A quick word from our sponsor today. Hello and welcome to another episode of All The Hacks, a show about upgrading your life, money and travel. If you're new here, I'm Chris Hutchins. I'm a diehard optimizer. I love doing all the research to help you get the best experience in life without an expensive price tag.

And today I'm talking to Brandon Turner about real estate. And while I do own my primary residence at a fraction of a vacation home, I've never really dabbled with rentals, Airbnb's or any residential or commercial real estate projects, except owning some REITs in my investment accounts. But Brandon's taken a different path and it's worked out pretty well for him.

He's a real estate investor with thousands of properties, hundreds of millions under management, and he's also the author of a few real estate books and has sold over a million copies. He's also a podcaster with over 100 million downloads, having hosted the BiggerPockets real estate podcast for almost 10 years.

If you're not familiar with BiggerPockets, it's a massive real estate investing resource with millions of members, tons of content, books, courses and more. So I want to use this conversation to do two things. First, Brandon is a fascinating person who's very intentional with his mindset on life, work, philanthropy and more.

So I want to understand how he operates, why he works with a performance coach, whether most of us should be doing that, how he's managed to be successful and still prioritize friends, family and the quality of life. Did I mention he lives in Hawaii? So he's doing something right.

But I want to start by brushing up my knowledge on real estate and learn who should be investing in real estate, whether I'm even on that list, how people should get started and ask some of the questions that have been on my mind for years and held me back from doing real estate in the past, fees, overhead, lack of skill.

So without more delay, Chris Hutchins works at Wealthfront. All opinions expressed by Chris and his guests are solely their own opinions and do not reflect the opinion of Wealthfront. This podcast is for informational purposes only and should not be relied upon for investment decisions. Brandon, welcome to the show.

Dude, that may have been the greatest interview introduction I have ever had. So I am psyched to be here. There's going to be a lot of fun and excited to talk to you not only about real estate, but can I tell you a quick story about how terrible I am at your world?

Yeah, I don't even know what my world is. The world of like points like that piece of your world like hacking the point thing and the travel thing. So I spent half a million dollars on ads on Facebook over the past eight weeks. We've been talking about what I was raising for.

I already know where we're going. I didn't use a credit card for it. Like, that's how bad this was. I think we like hooked up an ACH something or a debit card, like half a million dollars on ads, and I didn't get anything for it. Like, I could have probably like flown in a nice plane or something.

So I probably have a lot to learn from you. Hopefully, I can share at least some with you and your audience. Well, for anyone listening, if you're in that situation, the Amex business gold and the Chase Inc business preferred are three and four X points on ad spend. So, you know, somewhere between one point five and two million points are often the ether.

So that's yeah, terrible. People listening will really feel that pain. But yes, hopefully, if you're spending money now, you'll be spending money in the future and we can correct that down the road. I mean, I don't keep receipts. That's something that people are always shocked when they hear. I don't keep receipts.

Like even though I could deduct a lot of the stuff I do, I don't do like the whole tax thing. Like I go to a business dinner. I don't keep the receipt and people think I'm crazy. And here's why, though. I'm a big believer in like going all in and using all available space in my head for two things, and that is like family.

And getting stupid rich through real estate, right? So those like the two things, if it's not those two things, like I just don't generally get into it. And I think that has been one of the things that's let me be successful in those two areas, because I'm only really focusing on two areas and not 50 areas.

So points and receipts and all that stuff that I should be doing, I'm just not doing. So maybe I just need like a person in my life to run that part for me. But maybe I need to start that company. Maybe you do. Oh, that's a great idea. Do we just make a billion dollar company?

Do we just become best friends? Oh, all right. Let's go back to real estate. What do you want to know? What can I tell you? So I'm a pretty thoughtful investor. I used to run an investment advisory firm, financial planning firm, and I own my home. I own some REITs in my accounts.

But I see people like you who've done a lot in real estate. And I always question whether I'm doing it wrong. Is investing in real estate outside of your home something that everyone should be doing? Hmm. All right. So the short answer, I would say, yes. The more nuanced answer is which way to invest in real estate.

I think real estate belongs in everybody's portfolio. I think that real estate has so many cool things to it. It's not the only way to make wealth. I mean, stocks, they're great. I'm sure like bonds, I don't know, whatever those are, like all that stuff works, right? The thing that's cool about real estate is it has so many different ways to make money within it that it can find its way into any person's portfolio.

So what I mean by that is like I was like 21 years old. I'm working at Coldstone Creamery. I like dissing ice cream and singing for tips. And I think I was actually 19 at this point. We're going to Coldstone like 19 singing for tips. Right. And I rent an apartment, a four bedroom apartment, and I rent out the other three rooms and I just live in the fourth room.

And all of a sudden I'm like living for free. I ended up actually renting out my bedroom and I lived on the couch for half that year and I started making money. You can go that extreme. That's kind of real estate investing. And then on the other side, like I own whatever 7000 rental units and I own a big company that buys apartments and mobile home parks.

And I just run like a business over there. And so you take those two extremes and everything in between involving real estate, you can make money and you can make a lot of money. And so, yes, everyone should invest in real estate. The question is how and how is it going to work for you?

What fires you up? What gets you excited and what's your goals are? So I imagine most of the people listening are not looking to have four roommates and sleep on a couch. So we knock off that. And I'm guessing that if they're listening to this, trying to learn about real estate, they're also not on the other end of trying to figure out how to buy their next 3000 properties.

So we find somewhere in the middle, someone who maybe they own their home. Maybe they've thought about buying a vacation home or a rental home, but they haven't pulled the trigger and they're trying to figure out what's a good way to get into this, whether it's just the learning side or the experience through doing.

Yeah. So one of my favorite ways into real estate, especially with those people who don't have a ton of capital to start with. Right. Again, going back to why I love real estate. Real estate is kind of like any business in that it doesn't necessarily require a lot of money if you use time instead.

Right. So there's ways to kind of hustle your way into real estate. So maybe it's not the living on a couch kind of idea, but there's a term we call house hacking. This has changed my life. House hacking. I've done it many, many times. It's where you buy like a small multifamily property.

Let's call a triplex, like three separate units, right? And they're all over the country, all over the world. Every country's got them. And you live in one of the units and then you rent the other ones out. Now, you don't even have to be the property manager. You can even hire management so you don't deal with the tenants.

But the benefit is, is one, you can get into these deals for very low money down, like three percent, four percent, five percent down when you're willing to live in the property for at least a year. So let's just say you're somebody you've saved up 20 grand. Well, what's 20 grand really going to do for you?

Right. You throw it into the stock market and you make yourself 10 percent on your 20 grand. OK, good. You're now making two thousand dollars a year. Like it's not life changing money. But that same 20 grand, if you were to buy that duplex or triplex, you could be living for free and saving what you'd be paying on rent somewhere else.

You could be saving a thousand, two thousand, three thousand dollars a month and building equity at the same time. So that's a cool strategy. And a lot of people like, well, I don't want to live in a crappy duplex. So I live in Hawaii. I have an ocean view.

My house is worth about three million dollars. I got a pool. I got this crazy cool property here. It's a triplex. I rent out the back unit that pays almost half my mortgage. And if I wanted to rent out the other unit that I have, I could. And I would pay my whole mortgage.

I'd be living for free in Maui, looking at the ocean because of house hacking. So it's not just for people who are starting out. It's just a cool strategy in general. A cool hack. Again, house hacking. And you're the hack guy. So there you go. I actually ended up doing this without realizing it about a decade ago because we were trying to buy a home and we kept struggling with the fact that if you buy a two bedroom home and you're going to start a family, you're going to outgrow that home.

Yeah. And like the traditional advice when you buy a home, you pay real estate agent fees or someone does. And when you sell the home, the same thing and closing costs and furnishing and staging and all this stuff. So the general rule is like, if you're not going to live there for a long time or own it for a really long time, the transaction costs are going to eat you up.

So we're like, well, we can't buy a place that's two bedrooms because we're going to move out. And so we found a place with three bedrooms, with one of the bedrooms having a door to the outside. And we said, great, we'll turn that bedroom into a studio. And for the next five years, while we don't need three bedrooms, we're going to rent it.

Real estate in San Francisco did so well that it ended up paying the whole mortgage. And then when we finally had our first child, we said, oh, we need the space. We were done with tenants. And now we have a three bedroom. We didn't have to buy and sell.

So that was our version. I didn't know there was a house hacking movement. Now, I met this guy from the Investor's Podcast Network, Robert Leonard. He wrote a book about house hacking recently. So now it's become this thing. At the time, it was just a way that I could subsidize the cost of my mortgage.

You know, it's funny about this. So the word house hacking. So I coined that and I'm not trying to just pat myself on the back. I was the first one to coin that years and years ago, like 10 years ago. You can go back to the original article I wrote on it.

The reason that I coined that was based on travel hacking because everyone talked about travel hacking. And I was like, well, I'm kind of doing the same thing when I buy duplexes and live in a house. So I call it house hacking just based on that. And the term just took off.

Really, I owe a lot to your world and your industry for that term. So really, what I'm saying is we're all here because of you, man. Yeah, definitely not because of me. But you are here because of me, but not everyone else. But I love that story that you just told, right?

Because it just illustrates one of the million ways that real estate can change your life or benefit your life in a lot of ways. Like, I wouldn't buy a three million dollar house in Hawaii, but because I house hack, I can. And in fact, there's other cool things like my buddy actually rents for me, which is normally a terrible idea.

I usually caution against that. But my buddy rents for me because he's back there. We started this company together to buy big commercial properties. And now we bought whatever, 7000 units because of him being there. So it's kind of a cool like the ancillary thing is you kind of get a community vibe, which is sorely missing in America today, right?

Like we're all so alone in the world. So now I kind of feel like I have my own little compound in a way, which is kind of funny, but it works really well. One of the key mathematical reasons behind what you just said when house hacking is that you can get leverage and that that leverage, unlike the leverage in a brokerage account, is not subject to a margin call.

So if house prices go down, you don't get evicted. And if you ride it out long enough, you'll be OK. So that works really well if you are ready to buy a new place. What if you're already in a home and you're not really looking to move out of it?

Is getting into real estate, is that just buying the duplex and not living in it? Is it buying a vacation rental property? Is that version of it as appealing when you can't live in it and something that the average homeowner should be thinking about as a way to invest their savings?

Yeah, 100 percent. Yes, they should look into it. That said, most deals aren't deals. Most properties are going to lose you money by owning them. And so as long as you're willing to learn how to run some simple math, and it's not hard. I mean, like you can just go to YouTube and search like rental property math.

Like it's not super hard to do. Now, again, there's different strategies, different strokes for different folks. Right. Vacation rentals are a phenomenal way to bring in a lot of profit. I got a condo here in Hawaii. One condo makes me $7,000 a month in profit. One property. Right. And I think I paid maybe 150 grand like into it like that.

I've got into it and it's a million dollar property. But like that's a phenomenal return. Like that's going to blow the stock market out of the water. However, I have to manage that. I have an assistant who takes care of it, but like that's still a business basically I have to run.

So again, there's different things for different people. Let me tell you a story that illustrates a couple of points on why I love real estate so much. So when my daughter, whose name is Rosie, she's super cute. She's six years old now. When Rosie was born, literally the week she was born, we went and signed papers on a four unit property.

It was a fourplex located in kind of a rough area. Not like I'm going to get shot there, but like definitely not like a place I'd want to live. But we got this four unit property there and it was super cheap and disgusting. And there was like rats living in it.

And a bunch of like people had broken in and stolen stuff. I mean, it needed a lot of work, but we buy this property and we fix it up. And then we put it on an 18 year payoff plan. It's a 30 year mortgage, which is pretty typical. But I actually went to like Dave Ramsey's like calculator online and was like, how much extra do I have to pay every month to pay it off in 18 years?

And it was like one hundred and fifty bucks extra every month. So I put it on this 18 year path plan. Now, our mortgage at the beginning was one hundred and fifty thousand that I owe in the mortgage. When my daughter is 18, we'll owe zero dollars on it.

Now, that property could make me no money for the next 18 years. I can make nothing off of it. But at very least, my tenants just paid off a mortgage over the course of 18 years, and now it's worth a lot more money, right? In fact, it's probably worth when I bought it.

Two hundred thousand. My mortgage was one fifty. I always said it'd be worth three to four hundred thousand dollars when Rosie's ready to go to college. So no, these are two things that play here, right? The property values tend to go up over time. Yes, there's dips and such, but based on just three percent appreciation over the next 18 years, it should be worth between three and four hundred thousand dollars.

We will then owe nothing on it. So we've built now three or four hundred thousand dollars of equity that Rosie gets to use for college. And this is a plan I tell a lot of parents, buy one rental house when your kids are young, put it on a 15 or 18 year whatever mortgage, whatever it takes to go to college and their college is paid for off one property.

So that's the loan getting paid down and appreciation. Those are two of the four wealth generators of real estate. So one of them is appreciation. Real estate goes up. Number two, real estate gets paid down when you have a mortgage, which is great. That's the whole leverage piece. Number three, though, is the cash flow.

This fourplex makes me over fifteen hundred dollars in profit every single month. Now, some months a little bit more, some a little less if we have repairs and such. And that's after paying the property manager. It's like I don't even deal with this property. It's maybe a minute every single month.

So now I've got the third wealth generator is cash flow. Now, Rosie doesn't get that. I get to have a nicer car because of that, right? I can use that for my life. And that's why I love cash flow. So cash flow is a third reason. And the fourth wealth generator of real estate is the tax benefit.

So when I make fifteen hundred dollars a month on cash flow, I pay zero dollars in taxes on that zero dollars in it. You make fifteen hundred dollars doing a W2 job, not you, but somebody does. And they're going to pay five hundred in taxes, six hundred in taxes, whatever.

So not only do you have the three areas where you're growing wealthier, but the fourth area is that there's so many tax strategies for real estate investors that you typically will pay little to no tax as long as you invest in real estate. So combine those four things together.

And it's a phenomenal return that I think can blow out any business, any investment, any way to generate wealth completely out of the water in terms of both how well it grows and the assuredness of which it grows. Now, you can start a business and you'll get 10000 percent return.

But businesses fail all the time. Real estate's fairly stable. It would be hard to lose when you buy right and you manage right. You said we're going to be friends. Maybe this is the pivotal moment here when I push back on a few things. So on the tax front, let's go in reverse.

All right. The reason I assume you're not paying taxes is because you're depreciating the property. That's a huge piece of it. Yes. And at some point in the future, when you sell that house, having depreciated the value of it, if you were to sell that property, you would have much more taxes in the future.

Whereas my W-2 income that I invested, I would only pay on the gains if I went and invested that W-2 income after tax. So yes and no. But this is why I said, as long as you keep investing in real estate, you pretty much never pay taxes. So between a thing called the 10th Irwin Exchange, which is awesome, and between a thing called cost segregation or depreciation, accelerated depreciation, all that stuff.

And we don't need to go in the weeds on it. But essentially, as long as you don't stop investing in real estate, it's kind of a treadmill. I will admit it is a treadmill you get on. But what most investors do eventually is they just get more and more passive properties.

Like they start maybe buying the duplex that they're managing or the fourplex. And eventually they sell it and then they buy a share, a small piece of a huge shopping mall, and they just hold on to that for life. And then when you die, the taxes basically just get wiped out.

The government says, OK, well, your children aren't going to owe any of that. And they wipe it out. And so there are ways to pay nothing forever. But like you said, there is that. That said, on that $1,500, first of all, I don't pay any self-employment tax or any of the 15% that everyone else pays.

So it's naturally lower anyway. But then the depreciation just wipes the rest of it out. Even if you did decide, I'm getting off the treadmill, I'm selling these properties, you're still paying capital gains on that. You're not paying income tax. So correct. I'll give you that. Even in the worst scenario, it's still a better scenario from a tax standpoint.

But there are future tax liabilities by taking the depreciation. Yeah, it's not as easy as just you buy a rental property and pay no taxes ever. There's definitely a strategy to it. And understanding how this stuff works is important, which is one of the reasons people should not invest in real estate.

Let me argue why you shouldn't invest in real estate, because it is not a button you press on an app. Now, there are easier ways to do it right. So like I've raised, I don't know, 250 million dollars over the past couple of years from investors like you, maybe who like, I don't want to go buy a duplex and deal with the toilets and the tenants and the termites and all that crap, right?

I don't want the trauma. So they just invest with me and then we go and buy it. So that's what my company does today is we do something like that. And this is not a sales pitch. You don't have to go with me. You can go to anybody. There's lots of us out there who do this very thing.

You can still get depreciation. You still get some of that stuff, but it's much more of a push button sort of investment. Now, your returns are probably lower than if you were renting out all your bedrooms in your house, living on the couch. But you pay and you get what you want to put into it.

Just like really any business. One more quick point. The other cool thing about the tax depreciation stuff, not only are you not paying the 15 percent that everyone else has to pay, but I read the numbers one time and it's in one of my books. Even if you were to just pay it anyway, at some point, just settle up with the government because you deferred it down the road, down the road, down the road.

Because you are not paying it. You are using the government's money next time to buy more. So even when you settle up, you are far ahead of where you would have been if you just pay taxes like a normal person. Does that make sense? Yeah. You're using their money.

That's the same logic that goes into tax deferred retirement plans. The reason why is that your money can compound before you owe that tax liability. I did an episode that we will not get into all about some crazy estate planning tax strategies. And part of the reason that those work is that the rates the government thinks things will grow are not the same rates that things actually end up growing in the markets.

And so if you can defer taxes as long as possible, you can actually get an outsized return, compound interest, et cetera. And you briefly brushed on 1031, but I'll say my version of it, which is completely unsophisticated, but maybe that's easier than going down. It's just that if you have real estate property that increases in value, you can either realize those gains or you can roll them into another property.

And defer and defer. So as long as you're rolling in the gains from real estate sale to another real estate transaction, you can postpone and postpone. You buy a property, make a million bucks, dump it into a new property. And the government's going to be like, oh, yeah, I would say it's like the government is like your uncle who's partnering with you.

They're like, hey, you did a really good job with that investment. You made a million bucks. Keep our money. Just put it in the next deal and then put the next deal. The government's going to let you just keep putting in the next deal. Now, there's a lot of rules with that, but that's essentially what it is.

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So whatever the occasion, download the Drizzly app or go to Drizzly.com. That's D-R-I-Z-L-Y.com today. Must be 21 plus, not available in all locations. And then the returns, right? Historical property appreciation is positive, but historical stock market appreciation is more positive. Comparing apples to apples, it's like the returns are higher.

So how do you compare this to I'm going to take all the money I have, I'm going to put it in a diverse index funds, including REITs, and, you know, we can get to REITs after. And instead of paying down this mortgage each month, I'm going to take that cash flow and I'm going to invest it.

I've said that mortgages are great for people who wouldn't otherwise save because it forces you to. But if you're disciplined and you took all that cash flow and saved it, how do you think that compares? You think real estate still wins every time or on average? I think on average it does and it has.

When you use that leverage, if we're talking apples to apples, like you got 100 grand, should you buy a $100,000 property in cash or put $100,000 in the stock market? I would probably put $100,000 in the stock market, honestly, because like when you lose the leverage piece, you lose everything.

But if you can use the 100 grand to buy 500,000 worth of real estate, your $500,000 deal is appreciating at 3% per year. So you're getting whatever that is, like way better leverage on it. Right. And the loan's getting paid down and you get the tax benefits and you get the cash flow.

So you kind of combine it all together and the stock market. I mean, everyone's got a different number, right? But six to ten, somewhere in that percentage. Or if you're Dave Ramsey, 12%, you say. But the stock market average is somewhere in that range, right? Let's call it seven, 8%.

I mean, like my real estate, like I don't buy anything that doesn't average me 15% or greater. Like I don't buy anything that doesn't do 15%. And that's after factoring in all of the crazy costs that come from owning real estate. That's the number we what we call underwrite.

So we underwrite from a 15% per year standpoint when we buy real estate for our investors. And we're actually getting more than that. We're getting more like 20 to 25%, but we take about a third. That's what my company does. So we underwrite from a 15% per year for our investors.

Now for that, right, higher risk, higher return. Obviously, like you're trusting some random dude from the Internet to invest your money and hoping you get your 15% per year. So it's maybe a little riskier than throw it into GE or Tesla. But I don't know. I could actually argue the opposite.

I mean, what do you think? Let's throw it back at you. Yeah. Yeah. I mean, dumping in the stocks. Definitely when you're talking, dump it into GE or Tesla. I feel like I'm with you, right? The volatility of any single stock almost thought you were going to go GM or Tesla.

And then I was like, well, that's an interesting perspective, right? Like one of those two could go very different direction. Historically, the challenge for me has been the push the button, right? To buy the real estate, you've got to find the deals. You've got to process the deals. We had one tenant in a house we lived in, and that even felt like a lot.

Not because they were there, but because, oh, the sink's not working. It just felt like a lot. So I think for me, I've always been apprehensive of buying real estate with all of the kind of craziness that comes with managing it and dealing with it. If it's not your primary residence and you would know better than me, I feel like the loan situation is harder in terms of you just don't get as favorable terms when you're not buying a primary residence.

And that's kind of held me back. The vacation rental. If it's not a long term tenant, then you've got a vacation rental. Now you've got to put it on Airbnb or you've got to put it somewhere and manage who's coming and what happens if there's a pandemic and no one wants to travel and all that stuff.

So for me, it was just so much easier to invest in the markets. But that doesn't mean I'm not interested, because then I go, OK, well, then I could just pay someone to do all this for me. A company you're starting or anyone else. And then I'm like, oh, but then the fees, maybe I should do it myself.

And I kind of get stuck in this analysis paralysis of I want to do this thing. I don't want to do the work, but I don't want to pay someone to do the work. OK, I'm just not going to do it. And so I ended up just doing REITs.

So I'm curious where you think REITs fall on the spectrum. Is that a form of real estate investing or do you kind of say, no, no, no, that's like the stock market version. Let's leave that aside. It is a stock market version. REITs typically have a very similar return as the regular stock market.

Right. Depends again, which REIT and which ones you're looking at and how you're measuring it. You can manipulate data all you want, but typically it's not a whole lot better and maybe even worse than traditional just stock market investing. But REITs are great. REITs are a push a button.

They are the stock market for real estate. You're typically buying a large A class, real nice like apartment complexes or shopping malls or whatever. And you're combining your money with lots of other people. And they're just very stable. You're not doing anything fancy. You're not really having to work at all at it.

Now, what we do so at Opendoor Capital, which is my company. And again, there's lots of us out there that do this. It's a similar model. You wire the money to us, you push your button and you're pretty much done. The way that we're different is we're actively investing.

Like we're not buying super A class shopping malls for three billion dollars and getting 10,000 investors all chipping their money on it or 10 million investors. We're typically 100 investors coming together, pulling our money, and we split profits a little different. So we just basically take the first seven or 8%.

Like we always assume, like if we're not going to get you at least a stock market return, then I shouldn't get paid. So the first seven or 8% goes right to our investors. Like you would get the first seven or 8% per year return. Anything above that, we then split.

So typically it's like a 70/30. So I would take 30% of anything above your average stock market return, and then you would get 70% of that. And then at some point, it might shift also to what's called a 50/50. At some point, if we blow it out of the water and do exceptionally good, that's our kind of like hope is that we get a 50% return for investors so that we make more money and that everybody wins.

But yeah, so I guess the point being there are ways to invest completely passively into real estate, whether it's a REIT or a company like Fundrise, which is kind of a middle ground between a REIT and what I do, or whether you're investing in a person you trust and know from the Internet or from a meetup group or whatever.

That's why and because of that, I'll even make this point. Most rich people, when I say rich, I mean, like you have disposable income in a significant amount of way, should not invest in real estate, like actively, because at the end of the day, you go out there, you buy a rental house, right?

You're a month in. You're sitting at the dinner table with your family. You're asking your kids these questions about that. And then your phone rings, right? You pick up your phone and they're like, oh, yeah, my toilet's not working tonight. And you say those like four most dreaded words of every landlord and family, which is I'll be right over like I'll be right over.

Right. So now you're leaving your family. You're driving over there. You fix the toilet. You come back home a week later. The stove's not working right. And then they didn't pay rent three months later. And now you've got to evict them. And so if you were to look at the average person who buys real estate like out there, that doesn't love it.

They're just trying to buy real estate and they're putting a bunch of their money into it. I would argue you'd get a better return investing with a company like mine or Fundrise or maybe even a REIT, then you're going to get on your own. Because when you average in all those costs of owning a rental property, they add up.

Now, over time, if you're fired up, if you want to be good at landlording, you want to be good at this stuff, you want to manage your own properties and you like it. Yeah, you can make it a stupid, oversized return that's going to get you financial freedom in just a few years.

I did it from the time I was 20 ish to 27. I mean, I was in it like I was changing toilets and painting walls and all that. And when I was 27, I was able to quit my job and quote unquote, retire, starting with no money, starting with Cold Stone Creamery.

Now, you show me a stock strategy that somebody can start with no money. And in seven years, be retired with that level of assuredness. I'll be shocked. I mean, if it can happen right by Bitcoin, do the GameStop thing. Like you get lucky. But I'm talking about like that level of confidence.

It's rare. So if you want to be active or great, if you want to be passive, there's ways for you to do that as well. When I hear the word active and I think about how you talked about REITs buying a class, it made me think that, yeah, is the real unlock in real estate, the ability to buy a property and fix it up more than it is to just buy it and wade in cash flow?

It is the true skill finding places that have the opportunity to put in less money than it will ultimately appreciate. Is that where the magic is? Is that what you look for with your company? I mean, there's a million ways that you can pull profits up. But yes, if I'm getting your question right, what I like to do is I like to buy properties that you can immediately bump up the value and then it goes up gradually from there.

Right. So imagine you buy, let's go simple math, right? You buy a hundred thousand dollar property that you can just make look a little bit nicer. And now it's worth one fifty. You got to put a little money into it or whatever. Let's say now it's worth from one hundred.

Now it's worth one fifty. Well, now it appreciates from one fifty upward. It's not starting at the hundred. So you immediately start at this new high level and then it goes from there. So that's one of my favorite strategies. We call that value add investing to where you immediately add value.

That is not what REITs do. And that's why REITs get a lower return is because REITs typically would just buy a property that's already there. And they're just banking on three percent per year rent raises to make all their wealth. And it's a strategy, I hear lots of people kind of amateur real estate investors are we're going to buy a place in a neighborhood that maybe we understand because we've lived here and we're going to fix it up and either ourselves or hire someone and then we're going to flip it.

Is house flipping something that seems like such a great idea, but has a lot more cautionary tales than the average person knows? Definitely does. It's super fun, right? I mean, who doesn't like to take something ugly and make it beautiful? But maybe a lot of people, but I love it.

It's super fun. You feel like you're on HGTV and flipping things. But flipping is very much a business in every way. Like you go start a business doing a lot of things. Some people just happen to do it with a piece of real estate, right? You fix it up, you make it better.

You sell for more money. The risk of flipping, especially today in this market, is that when you're flipping in a market that is dropping, which is what we find ourselves in today. Now, I don't think we're going to see a dramatic plunge 80% of real estate values. But when you're in a market that is correcting, you're kind of catching the falling knife, right?

Like you're buying it for 100. You're going to put 20,000 into it and you think it'll be worth 150. But what if it's not worth 150? Like what if it takes you longer to do the project? Now it's only worth 140. But you also went over budget and so you had to put an extra 20 into it.

Well, now you're broke even. And then you pay the real estate agent and now you're losing money. I've been there. I've had one bad flip that I lost money on. Ironically, had I kept that property, I would have made cash flow every month, probably between five and seven hundred dollars a month on that property.

I would have kept for the past nine years or 10 years since I bought it. Today, I sold that property, ended up selling it. Those numbers actually were this property. I tried to sell it for 150, didn't sell, ended up selling it for 120. Today, that property is worth over half a million dollars.

So like real estate, one of the other things that's very, very helpful is it is a very forgiving asset class in time. It's a very forgiving asset class. You can screw up a lot of stuff, but as long as you can hold it, you get bailed out of almost everything.

That's not dissimilar from the stock market, right? If you just hold through the down times and through rough times, you can survive almost anything. And so the deal with real estate is you just need to buy properties that you can hold if you need to. If you're going to flip houses, great.

Just make sure if something goes wrong, you can hold it to bail yourself out. You said rough times depend on who you ask. We're either in rough times, we're on our way towards rough times or rough times are about to be in the past. But it is true that interest rates are pretty high right now.

How does the current market affect what the average person should be thinking about doing when it comes to real estate investing? Interest rates are high if you look at a five year time span, right? If you look at a 50 year time span, they're actually pretty normal. Whether or not they'll go up higher or lower, we don't know.

Interest rates definitely affect the market. That's what the government's doing, right? Like they raise interest rates as a way to slow down the economy or the inflation anyway. And so the government is actively trying to make house prices stop going up. So by raising interest rates, they do that.

Ironically, we're in a really weird time right now where they are deliberately trying to raise interest rates to keep house prices from going up. But what happens then is it makes it harder to build new property and it makes harder for people to buy property. So where do all those people go?

They go rent because they can't build a new property and they can't go and buy something. So they go and rent. Well, we've already got a housing deficit in America, a really bad one, which is why rents are going up so much. So now we've got this increased problem.

The government is trying to slow down real estate prices and other prices from going up by raising interest rates. But what the effect it's having is it's driving rents higher and higher and higher. So who wins in that situation? Like who wins when rents are going up dramatically and people can't buy as much?

Flippers don't win, right? Because you can't sell a house when you're flipping houses as much. But when you own rental property and you have a fixed mortgage that does not change and your rents go up by 10 percent, 20 percent per year, it's the landlords, it's the rental property owners that are beginning wealthier and wealthier and wealthier.

Are we in rough times? I mean, if you're a tenant, yes, it's going to get rough. I think the next few years, I think tenants are going to see their rent go up across the country dramatically. If you're a landlord. I mean, it's going to be really good times for us in the next few years.

And honestly, that's what's propping up real estate values right now, too, because we know that's what's happening. So we're willing to pay more for problems. I'm willing to buy property right now that breaks even because I know that next year rent is going to be a lot higher, not everywhere, but in a lot of places.

So that's what I see in my crystal ball. I could be 100 percent wrong, though. If leverage is the magic that helps you get the returns, the cost of capital going up, does that eat into the returns or does it get made up for by rising rent prices? Or how do you even think about interest rates?

Do you slow down a little bit right now or does it not affect you at all? It is compensated by rent raises. Right. So on one hand, they're compensating, so it's not a big deal. But what's cool is that like interest rates can be refinanced and you can refinance your mortgage at any point.

So it's not like, oh, I'm paying 7% right now on my mortgage. OK, fine. Well, in two years, if they go back down, you refinance into a 5% or 4%. You're not stuck for life with that. But what doesn't historically always go down is rents. Rents typically go up because inflation tends to go up.

Rates go up and down. So it's kind of like dollar cost averaging. And maybe it's use a phrase that I don't fully even understand because I'm not a stock guy. But like right when things go down, you just refinance, get the lower rate and then you lock in that rate for the next few years.

If they go down again, you just refinance again. I don't worry about rates right now because rates are temporary. Rents are going up. And I've been seeing all the news about the highest 30 year fixed prices in a long time. And all I can think about is if I were going to mortgage right now, I would probably not be getting a 30 year fixed right now.

Right. My bet and I am not an expert and I could probably be wrong, but is that in the next 10 years, rates will likely at some point be lower than they are now. So if I were buying a home today and this is not advice for anyone, but if I were, I would probably look at the like seven, 10 year adjustable mortgages where it's only fixed for seven or 10 years with the anticipation of being able to refinance in that window.

Yeah, which I think is just this amazing feature of a mortgage. Like the bank can't refinance on you, but you can on them. You can on them. Yeah. The 30 year mortgage thing, it's for me. Yes. If I can get a dramatically lower rate off a seven year arm, they call adjustable rate mortgage a seven or 10 year.

Yeah, I like that idea. Here's what I don't like, though. What happened in 07, 08, right, is people have these adjustable mortgages for the same reason that we're having today. And so they get the arm because it was cheaper. And then the arm would shoot up when the market collapsed.

The arm shot up to 28 percent. So all of a sudden, people's mortgages went from 1000 to 5000 dollars and they lost their homes. That has been changed. There are now limits on what an arm can do. A lot of people don't realize this. They think, oh, I would never get an adjustable rate mortgage because I don't want 08 to happen again.

Well, if you look at the paperwork and talk to your lenders, yeah, most arms have a max what they can get to. And it's somewhere in the like the 11, 12 percent range. Could rates stay high forever? And then your adjustable rate seven years from now goes up to 12 percent.

That is possible. That is a risk. So if you really don't like risk, take a 30 year mortgage. You can refinance a 30 year mortgage, too. But if you want to lower your interest rate and take a little gamble, that's what I typically do. Yeah, the arm's not bad.

I built that into my model when I was like, which one do we do? And by the way, because of the lower rate, don't think of the break even as seven years. You do a seven rate arm because you're going to get a lower rate. You probably have maybe eight, nine, 10 years to refinance before it would have been a worse deal than the 30 year fix.

Because for the first seven years, you're saving money. Yep. And you can invest that in other things and all that. Yeah, 100 percent. I love that. I love helping you answer all the toughest questions about life, money and so much more, but sometimes it's helpful to talk to other people in your situation, which actually gets harder as you build your wealth.

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I've heard you say in real estate it can be easier to do bigger deals, right? Like some of these huge deals compared to buying one house and fixing it up can be easier and more profitable. So what does that mean for the average investor? Does that mean forget starting with buying?

I think for you, it was like, you know, you bought a house in Portland. Forget that as your first strategy. Is there a way to kind of skip and jump into something bigger without necessarily needing to hire someone? Or is the answer to jump into these bigger projects? You need to invest with a syndicate or something like that.

Yeah, so you could definitely invest with a syndicate, right? That's totally fine. You get a good return that way. Hopefully you have a good person, right? A good company that you're working with. Should a person jump into a larger deal? For example, there's an investor named Grant Cardone. He's very popular on social media.

Millions of followers. Very loud and exciting guy, right? So Grant has this big thing. He's always like, don't buy anything under 50 units. It's stupid. You shouldn't do it. He's kind of a Dave Ramsey of the opposite side. He'll tell you you're stupid if you don't use debt. So over here, we've got Grant saying, don't do anything small ever.

Only buy large deals because they're easier. And I've said the same thing. Large deals are easier. But large deals require a whole lot more capital that may not be yours. And there's a big learning curve, right? So if I make a mistake on my that, let's go back to the flip.

I said I lost money on the one flip. I lost money on. Right. So I lost probably $15,000. What I lost because the market wasn't as good as I thought it was. Maybe I didn't do as good of a job rehabbing as I thought. I took a lot longer than I thought.

I screwed up because I was new to flipping houses and I lost $15,000. OK, you know, I can survive that. I can earn that back other ways. I bought a $100 million apartment complex and I screwed up and lost 15 percent. Well, now I've just lost $15 million of probably investor capital or your own capital.

So going big is great. It is easier because you have smarter people at all the levels and the salaries for those people or whatever you want to call it. The way those people get paid is kind of baked into it because you're buying a business. If you're buying an apartment complex, you are not buying a real estate.

You're buying a business that happens to trade in real estate. That makes sense. You have people, you have staff, you have processes, systems. And the bigger you go, the better those systems and processes and people are, which is why you want to go bigger when you're buying a duplex.

I mean, who's changing your toilet? You got to call the plumber or you got to go do it. When you own one percent of a billion dollar portfolio, that portfolio manager has people who take care of the problem for you. So, yeah, bigger can be easier because you're allowed more people.

You got bigger teams. And frankly, there's just more cash flow usually to be able to afford and to pay for all those problems. This might be a naive question, but is it easy even at the small level to hire someone to handle all the problems with a rental? If I were to say I want to buy a rental property in North Carolina, right?

I'm not going to drive over and fix it. It's a multi-hour flight. Maybe I have to change planes. But is it easy as a small time real estate investor to buy a property in another state and hire someone to manage it? Are they easy to find those people and vet those people?

And does it eat too much into your returns that it makes it not worth it? It is so easy to hire someone to manage your rental properties. It's so hard to hire someone good to manage your rental properties. Right. And so, I mean, there's a million of them out there.

There's a million property managers. There's an entire industry of people who you can hire for 10 percent typically of whatever the rent is, they'll take care of your property. So you've got a property, the rent is a thousand dollars. They'll charge you 100 bucks a month to manage your property for you.

No problem. But their only incentive is to make sure the property doesn't go empty. And they've got a thousand other units that they're also incentivized to make sure they don't go empty. So it's not impossible. There are great property managers out there. I've worked with a lot of good ones, but I've worked with a lot of bad ones that they'll put in anybody and they don't care about you.

They don't care about your property as much. So the key is due diligence. Right. It's the exact same logic. Have you ever hired an employee before you owned a company? So, I mean, it's really easy to hire an employee, right? It's really easy. Just put a job description. Guy walks through the door.

They have a pulse. Hire them. It's really hard to hire a good employee. And the way you hire a good employee is by testing out a few of them, knowing what you want, getting recommendations, looking at referrals, interviewing them, talking to them, and then if they suck, letting them go right away and firing fast and hiring slow, right, that whole thing.

It's no different when you hire a property manager to look after your properties. You're just hiring a team member to take over your property. So it's because they say their property manager doesn't mean they're good. That's the bottom line. A funny analog to that is we have an au pair and we were asked this question after we interviewed our last au pair.

We probably did four or five video calls. We had her meet the kids. We talked about everything. We wrote up a guide to how we would want everything in our house to function and how we take care of our kids and the responsibilities. And then we got this email that was like, we have a few questions for you now that you've matched with your au pair.

One, have you and your partner both talked to the au pair? And we're like, yeah, of course. And then it was like, have you guys talked about childcare expectations? I was like, this person is going to live in our house to take care of our child. Of course, we've talked about childcare expectations.

And then this whole thing clicked when we started hearing from our au pair how so many of the other au pairs she was friends with had these terrible situations where the expectations were totally wrong. And she was like, oh, well, some of them had a one 20 minute call.

And that was it. And I just couldn't believe that people who I would imagine in their professional lives treated hiring with a really rigorous process. And then in their nonprofessional work lives, their job life, just hire people with a totally different thing. So it sounds like that same principle applies.

Whether you're hiring someone to manage your property or you're hiring someone to watch your kids interview them like you would if you were running a business and trying to hire an employee you want to work for you for many years. Dude, that's so good. This goes to one of my favorite questions.

I think my performance coach once asked me, but I use it all the time in people. And I'm going to ask it to you right now. It's exactly related to this. What is something that you do in your strong area of life that you don't do in your weak area of life?

Right. Like maybe your strong area of life is business. So one thing you do really well is you hire people really well. You put them through the whole system and then you don't understand why your au pair is terrible. Not you, but people. Right. Because they're not doing the things in one area of their life that they do in the other one.

So if you want to improve the weak area of your life, just do the same stuff you do in the strong area of your life. This is that idea of like whether it's an au pair, whether it's whatever, like do the stuff that you know you need to do and don't be lazy about it, because that's why you're good at that one thing in your life.

So what's something you do in a strong area of your life that you're currently not doing in a weaker area of your life? It's funny because the creation of this podcast in some way was me trying to identify all the areas of my life for improvement and applying the principles of them.

So I think when I got started, there were a lot more. Right. I was like, gosh, when it comes to health and eating, I was like, I know this is important and I'm not optimizing it at all. So we end up just like eating quickly, making unhealthy food. And then we were like, hmm, well, if I was at a company and I was trying to run this like a business, I would try to figure out if maybe there was someone else could do it.

And so then we ended up outsourcing to someone local that cooks meals and drops them off like we do to a chef in our house. We outsource put an ad on Craigslist and look for someone. Hey, do you like to cook? Can you cook? I don't know if I have a perfect example now, because every time I find one of those things, I'm like, I attack it like this crazy thing.

And then I usually end up talking about it on the show or making a whole episode about it or interviewing someone to try to figure out how to do it. So I guess maybe if I went through the list, I was like, what's on my list of things I want to talk to people about?

I definitely don't feel like I've nailed best practices for sleep. You know, I track my sleep and I do a pretty good job, but I don't feel like I've gone deep there. So an episode on sleep is one that's kind of imminently sitting on the back burner. There's probably a few other topics.

So I would say whatever topics come up on the show in the next six to 12 months are things that I probably, in hindsight, I'm doing terribly right now. Well, I love that you brought that example up, right? It's the example of like fitness. People are like, oh, I'm sort of my fitness.

And I'm like, OK, well, what do you do in business when you struggle? Like, oh, you know, I read business books. I go to conferences, I go to meetups, I interview people. OK, why aren't you applying that to your fitness? Maybe read a fitness book, right? Maybe go to a conference on fitness.

I don't know. Use the stuff that works that you know works and apply it to the areas where you're struggling with. So I love that you brought that example. Food and fitness is a huge one. Good stuff. OK, we've talked about improving lives. You've mentioned mindset, performance coach. I have a lot of things I want to touch on outside of real estate.

But I do have one question I want to get your take on. I assume you're pro owning your own primary residence. I'm pro ish owning your own primary residence. I love it. There are reasons not to. But mathematically, yes, I love it. Yeah. I mean, look, if you're not going to be in it for a while, if you want the flexibility of being able to move all kinds of reasons, I'm not one to say everyone should own.

In fact, I think there are a lot of people who think they should own that should probably be renting. But let's say you're not opposed to it. You're not like, don't buy a home. Correct. So we've talked about a lot of different types of real estate. The one I'm curious to get your take on.

I hear from a lot of people saying, gosh, you know, maybe I live in the Bay Area, maybe I live in New York, real estate's too expensive. So I'm going to buy a vacation home. And I see so many people say, I can't afford this. So I'm going to buy a house in Tahoe.

We have a lot of friends who said, I'm going to buy a house in Tahoe. And to me, I've always been like, gosh, I don't want to manage a house in Tahoe as a rental. I'm not going to be there all the time. We ended up buying a fractional home with this company, Picasso, and we now own one eighth and we only go six weeks a year.

It's been absolutely fantastic. It's exactly what we need. But I'm curious what you think about vacation rentals, time shares, that whole side of real estate that we haven't really touched on at all. This is a great question. So generally speaking, I think that vacation homes are a tremendous waste of money when it's like I'm going to buy a house that I can go visit as a vacation, because you're starting from the wrong angle.

You're not starting with, I want to buy an investment. You're starting from an emotional standpoint of, I really like Cabo. I'm going to go buy a vacation house in Cabo. And then you're just screwed from the first minute you do it. And then, yeah, you got all the headaches of owning property.

Oh, forgot to renew the insurance. So they sent the bill to the wrong place or something broke where you were gone. And now the water leaked all over the floor. So when you approach it from I want a vacation house because I like Cabo, I'm generally 100% against that.

Just go rent a place in Cabo. There's great houses and they'll clean up after you're done. It's way better just to rent a place. Now, if you have a place you like going to all the time, a thing like what you did, a fractional ownership. I love that idea because you still have part ownership, but you're not wasting the other 90% of your year that you're just not going to use it.

So I like that strategy a lot when the numbers work out. But again, I would just caution people to look at, like, are you really better off owning something or is it better just to go on Airbnb or rent a stupid house that's different each time so you get to have more fun?

That's up to you. And then timeshare stuff. I avoid all of that. I don't like really much of any of the timeshare stuff. I'm sure some of it's good. I'm just not good at it. And I don't like the shadiness of the industry that has been for the last 50 years.

Now, the last thing, though, is owning vacation rentals, like owning an investment that you buy as an Airbnb property or as a VRBO property, that can be a tremendous cash cow. Like I said earlier, seven grand a month for my condo. I got another one coming online next month between the two of them.

That's 14 to 15 thousand dollars a month in profit I'll be making. That's like retire from your job, sit on the beach for the rest of your life kind of money from two properties. But it is a business. It is fully a business that requires systems. People, processes, the whole works.

And it's also very heavily dependent upon service hospitality. So if your tenant says jump, you got to say how high they'll give you a bad review. And then that reflects like poorly on you and you get less bookings and all that. So if you're willing to put into work to own an investment property that does vacation rentals, it is a phenomenal strategy.

Even better if you can manage it yourself. Like one vacation rental can give somebody complete financial independence if you're willing to manage it yourself. One vacation rental, two vacation rentals will change your life. And you don't mean a vacation rental that you're like, I like to go to Cabo, so I'm going to buy it in Cabo and rent it out when I'm not there.

You mean I'm going to treat this like a business. I'm going to buy a vacation rental wherever I think the best vacation rental market is. Now, maybe that's Cabo. I don't know. Broadly speaking, whether it's real estate to invest in or vacation rentals, where do you even go to start to learn?

Where is the most desirable place to buy right now? Where do you collect that data? Or is there an obvious answer that I, as a novice here, don't know? There's not. It's very nuanced, which is why real estate is so powerful because it's not an efficient market. Right. When we talk about the efficient markets like stocks or whatever, very efficient, you can buy and sell real easily.

Insider trading is not allowed, right? Insider trading is allowed all day long in real estate. It's great. I use insider trading all the time in real estate investing. Now, someone's going to take that clip right there, cut out the last half of that and throw me in jail for it.

But no, insider trading is totally out. So in other words, where do you have inside knowledge? What area do you know? I would argue that your knowledge of an area is more important than the metrics of an area. Your knowledge of an area is more important than the metrics of an area.

I know Maui, Hawaii really well. I've lived here for four years. I moved here because I prioritize lifestyle over profit. But once I got here, I learned Maui really, really well. So I can do really, really well here. You could not. Like you would lose money almost for sure in Maui because you don't know the market.

The market metrics are almost irrelevant. There are ways to learn more, right? There's a million blogs out there in bigger pockets. The podcast is on forever. They do a lot of vacation rental stuff, but just in general market research. I'm a big believer in find what other people are doing.

That's like what you want to do and just do it where they're doing it. But you don't have to reinvent the wheel if you're like, oh, there's a lot of people doing vacation rentals in the Smoky Mountains right now. I can name at least 10 friends of mine that have Smoky Mountain vacation rentals.

So do you think you could be number 11? Probably. Are you willing to learn the market to get good enough to make money in it? If yes, then do it. So, yeah, there is no one definitive source. It's like this is where the best thing is, because then everyone would go there and then it wouldn't be the best thing anymore.

So what are you willing to research, look into and then jump in? OK, you mentioned bigger pockets, any other resources, books, things that people should go to if they want to go deeper than just this episode? Bigger Pockets is amazing, right? So Bigger Pockets, I didn't start it. I was just on their podcast for a decade.

But I was a young real estate investor who found Bigger Pockets when I bought my first property. And they have a massive forum. Like, again, they're not paying me to plug this. I'm just saying like this changed my life because there was a place you could go and just be like, I'm looking into these Smoky Mountains.

Does anyone know a good vacation rental spot in the Smokies? You'll get 50 people who invest in the Smokies to be like, yeah, don't do it or do it here. Watch out for this place. The forum is phenomenal for Q&A. Almost every question that could ever be asked is probably already asked in there.

So you don't even have to ask it if you're an introvert. Like you just want to go and read. But yeah, Bigger Pockets amazing. The forum blog podcast meetups are great. I love local meetups. Real estate's an interesting community, just like the tech community in a lot of cities like Denver, Austin, San Francisco.

You get really good meetups of like founders and entrepreneurs that get together because it's a lonely business to run a business by yourself. Real estate the same way. Every major city in America has meetups happening almost every night of the week. Somewhere you can find a lot of them on Bigger Pockets.

I think it's BiggerPockets.com/events. You can find them on Meetup.com. You can start your own. But real estate investors getting together, you're going to learn so much more than if you were just pick up my book from Amazon or somebody else's book, because it's real people in the area doing the thing that you want to do.

I love it. Part of my foray into the tech sector in the Bay Area was just I arrived here. I didn't know a single person and I was like, I just need to meet people. So I went to there's this like SF New Tech meetup. I would go to that and there were just millions of them.

And then I ended up hosting my own event, which was another big part of it. And so I'm a big fan of meeting people in the flesh, which we are now getting at least much more comfortable doing. So this has been great. Yes. OK, if that ending seemed abrupt, it was probably because it wasn't actually the end of our conversation.

We kept going. If you remember when I introed Brandon at the beginning, there was so much more than real estate I wanted to talk about. But I didn't want to release a two hour podcast on two separate topics. So instead, in a few weeks, I'll put out another episode of all the hacks where I dig into the mindset Brandon used to build a massive real estate empire while also living his ideal life.

We'll talk about setting goals, hacking self-discipline, using performance coaches, finding the balance between audacious business goals and quality family time. And finally, all of his amazing Maui recommendations, which by the time that airs, I'll probably have gone and used myself. So definitely check that out in a few weeks, because I already know it was fantastic.

And next week, we have an incredible conversation with Annie Duke, author of Thinking in Bets and Quit. But until then, have a wonderful week. Please send me questions for the next Mailbag episode where I'll cover life, work, non points, travel and anything else you send my way. Chris at all the hacks dot com.

See you then.