JF1261: Playing Defense To Increase Your Net Worth with Tim Rhode
Tim helps people keep as much money as possible, paying attention to what is going out, what he calls “playing defense”. He is also an investor with a pretty extensive background. We’ll not only hear an amazing real estate investing story, but also receive advice on how to maximize our current assets. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Tim Rhode Real Estate Background:
-Real Estate Investor and Life Coach at 1 Life Fully Lived
-Founder of 1Life Fully Lived and the co-founder of Gobundance
-Has sold real estate for approximately 18 years and sold over 2,500 homes in that period
-Hosts conferences twice a year for those looking to up their game in real estate investing
-Based in Portola, California
-Say hi to him at http://www.1lifefullylived.org
-Best Ever Book: Richest Man in Babylon
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Tim Rhode. How are you doing, Tim?
Tim Rhode: I’m doing great, Joe. Thanks for having me on.
Joe Fairless: My pleasure, and nice to have you on the show, my friend. A little bit about Tim – he is a real estate investor and he is a life coach at 1Life Fully Lived. He’s the founder of 1Life Fully Lived and the co-founder of Gobundance; I’ve got some friends in that group.
He has sold real estate for approximately 18 years and sold over 2,500 homes during that period. He is based in California. With that being said, Tim, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Tim Rhode: Sure. I am the founder of 1Life Fully Lived, and also one of the founders of Gobundance. Got off to a late start in life, found my niche selling real estate, sold a lot of homes from 25 to 40. I think what I did different than most is we really focused on defense. A lot of people don’t look at what’s going out every month, and we looked at what’s going in, how can I have more money coming in, increase our offence, how can I live within my means, play good defense, and then how can I take what’s left over and invest it wisely.
I did a pretty good job at that and I was able to retire from working at 40, and then was kind of a ski bum for ten years, just doing what I call “getting the goods in the woods”, and kind of doing less investing and more switching over to what I call water skiing in other’s wake; let them do all the work and I just invest in what they do, and that freed up my time so I was able to do what I love best, and that’s help others find their best path. We do that through 1Life Fully Lived, and on a mastery level we do that in Gobundance.
Joe Fairless: You mentioned really focused on defense – can you elaborate on that?
Tim Rhode: Sure. What I find is a lot of people make a lot of money, and what they don’t do as much as their incomes increase is really focus on what’s going out, and a lot of them have leakage. A good example is I coached a lady who made a million a year for 15 years, and I coached her three years after she had made all that money, and she had little to show for it. And I coached another that made like 600k, 700k a year and spent somewhere between 500k and 800k; she just wasn’t sure… And when she met with me, she brought up this big ol’ paper bag of all these receipts, like I was gonna go through her receipts and figure out where her money went. They just don’t look at where their leakage is, and then consequently two things happen – they don’t get anywhere, and when the downturn comes and they have a lot of debt, they’re not able to downsize quickly and be nimble and manage themselves when the market inevitably turns.
Joe Fairless: When someone like that comes to you, what’s the process that you work with them on?
Tim Rhode: The first thing is taking an analysis of where they are, just stopping and looking at what’s coming in and what’s going out, what’s left to invest… The best thing for this is Robert Kiyosaki’s CASHFLOW game. Have you played that, Joe? Are you familiar with that?
Joe Fairless: I’m definitely familiar with it. I think I’ve played it; I know I’ve seen it so much, I feel like I’ve played it if I haven’t.
Tim Rhode: So in that game and in Gobundance, our mission is to get out of the rat race and onto the fast track, and I told you I was able to retire at 40 and be a ski bum – that’s what it was for me, that’s what I’d love to do, and everybody has dreams of what they wanna do, but few ever get the opportunity to do that because they’re not doing what Robert Kiyosaki talks about in that game, and that’s to have your passive income out-stretch what it costs you to live on a monthly basis, and when that happens, you’re free to do what you want.
So I’m sure for your listeners, a lot of them are either buying investments, flipping homes, trying to get to that road of financial freedom… The piece that I tell most of the people I know that wanna get there is watch your defense. And like I said, that first starts with an audit of where you are, and then look at where can you increase your income streams, how can you invest wisely, and how can you avoid critical mistakes that I saw a lot of people make around 2006-2008 and get wiped out.
Joe Fairless: What are some of those mistakes that you saw take place and then what do you do to mitigate that risk from it happening?
Tim Rhode: I think one thing is to track trends and to just look at — like, I was a real estate investor in the Central Valley of California, and in 1997 there was very, very little inventory, and I could tell our market was just about to take a turn, because I could see an increase in the amount of buyers looking to buy. And then around 2005 it was just crazy; there was no inventory whatsoever, and everyone was looking to buy.
So in 1997 there was tons of inventory with no buyers, and all of a sudden you could just see some buyers trickling in and the markets starting to change, and that’s when I went on a buying spree and was pretty active for about 8 or 9 years. Then we had the foresight to sell right at the top in 2006, and make some exchanges into triple net lease properties and easy to manage cashflow properties, and that kind of set me up to where I am today, where when the downturn came I didn’t have to worry about it, but I saw people not heeding the warning signs, and even when things were already dipping, borrowing more money to buy more on the dip. That didn’t turn out too good.
Joe Fairless: That actually is a perfect segue into the question I was gonna ask you next, and that is when you were 40 and you spent the next 10 years as a ski bum after you retired, specifically what investments were paying for you to go be a ski bum?
Tim Rhode: My old real estate office is rented out to an enterprise rent-a-car on a triple net lease; I have a building leased to AutoZone… I started a syndicate with three of my friends – David Osborn, Pat Hiban and I were the ones that started Gobundance, and then our good friend Andrew Cushman, we started a syndicate buying apartments in the South called DAPT, and subsequently bought I think 12 or 13 apartment complexes down there. So all of my investments are either passive, or I’m investing in other people’s — like, I invest a lot in my buddy David Osborn’s bad debt funds, and things like that where they’re doing all of the work, and candidly, I spend about 3%-5% of my time on investing. I don’t work, except my work is my non-profit, 1Life Fully Lived, and that’s where I put the bulk of my time and energy, and what I call “getting the goods in the woods.” I live in the mountains on three acres, we’ve got a big ol’ mountain called [unintelligible [00:09:16].10] in my backyard and I spend a lot of time going up and down that, and playing disk Frisbee; this morning I was out ice skating on the river.
So these are the fruits of things when you’re younger, and discipline. What I’m saying is if you want the goods, you’ve gotta do the shoulds.
Joe Fairless: That is true, I like that philosophy. And the approach that you take is you mentioned investing in other people’s funds or the work that they’re doing – then you’re a passive investor and you let them go do the work, and then you’re receiving the fruits of their labor as they are, as well… So how do you identify the deals that you will passively invest in?
Tim Rhode: First of all, I wanna say for anybody that’s in the trenches and working hard today and you’re on your way, this is kind of like the step three of all this. Step one is increase your income and do that audit I was talking about, so you see where you are. Step two is getting in the game and hitting singles and doubles, and every now and then a grand slam, and I’d love to talk about one deal I did back in the day that turned $6,000 into $6,000/month. When you’re in the trenches and you’re working hard and you’re in your 20s, 30s, and for some of you even in your 40s, and some of you even in your 50s candidly, the best thing you can do is do the work yourself and be in the trenches. There’s nobody you should trust more than yourself.
That said, the people that I invest in are seasoned investors that I know, like and trust, and I know they know what they’re talking about, and I know they know what they’re doing by their track record. So I look at a hundred packages every year of people that want me to invest in their deals, and I do do some things and I do some notes for some other friends on their investments, but they’re typically somebody that’s right in my circle that I’ve gotten to know, I’ve gotten to watch and I see that they’re gonna be there tomorrow.
Joe Fairless: Is that the main thing for you, the trust factor and the comfort level with the individual?
Tim Rhode: Yeah, I’d say the three things are the trust factor, comfort level — that’s the same in my book pretty much, but what’s their talent and then what’s their vehicle? If you have somebody that’s super sharp but is fishing in the wrong place… California is a really tough place to invest in, so most of the stuff we’re doing is like apartments in the South… And as I said, David’s bad debt fund is stuff all over the country. But they can be smart and talented and in the wrong at the wrong time and still lose money, so I think timing has a lot to do with all of this also.
Joe Fairless: Let’s talk about that deal that you mentioned – $6,000 to turn it into $6,000/month.
Tim Rhode: This was when I was listing and selling real estate and just transitioning into a realtor, and it was also during a time in Northern California when things were going kind of nuts. There was a timeframe between ’97 and 2005 when things pretty much quadrupled. So I think it was around 2001 I bought a property that somebody called me over and just wanted enough so they could buy a new home, so I gave them $6,000, took over their loan subject to, started making the payments on it, held it for about a year and a half; our market had increased and I’d bought it under value, and right around about a year and a half later I saw a piece of land in the path of growth right near I5, which runs from Mexico to Canada, and it ran right through me [unintelligible [00:12:40].15] California, and I knew that there was a new Hampton Inn coming in, I was tracking the trends in our area, I’m reading the paper, I’m seeing what’s coming in, I’m seeing what’s the news stuff, and I saw a property that had sat there for some time, right near I5, and it wasn’t worth it, wasn’t worth it, wasn’t worth it, and all of a sudden it was undervalued because a Hampton Inn was coming in, and a commercial strip center on the other side of it.
So bottom line is I bought it for 360k, I took the property that I had paid 6k down, I turned that into 120k, used that as my down payment on the 360k, and sold that three years later for a million eighty.
I took that property that I sold for a million eighty and I exchanged it for my AutoZone in Knoxville, Tennessee, which brings me in 6k/month. So in two steps I bought the house for 6k down, and I took the 120k I made out of the house and bought the property for 360k that I sold for a million eight, and then — actually, there were three steps. And by doing that, I took the 6k into 6k/month for 20+ years. That’s what you can do with real estate, that you can’t do with many other investments.
Joe Fairless: What’s a deal that you’ve done that’s flopped?
Tim Rhode: My two biggest mistakes aren’t that flopped; they’re deals I didn’t do. One of them I had in escrow, it was a 25-unit apartment complex and it was right during that timeframe when everything was going up, and I was really busy and I’m selling a lot of real estate, and I’m buying a lot, and I had this 25-unit under contract and it wouldn’t appraise. I was close to my 30-day contingent period and I went to the seller and asked her if she’d [unintelligible [00:14:27].08] 10% mark, because I was having trouble getting a loan… And the thing is that I had the extra 10%, I was just busy and didn’t really think about it. And she said “No. Why don’t you back out? We have another buyer.” And I backed out.
I think I was buying that for like a million and it was probably worth three million within a few years. So that was one, and another one was the piece of property I owned right near the freeway; I owned it for like seven years, I sold it, I took back a note on it, and six months after I sold it, I looked up and there’s a freakin’ billboard on it. [laughs] Yeah… So I have a note with the guy and I ask him, “Alright, give me the news… How much did you pay and how much does it bring in?” It cost him 60k and he made 2,5k/side. So I would have made my money back in a year and then had the income coming in for perpetuity.
So honestly, I haven’t made too many mistakes with real estate, knock on wood…
Joe Fairless: That didn’t sound like wood, that sounded like glass.
Tim Rhode: Oh, I had a bowl on it.
Joe Fairless: Oh, okay… [laughs]
Tim Rhode: Very good ears, Joe! But those two really stuck in my craw. It’s good to have stuff like that, mistakes that you analyze, and those keep you from making the next mistake.
Joe Fairless: What about on a transaction, what’s a mistake you’ve made on an actual transaction that you either lost some money or lost some time? Outside of those two things where it was missed opportunity, but something more that hits to the bottom line.
Tim Rhode: I sold a lot right at the right time; I would say jumping back in heavily in 2009-2010 up here in Reno, Nevada… If I would have — how can I put it…? If I would have just got off my butt and worked a bit, I could have done really well. But there was a lot of opportunity there, and all over the country, actually. So I’ve just chosen to not play full out in that realm.
Joe Fairless: Okay… Still a missed opportunity, not necessarily a tactical mistake, but I’ll let you off on that one. We’ll keep on rolling. If you think of a tactical mistake you’ve made on maybe a transaction where you’ve lost money on the bottom line…
Tim Rhode: Okay, I can think of one. The same place I didn’t put the billboard, I was the agent when I bought it and I missed that all six units were on one meter, so I was gonna have to pay their electric bill. That one was big.
Joe Fairless: There we go.
Tim Rhode: And what’s funny is I told myself — my wife said “How could this happen?” I said “I know, if I wasn’t my agent, I’d sue me.” [laughter]
Joe Fairless: Is there a way that she could have sued you?
Tim Rhode: [laughs] She did! …nah, I’m just kidding.
Joe Fairless: What is your best real estate investing advice ever?
Tim Rhode: Get in the game, run your hits out. You’re always looking — you’re gonna do it, you’re gonna do it, you’re gonna do it; you’re looking for what’s wrong, and then if you don’t find it, pull the trigger. But I’m in, I’m in, I’m in, and then if I find something that takes me out, I’m out.
A couple others is buy it right or don’t buy at all, and the biggest thing I’d say is two rules – rule number one, always look for win/wins. Rule number two, I’m not a victim. I’m gonna do my homework. And please don’t try to scam me, because why would you? I’m gonna offer so much value to you; I’m gonna find you more than a win/win… But when you guys are out there analyzing stuff, rule number one is always look for a win/win, maybe in a partnership, maybe in a deal, but really do your homework and think “I’m not a victim, I’m gonna do all my homework and make sure everything’s on the up and up.”
Joe Fairless: Good philosophies for life, as well. We’re gonna do a lightning round… Are you ready for the Best Ever Lightning Round?
Tim Rhode: Boom, let’s go, Joe!
Joe Fairless: Alright, let’s do it! First though, let’s hear from our Best Ever partners.
Joe Fairless: Okay, Tim, best ever book you’ve read?
Tim Rhode: The Richest Man in Babylon, I’ve read it 15 times. It’s my financial Bible.
Joe Fairless: What’s one takeaway that you got from it that you applied towards your business or life?
Tim Rhode: I just love how they had the community in ancient Babylon where all the wise people come together, and whether you’re a master or whether you’re a slave, everybody learns from each other. That’s the community we’ve created with 1Life Fully Lived.
Joe Fairless: Best ever deal that you’ve done that’s not your first and not your last?
Tim Rhode: Buying a piece of land right outside of town – not the one I’ve described – that I bought for 50k and sold for 1.2 over like a ten-year period.
Joe Fairless: Did you do anything to it?
Tim Rhode: No, I actually just held on to it and it was land in the path of growth. That goes back to studying trends. They put in a new wing of the hospital that backed up to my property, and the ship came in. I was just kind of waiting for it to come.
Joe Fairless: What’s the best ever way you like to give back?
Tim Rhode: Well, everybody that knows me knows that I run a charity called 1Live Fully Lived. I probably work 60 hours a week on it.
Joe Fairless: And what’s the mission of the charity?
Tim Rhode: To help people dream, plan and live their best lives. Our target is 12 to 21 year old inner city kids, and we have workshops and conferences… We have one with Robert Kiyosaki coming up in 2018, where he’s gonna be with 25 of us, helping us… Robert Kiyosaki, David Osborn and Garrett Gunerson helping people increase their cashflow and play the real estate game better, so we can help inner city kids get theirs.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on or get in touch with you?
Tim Rhode: Join the 1Life Community on Facebook (https://www.facebook.com/1lifecommunity/), check out 1lifefullylived.org, and our YouTube channel, and then you can get a hold of me at Tim@TimRhode.com.
Joe Fairless: Tim, thank you for being on the show and talking about your approach to investing and life in general; the three steps that you laid out, regardless of where we’re at… Step one, if it’s the beginning, then first do an audit of your expenses going out the door, figure that out, and then increase your income. Then two, hit singles, doubles and sometimes grand slams. You’ve certainly described a couple grand slams that you’ve hit. And then three, get into the passive aspect of things. Then you talked about what you look for as a passive investor in terms of the deal evaluation and the sponsor evaluation.
Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Tim Rhode: Thanks, Joe. I really appreciate it. And go get ’em, listeners!