my own businesses, both the current businesses
00:38:00.500 | that I have and future businesses, because that's where the most leverage comes from.
00:38:05.660 | That's where I have the most control, the most influence.
00:38:08.760 | That's where the highest returns come from.
00:38:11.100 | That's where the business, the things that I can fully understand, those are the things
00:38:15.560 | where I can apply leverage very safely.
00:38:19.100 | And those are the things that I'm most proud of.
00:38:20.860 | So my own businesses, both now and future.
00:38:25.340 | Number two, I want to invest in other people's private businesses.
00:38:30.300 | I want to be the guy who's putting up money for a percentage of ownership in the supermarket
00:38:34.640 | chain that's making money hands over fist.
00:38:37.260 | I want to be the guy who's backing the local business that needed a boost in order to build
00:38:43.500 | this really world changing product or service.
00:38:49.020 | I want to be the guy who is putting some money behind the technology that can make a huge
00:38:54.140 | difference in the world and make a lot of money while it's going.
00:38:56.500 | So I want to invest in other private businesses.
00:38:59.620 | Number three is to invest in real estate.
00:39:02.620 | And that's what the next part of the show is going to be about is my specific plan.
00:39:06.380 | But I want to invest using real estate for reasons I'll go over in a moment.
00:39:10.540 | And then number four is I want to own individual stocks in some publicly traded businesses.
00:39:17.020 | And so those are kind of that those are the aspects of my personal strategy.
00:39:21.500 | Now the challenge is what's the right order to do these things?
00:39:25.380 | And that's where number one, the best first thing I need to focus on is my own business
00:39:29.460 | because my business gives me the lifestyle freedom that I need and want while I am building
00:39:35.040 | financial independence.
00:39:37.100 | My business allows me to do the things I think are interesting.
00:39:39.740 | I don't have to ask a boss when I go in and do this.
00:39:41.860 | I don't have to ask somebody.
00:39:43.380 | I'm accountable to you, the listening audience.
00:39:45.420 | You guys are my boss.
00:39:46.420 | But in the aggregate, I get a lot of flexibility from that.
00:39:49.680 | And so the first thing for me to stay focused on and even to stay laser focused on this
00:39:53.880 | year in the coming years is to continue to build the momentum behind my business.
00:39:57.740 | That should be thing number one.
00:39:59.540 | What about investing in other private businesses?
00:40:01.500 | Well, this is where I reach a challenge of scale.
00:40:05.460 | I would like to invest in other private businesses, but I do not yet have enough investment
00:40:09.500 | capital to be able to meaningfully make a difference in most businesses.
00:40:14.860 | And if I were to put as much investment capital as I have into other businesses, it would
00:40:19.860 | be far too risky for me.
00:40:21.940 | I don't have $5 million yet where I can carve off a million dollars or half a million dollars
00:40:28.000 | to invest in businesses that are speculative that may or may not go belly up, may or may
00:40:33.540 | not make me a ton of money.
00:40:35.180 | I can't take that much risk at this point in time.
00:40:37.900 | It's too risky for me.
00:40:39.500 | So I'm not at the scale of assets where it's appropriate for me to be trotting around town
00:40:45.180 | saying, hey, entrepreneurs, come on.
00:40:47.140 | I've got Joshua Sheed's venture capital fund.
00:40:49.420 | I'm not there yet.
00:40:50.420 | I've got to build the assets, continue to build the income, continue to build the investment
00:40:54.380 | capital to where I can go ahead.
00:40:57.020 | And when I reach the point where I can easily write a $25,000 check or $100,000 check without
00:41:02.820 | completely messing up my risk profile on my investment portfolio, then I'll be ready for
00:41:07.100 | that.
00:41:08.100 | But what I can do for investing in private businesses is build the infrastructure right
00:41:11.460 | now.
00:41:12.460 | I can build the context.
00:41:13.460 | I can build the knowledge, the things I'm learning with all of my own current endeavors.
00:41:19.100 | All of that stuff is preparation for that.
00:41:22.780 | So my own business right now is going forward hot and heavy on that.
00:41:27.420 | Investing in other private businesses, that's very, very slow.
00:41:30.500 | It's not appropriate for this stage of my wealth building.
00:41:34.020 | Number three, real estate is appropriate at this stage of my wealth building.
00:41:38.860 | And we're going to talk about that in just a moment when I show you why and what my personal
00:41:44.300 | strategy is for that.
00:41:46.020 | Real estate is a place where I can invest.
00:41:48.860 | I can apply my knowledge.
00:41:50.460 | I can apply my expertise.
00:41:52.460 | I can apply the advantages that I have in my local market.
00:41:58.020 | I can apply the capital that I have without taking undue risk.
00:42:02.060 | I don't have to put – I won't risk my investment capital to where if I have a deal go bad that
00:42:10.220 | it runs the risk of putting my family out on the street.
00:42:14.180 | So real estate is my best investment opportunity right now.
00:42:18.600 | What about individual stock ownership?
00:42:20.460 | That's also a good opportunity.
00:42:22.100 | But the challenge with individual stock ownership for me at this stage is I want more leverage
00:42:27.520 | and higher returns than I can get with the assets that I have right now.
00:42:33.940 | And so I have some companies that I'm watching and I'm paying attention to.
00:42:39.640 | But it's much more challenging to leverage your money safely in individual stock ownership
00:42:46.580 | than it is to leverage it in real estate or in business.
00:42:52.180 | It's much more challenging to do it safely.
00:42:55.540 | So I pay attention but it's not my number one focus right now.
00:43:00.540 | That all changes as time goes on.
00:43:03.260 | I am very attracted personally for my personality type, especially given some of the constraints
00:43:09.500 | that I mentioned earlier.
00:43:10.660 | I'm very attracted to value investing and just to value investing.
00:43:17.100 | That's my personal bent in the area of stock ownership.
00:43:22.180 | So I don't enjoy trading.
00:43:23.700 | I have no interest in being a short term trader.
00:43:27.860 | My investment strategy with publicly traded businesses is very simple.
00:43:33.020 | Have a simple brokerage account and buy shares when I believe the price is good in companies
00:43:37.900 | that I want to own for the rest of my life.
00:43:39.700 | And then sit back and spend the dividends.
00:43:43.340 | Because truly that's the ultimate of financial freedom and financial independence where you're
00:43:47.120 | simply living off of the dividends of companies that other people manage.
00:43:51.260 | None of that.
00:43:52.260 | That's true passive income.
00:43:53.260 | All of these other investment activities are passive income.
00:43:57.660 | True passive income is sitting back and living off of the dividends from companies that other
00:44:02.060 | people manage and other people supervise.
00:44:04.860 | That's the real benefit.
00:44:05.860 | But at this point you get, but in exchange for that really passive income, you're going
00:44:09.420 | to get lower returns than these other more active types of investments that I am doing.
00:44:16.260 | So in a moment I'll just talk about my real estate strategy.
00:44:18.420 | Before I do, sponsor for the second half of the show is Trade King.
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00:44:37.100 | Recognize I focused on just what's right for me.
00:44:38.860 | I'm not giving you advice on what you should do.
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00:46:12.680 | So TradeKing.com/radical if you are interested in setting up a brokerage account for yourself
00:46:18.120 | and pursuing an investment strategy that you have interest in.
00:46:21.280 | Again, it can be for your major money.
00:46:23.360 | It can even be for your play account.
00:46:24.640 | Good strategy is, I think, to have a play account, something that keeps you interested
00:46:29.000 | on the side.
00:46:30.640 | So let's talk about real estate in my own investment.
00:46:34.160 | So as I described, those are my four basic focuses.
00:46:37.000 | And for me, number one, business and real estate are where I'm at at this scale of my
00:46:41.400 | financial plan and the things that are appropriate to me.
00:46:44.400 | But I have some major concerns with real estate.
00:46:46.200 | I've studied it a lot over the years.
00:46:47.480 | I've studied the strategies.
00:46:48.800 | I've studied the different approaches.
00:46:50.280 | I've studied the different ways to invest in real estate.
00:46:55.120 | There's dozens of ways you can invest in real estate.
00:46:59.140 | But I have two big concerns that I don't want to pursue.
00:47:03.520 | Number one is I do not want to do physical construction work on real estate projects.
00:47:10.000 | I don't want to do it.
00:47:11.240 | I can do it.
00:47:13.000 | I'm more capable with DIY projects than most people.
00:47:16.520 | I'm more capable at fixing things than most people.
00:47:18.760 | I've got a lot of experience, but I have enough experience to know that I don't want to do
00:47:21.960 | it.
00:47:22.960 | It's not the highest and best use of my time.
00:47:25.120 | I don't enjoy it.
00:47:27.000 | And I find it frustrating because I don't do it a lot.
00:47:29.680 | So I don't want to use a real estate strategy that involves me doing physical construction
00:47:35.440 | work.
00:47:36.440 | Lots of people, that's the best thing for them.
00:47:39.600 | Whether that's you buy a move into a house and fix it up while you're living there on
00:47:43.280 | the weekends, and then you turn around and sell it and take all that increased money
00:47:46.840 | tax-free, you can do that.
00:47:49.480 | There's a bunch of people who are very good at that.
00:47:51.640 | I have family members who are very good at that approach.
00:47:53.900 | That's not appropriate for me.
00:47:56.400 | I don't want to do physical construction work.
00:47:58.520 | If I have to do physical construction work, I would rather become a stock-picking guru
00:48:03.920 | than go and do physical construction work.
00:48:05.760 | It's easier and more fun for me to learn that than it is to learn the physical construction.
00:48:11.040 | Number two is I don't want a maintenance-intensive landlording job.
00:48:15.080 | Real estate investing, at least done in the way that you are buying and owning properties,
00:48:20.480 | is kind of a funny mixture of a business and an investment, where you're getting attributes
00:48:25.280 | of both.
00:48:26.280 | It is a part-time job in a way.
00:48:28.260 | And so for me, I don't want a maintenance-intensive landlording job.
00:48:34.240 | So I could go out today, I could buy a 100-unit apartment complex, I could move my family
00:48:40.200 | into one of those units, and I could run the 100-unit apartment complex, or 20, whatever,
00:48:44.280 | you make up the number.
00:48:45.520 | I don't want to do that, because those type of tenants are very maintenance-intensive.
00:48:49.360 | It's a lot of work, and that's not work that I think that I'm very well-suited for.
00:48:53.600 | That's not what I want to do with my money.
00:48:55.440 | So given those two constraints, I need a strategy that will account for those constraints if
00:49:00.360 | I'm going to invest in real estate.
00:49:02.620 | Lots of ways I can skin this cat, but I've chosen to focus on one specific strategy,
00:49:09.780 | at least for now.
00:49:11.220 | And that strategy is to buy single-family houses in the middle of the market in my local
00:49:18.740 | area, and to buy them and to hold them for a long time.
00:49:23.580 | And my favorite strategy over the years, of all the dozens of real estate books I've read
00:49:27.240 | and all the things I've studied, my favorite strategy is John Schaub's "Building Wealth
00:49:31.740 | One House at a Time."
00:49:32.740 | That was his book on the subject.
00:49:34.300 | He's been on the show.
00:49:35.440 | But that is my favorite approach.
00:49:36.700 | I just got back this weekend from going to John Schaub's seminar.
00:49:41.100 | Now this show, I intended to record this show on Friday morning.
00:49:45.940 | I left my house in West Palm Beach at 4.30 on Friday morning to drive over to Sarasota,
00:49:51.020 | and I intended to record this show in the car on the way there because I didn't want
00:49:55.060 | my show on real estate to be influenced by the seminar that I'd come from.
00:49:58.300 | I didn't know, am I going to be super excited or not?
00:50:00.500 | This was a carefully—I went to this seminar because what Schaub teaches is what I want.
00:50:05.620 | I'm not creating this strategy because of what I learned at the seminar this weekend.
00:50:10.420 | But unfortunately, as I was driving across the state, it was blackout, it was dark, and
00:50:15.140 | it was also raining.
00:50:16.180 | And so I didn't think it was safe enough for me to be recording my podcast while I drove,
00:50:20.660 | and I wasn't able to get it done at any other time.
00:50:24.380 | I intend to do a separate review of Schaub's seminar.
00:50:27.580 | In short, it was excellent.
00:50:29.740 | But I just want to clarify that I chose the seminar because since I've chosen this strategy,
00:50:35.980 | then I need to make sure that I become an expert in my strategy, and Schaub is the guy
00:50:41.100 | I want to build a relationship there with him so I have the chance to help.
00:50:44.660 | So he has a chance—if I need help, I've got the go-to guy for that.
00:50:49.780 | So I've chosen to invest in real estate because, number one, real estate—local, individual,
00:50:57.060 | residential real estate—is an inefficient market.
00:51:01.100 | It's an inefficient market that I can personally understand, value, and I can exploit the inefficiencies
00:51:10.660 | when I find them.
00:51:13.060 | By investing in what I know, where I live, I can be confident.
00:51:18.460 | Much more easily, I can be confident in my analysis.
00:51:22.460 | And because it's inefficient, I can find problems that people have, and then I can
00:51:27.300 | solve them for them.
00:51:29.100 | That's what real estate is.
00:51:31.420 | So I can put together a deal, and I can put together a creative deal which appeals to
00:51:36.340 | my personal inclination.
00:51:38.140 | That's what I like to do.
00:51:39.140 | I like to find creative ways to use—whether it's creative ways to use certain types of
00:51:44.340 | real estate contracts, whether it's creative ways to put together financing, whether it's
00:51:47.940 | creative ways to solve people's problems.
00:51:50.700 | That's what I'm good at.
00:51:52.240 | I like doing that.
00:51:53.340 | I'm good at that.
00:51:54.420 | And so I can find those deals and put those things together, and that's using what I'm
00:51:58.460 | good at, putting together the deal, solving the problems in a unique and elegant way in
00:52:02.900 | a local, inefficient market where I can be confident of the values.
00:52:07.940 | Real estate is something where I can apply a unique skill that I have and a unique work
00:52:15.960 | ethic that I have that many people aren't going to apply.
00:52:18.340 | See, many people look for deals by sitting back and waiting for something to pop up in
00:52:23.980 | their MLS.
00:52:24.980 | Well, you got some more competition.
00:52:27.300 | Got a bunch of friends of mine who invest in real estate here locally.
00:52:30.200 | Some of the markets they work in are cutthroat, and you're constantly in competition with
00:52:34.580 | it.
00:52:35.580 | But I'm willing to do things that other people aren't willing to do.
00:52:38.180 | And so by doing things that other people aren't willing to do, I can find deals that other
00:52:41.620 | people aren't going to find.
00:52:44.060 | I can operate a local real estate investment business at an appropriate scale.
00:52:50.340 | So the amount of investment capital that I have set aside is very appropriate to local
00:52:59.660 | residential real estate investment.
00:53:01.840 | I'm not broke, so I don't have to go out and try to put together deals with no money down,
00:53:07.780 | with no cash, where I can't handle anything and I'm kind of living on the edge.
00:53:11.360 | There have been people who've been able to do that, but I'm not in that situation.
00:53:14.720 | And so that brings me a lot of confidence.
00:53:17.060 | But I'm not at the point where I've got $10 million that I'm trying to figure out what
00:53:20.680 | do I do.
00:53:21.940 | And that's where you've got to look at the scale of your investment capital.
00:53:25.740 | If somebody has $200 to their name, they're better off not investing in real estate.
00:53:31.900 | They're better off buying a broken weed eater on Craigslist, fixing it and flipping it on
00:53:36.840 | Craigslist.
00:53:39.340 | If somebody has, what was it, Warren Buffett, we use him because he's such an extreme example.
00:53:45.540 | But think about what a massive problem Warren Buffett has investing his money.
00:53:49.620 | He's got so much free cash flow.
00:53:52.860 | And if Warren Buffett makes $100 million investment, it's practically irrelevant.
00:53:59.180 | It's a blip on the radar screen.
00:54:02.500 | It's not that big.
00:54:03.500 | So he's got to put together billion-dollar deals.
00:54:07.400 | The guy with $10 million that he's managing, so he buys a house for $150,000.
00:54:12.540 | Let's just say he's practicing a flipping strategy.
00:54:16.060 | Buys a house and flips it and he makes $50,000.
00:54:20.520 | What impact does a $50,000 growth have on his $10 million portfolio?
00:54:26.140 | Not nearly as much as if a guy with a million dollars does that same deal.
00:54:30.660 | So you've got to think and always apply the concept of scale to everything.
00:54:34.420 | So my investment capital is at a scale where I can work appropriately in the real estate
00:54:41.660 | market.
00:54:42.660 | I won't invest so much of my money in any one deal that if a deal goes bad, it bankrupts
00:54:47.180 | me.
00:54:48.180 | But I can still, with some creative real estate techniques, I can still make a big impact
00:54:54.340 | in my experience and those deals are accessible to me.
00:55:00.340 | I can get excellent returns.
00:55:02.700 | So in the local real estate market, because it's inefficient, because I can put together
00:55:06.500 | the deals or I should, to be clear, I believe I can, I'm convinced that I can build the
00:55:11.780 | skill of doing it, whether or not I do it on the first deal or the first 10, I have
00:55:14.780 | no idea, but I'm convinced I can at least build the skill of doing it, then I can get
00:55:19.660 | really excellent returns, far in excess of what I can expect by investing in – far
00:55:27.480 | in excess of what I can expect by buying a mutual – an index fund from Vanguard.
00:55:33.300 | And another important thing is I can use in real estate, I can use financial leverage
00:55:38.820 | safely.
00:55:40.660 | This was one of the things I was most intrigued by when I wanted to go and go to Shab's seminar
00:55:46.060 | was in my interview with him on radical personal finance, he talked about putting together
00:55:53.820 | deals with low money down and he talked about purchase – buying and selling properties
00:56:00.700 | but in a way that you're not giving a personal guarantee for the loan and that you're not
00:56:07.100 | working with a bank.
00:56:09.100 | And what was interesting I learned, he said in the seminar, and he didn't make a big
00:56:12.180 | point of this in his book, it came out in the interview on radical personal finance
00:56:17.500 | here, but he didn't make a big point of it in the book, but he's been a real estate
00:56:20.900 | investor for 40 years, bought and sold a ton of properties, but he's never borrowed money
00:56:26.060 | from a bank and he's never given a personal guarantee on the property.
00:56:31.420 | Now he's also never defaulted on a loan and he's always paid every single loan, but I
00:56:36.380 | didn't understand his strategy for doing that.
00:56:38.680 | Now after attending his seminar I do and I'll cover that more in the future.
00:56:43.400 | But I can use financial leverage safely with the amount of capital that I have to control
00:56:48.460 | valuable assets and that'll be really, really good.
00:56:52.780 | And real estate leverage is unique in the world of leverage.
00:56:57.100 | In stocks if you have a margin call that can wipe you out.
00:57:00.860 | In real estate your risks are limited if you're using appropriate financing mechanisms with
00:57:06.300 | careful protections.
00:57:08.700 | And then with Schaub's system he focuses on the middle market system and by putting
00:57:14.060 | together the deal one of my investment criteria is I need to make sure that I'm only doing
00:57:20.180 | deals that are going to be keeping me out of physical construction work.
00:57:24.300 | So that means I'm not interested in flipping houses, I'm not interested in buying run-down
00:57:28.020 | houses and fixing them up, I'm not doing that type of thing.
00:57:31.460 | I'm putting together a different type of deal.
00:57:33.680 | And also by working at the middle market, if you go back and listen to his interview
00:57:38.380 | on Radical Personal Finance he talks about the time that he has off because he's built
00:57:42.180 | a very low maintenance landlording business.
00:57:46.420 | So he does a really good job with that.
00:57:48.820 | And then I think that also the reason I'm pursuing this now is I personally think this
00:57:54.420 | is a unique time in my lifetime for me to have some breakout years in my own personal
00:58:02.660 | wealth.
00:58:03.660 | As I record this here in January 2016 my guess and my bet that I've been making, and I'm
00:58:10.860 | not an economist, I have no credentials or track record of any kind to point to where
00:58:16.640 | you should listen to my prediction, I'm just telling you my opinion today.
00:58:22.020 | But my best guess is that I think that we'll be back in a recession in this year, next
00:58:31.540 | year, next couple, three years.
00:58:33.620 | We're overdue for a recession.
00:58:36.140 | Now I wasn't in a situation in the last couple of recessions that I've been through as an
00:58:39.820 | adult.
00:58:40.820 | I wasn't in a situation where I could take advantage of them.
00:58:43.620 | I didn't either have, in 2001 I was in college and I didn't have any money and so whatever.
00:58:50.740 | 2006 and 2008 and that whole long period there, depending on when you technically want to
00:58:56.900 | use for your years to measure recession in, I was also still building a new business and
00:59:02.700 | I had invested all my money in that business.
00:59:04.260 | So I didn't have a lot of investment capital and I didn't have things squared away.
00:59:07.540 | So I wasn't able to really take advantage of them.
00:59:09.620 | I didn't have a ton of money that I could sink into the stock market at lows or anything
00:59:14.500 | like that.
00:59:15.500 | But what I am convinced of by studying history is that a lot of people get, excuse me, a
00:59:22.260 | lot of people go broke in a recession, but some people get very, very rich.
00:59:25.980 | And if you look at many of the great names, many fortunes were built in something like
00:59:32.580 | the Great Depression.
00:59:35.220 | So recessions and depressions can be times of opportunity if you're paying attention
00:59:40.340 | and if you are stable.
00:59:42.620 | So that's why I've done so much work on radical personal finance to try to help and encourage
00:59:46.820 | and give all the tools and ideas that I can think of to help you be stable.
00:59:50.980 | That's one of the reasons why I've worked really hard to build financial stability in
00:59:54.860 | my life with, it's one of the reasons why I sold my house, take the profits and build
01:00:01.060 | that resilience and build that stability.
01:00:03.700 | So I'm at a point now where if necessary, if I start, if you guys as listener base,
01:00:09.340 | you guys get to a point where you're suffering financially and we go into recession or depression,
01:00:16.820 | and let's say if it's severe and difficult and you guys have to start cutting back, well,
01:00:21.620 | I've built, I've tried to work hard on my own personal finances to keep my obligations
01:00:25.140 | to the bare minimum.
01:00:26.860 | That gives me flexibility.
01:00:29.020 | And so I am determined that whenever the next recession is, whether I'm right and it's this
01:00:35.620 | year or next year, who knows, somewhere in this next two or three years, whenever it
01:00:40.460 | is, I need to be ready and prepared to take advantage of the opportunities wherever they
01:00:45.700 | are.
01:00:46.940 | I think there'll be opportunities in my local real estate market, but I can't wait.
01:00:51.540 | I can't wait for us, you know, for 20, let's say that next year, 2017, we wind up in recession
01:00:58.580 | in the U.S.
01:00:59.580 | Well, and then that trickles through, trickles through, trickles through.
01:01:03.460 | And then 2018, 2019, that starts to be felt in my local real estate market.
01:01:08.260 | People getting foreclosed on, people are losing their jobs.
01:01:11.220 | And then there's just this general downturn.
01:01:13.260 | I can't wait until 2019 to say, oh, OK, I'm going to become a real estate investor and
01:01:18.000 | start educating myself and preparing for it.
01:01:20.500 | That doesn't work.
01:01:21.500 | It's too late because I don't know the skills.
01:01:22.660 | I don't have the network.
01:01:23.660 | I don't have the strategies.
01:01:24.660 | I don't know what I'm doing.
01:01:26.340 | So what I've got to do now is focus in 2016 on working hard, shopping my market, getting
01:01:32.140 | in tune with the market, finding deals, looking for them so that if I'm right, and this is
01:01:39.100 | again just my guess and my opinion, if I'm right and a couple, three, four years from
01:01:44.220 | now we are either in, going into, in or past a significant recession, if I'm right in that
01:01:52.580 | situation, then I've got the skills and I can profit from it.
01:01:56.180 | And so I've got to build my strategy in a way that allows me to profit from it because
01:01:59.580 | my hope is whenever the next recession is, my hope is to come out of it in a much better
01:02:07.540 | shape than I went into it because I was prepared and looking for it.
01:02:15.900 | I think there'll be some cool opportunities and I think that will be, I think there'll
01:02:19.980 | be some, just some things that we can use and implement.
01:02:22.740 | I think we've got some cool opportunities coming up with this approach.
01:02:27.140 | So that's why I've been focusing on, that's why some of the reasons, the transitions I've
01:02:31.820 | made, that's why I sold my house, selling my house cut my expenses, lowered my risk,
01:02:37.900 | freed up investment capital.
01:02:39.420 | It was just across the board, all part of this plan.
01:02:42.760 | That's why I've been bringing the content that I've been bringing, that's what I've
01:02:45.580 | chosen and I'm going to be bringing you guys on, I'll be bringing you guys on the journey
01:02:50.180 | with me.
01:02:51.180 | It's one of the cool things about Radical Personal Finance, everything integrates.
01:02:55.260 | As I study and learn strategies, I can share them and teach them with you.
01:02:58.640 | As I share them and teach them to you, that will help the listenership of the show.
01:03:04.240 | That will result in me being able to charge higher prices for my advertisers.
01:03:07.780 | That'll result in more listeners to the show, which will help and more of you supporting
01:03:11.660 | the show on Patreon, which will help me.
01:03:14.060 | And then I can leverage that and turn that into more investment assets.
01:03:19.220 | And all along the way, it's built together.
01:03:21.820 | Even one of the things about investing in real estate is the steps that I've been making
01:03:27.180 | towards being able to invest in private business is trying to build my local network much more
01:03:31.460 | proactively.
01:03:32.460 | For the last couple of years, I've been slow about building my local network.
01:03:36.260 | Well, real estate gets me out in my local community, has me building that local network,
01:03:41.900 | has me focused on connecting with other investors so that when there are opportunities and people
01:03:47.400 | need money, then they'll be calling me.
01:03:50.620 | That's one step of the plan.
01:03:52.620 | Hopefully this is useful to you.
01:03:54.220 | Again, it's always hard for me to know what to share and what not to share, but I've tried
01:03:58.580 | to be very open.
01:04:03.460 | I've tried to be open because you can learn from either what I'm right about or what I'm
01:04:06.480 | wrong about.
01:04:07.480 | If I make mistakes, you can pick those things up.
01:04:09.660 | I think hopefully it'll be encouraging to some of you.
01:04:13.820 | That's my plan as far as why I've chosen going forward to be working on real estate investments.
01:04:21.920 | Make your plan.
01:04:22.920 | Your plan may be similar to mine or it may be exactly the opposite, but I encourage you
01:04:28.060 | to think through your plan.
01:04:29.560 | What are the things you want in your investment plan?
01:04:32.140 | What are you looking for and what are the strategies that are going to help you?
01:04:35.080 | Hope this content has been useful today for you.
01:04:37.220 | If it has been useful, I would appreciate if you were willing to pay me for it.
01:04:42.260 | You can do that voluntarily.
01:04:43.980 | If you found value in today's content, please consider becoming a subscriber of the show
01:04:48.420 | as a patron.
01:04:49.420 | The way that you do that is go to RadicalPersonalFinance.com/patron and you can estimate what you think the value
01:04:56.520 | of this show has been for you.
01:04:58.020 | Then you can send some of that toward me as a thank you compensation for the work that
01:05:03.680 | I've put into creating the show for you.
01:05:05.100 | Go to RadicalPersonalFinance.com/patron and I'll be back with you soon.
01:05:08.740 | (upbeat music)
01:05:11.320 | (upbeat music)