JF1691: Never Holding Any Investments #SituationSaturday with Greg Dickerson

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The title is simple today because the topic is as straightforward as they come. Greg’s strategy when it comes to real estate investing is to never hold any investments. Ever. He has his reasons and even a method to it, hear why he never holds, and what investments he does get into. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“It can make sense to own properties, but what’s the difference between that and a big huge pile of cash?” – Greg Dickerson

 

Greg Dickerson Real Estate Background:

  • Entrepreneur, real estate investor, and developer
  • Over the past 20 years he has bought, developed and sold over $200 million in real estate
  • Started 12 different companies from the ground up
  • Say hi to him at https://gregdickerson.com/
  • Based in Charlottesville, VA
  • Best Ever Book: Principles by Ray Dalio

 


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TRANSCRIPTION

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.

Here is the situation, Best Ever listeners… Oh, by the way, this is Situation Saturday, obviously. We’re doing a situation, and most of the time we do Situation Saturday. The purpose of Situation Saturday is if you come across a situation like the one presented during today’s conversation, you have a roadmap for your situation to help navigate if you choose to use that roadmap.

Today we’re gonna be talking about an investing approach of never holding anything. That is today’s Best Ever guest’s approach, and with that I will kick it off. First off, how are you doing, Greg?

Greg Dickerson: I’m doing great, Joe. How are you today?

Joe Fairless: I am doing great as well. Best Ever listeners, if you recognize Greg’s voice, you’re a loyal Best Ever listener, so props to you. Greg Dickerson is an entrepreneur, real estate investor and developer. Over the past 20 years he has bought, developed and sold over 200 million in real estate. He started 12 different companies from the ground up. I’ve interviewed him on the show before, so if you wanna hear his Best Ever advice, then go listen to that episode. I don’t know which one it is, because it hasn’t aired as of the time that I’m recording this one, but if you search “Greg Dickerson Joe Fairless”, you’ll come up with that episode.

Today, if you find yourself, Best Ever listeners, in a situation where you’re thinking through your short and long-term goals of how you’re going to acquire and build a portfolio and cashflow, Greg’s approach is never holding anything… First off, Greg, do you wanna give the Best Ever listeners just a refresher on your background, and then let’s go right into your investing strategy of never holding anything.

Greg Dickerson: Yeah. The short story is I joined the Navy right out of high school. Prior to joining the navy I had a background in restaurants and construction, so that’s the only two things I’ve ever done. Basically, natural-born entrepreneur. Cutting grass, raking leaves, whatever I could do when I was a kid… So I’ve always had the itch to have my own business, do my own thing. After the military I’ve worked a few jobs; got out of the military in ’85 to ’89-’90 timeframe. I’ve worked some jobs in restaurants and construction until ’97-’98, and that’s when I started my first major company. I was a handyman, remodeling contractor, working for a lot of investors and developers. I did $250,000 in my first year; I built that into about a 30 million dollar company. I sold it all ’04-’05, and learned how to invest in real estate, develop property, and buy, build and sell along the way.

That’s my long story in a short format. Of course, there’s a lot to all that. Like I said, I didn’t go to college, but I am self-educated. I’ve poured into myself through education seminars, training programs, mentors that I had, that I did deals with… I learned by doing, the hard way; I had a few people take advantage of me along the way, but I learned some really valuable lessons that made me what I am today, and enabled me to start a bunch of companies and do some different things that I’ve done in my career… But at the end of the day, I’m a builder, developer; that’s what I am. Whether it’s building companies, whether it’s developing real estate, or building and developing people, which is what I love to do more than anything else. That’s what I’ve done in all of my career, with all of my companies, all of my tradesmen, subcontractors and partners that I’ve worked with over the years. That’s me in a nutshell.

Joe Fairless: So your investing  approach now, now that we have that context, is to buy, build and sell. Is that accurate?

Greg Dickerson: That’s it. And build can be renovate, or it can be ground-up. So those are the two things that I really enjoy doing. I especially love renovating. That’s where I started in the business. But ground-up is obviously much more cleaner, and much more predictable.

Joe Fairless: Do you have any real estate in your portfolio right now?

Greg Dickerson: Yeah, I do. When I say I don’t hold anything, that’s long-term. I have this discussion all the time with investors. My situation is different than your situation, and it’s different than the Best Ever listeners’ situations. You’ve gotta know yourself, first and foremost, what your wired to do, what’s in your DNA and what you’re the best at, and then you’ve gotta understand what your end goal is and your strategy is. We’re all after passive income, right? So for me, passive income can mean owning a business, which I will hold businesses long-term, and it can mean cash, because cash can be passive income. So our lives are finite, which means we only need a finite amount of cash to live.

When I first started out, I don’t even know why, but I had a number in my mind that I wanted to get to, that I knew would take care of me the rest of my life… So I worked as hard as I could in my early young years, seven days a week, 24 hours/day, achieving that financial goal. When that number was taken care of, I didn’t have to do anything else ever for the rest of my life. So to me, that was my passive income goal. I knew I had enough cash to take care of me the rest of my life; that was my main goal. So anything beyond that was just for fun, and the excitement of doing the deal… I love to stay busy and do deals. I don’t even know why; it’s just how I’m wired, it’s just my philosophy, and the way it is.

So at any given time, I will own  real estate, because you have to own it while you’re doing the process, but my model has always been to buy it, and renovate it, lease it up, and then sell it, or build it from the ground up, lease it up and sell it. So there is a holding period along the way when you’re doing that, but I don’t like to hold anything any longer than I have to.

Joe Fairless: And what about the philosophy of buying it, and then when you perform on it, real estate is on your side, because you’re paying down the loan, and markets appreciate, you get cashflow… And people never sell, because they will then have to pay long-term capital gains, unless they 1031, and then eventually they’ll have to pay it, unless their kids don’t ever sell, and their kids’ kids don’t ever sell. Because there is that school of thought, and it goes against what you’re talking about, where you buy, you build something up or you renovate something, and you sell, and you’re constantly churning.

Greg Dickerson: Exactly. I do get that, and that does work for a lot of people, but I have some advanced tax strategies to where if you do things in a self-directed IRA, Roth IRA, then you’re not taxable on that gain. There’s also some really cool vehicles coming around this year with opportunity zones, where you can defer capital gains into that, and grow that, and grow a big gain that’s tax-free… So there are some strategies you can use to minimize taxes. On the developer side, I’m classified as a dealer, so it’s ordinary income tax for a business, so I don’t pay gains tax on the stuff that I do, because it’s inventory. So I’ve always been classified as a dealer, I’ve always been classified as having inventory, because I’m selling units, whether it’s lots, or houses, or whatever it is… So I don’t get hit on the gains side. And if there is anything that’s gonna be classified as a gain, then I can run that through an IRA, and not have to worry about that.

And then, of course, there’s the 1031 strategy, which I’m not a fan of, but it’s a good vehicle that a lot of people have used over the years. You can do reverse 1031’s, and things like that… So there are some strategies you can use to minimize taxes. For me, the school of thought — and I’ve only been during my career through one crash, and that was 2009. So everything you’ve just said for, that are all the great reasons to hold real estate, proved true prior to 2009. In 2009, those rules didn’t always apply. A lot of people lost everything they had because all the properties were now all of a sudden worth a lot less than they were. And the problem with a lot of commercial real estate is that it’s a lot of bridge and short-term debt; you never know where interest rates are going, as we’re seeing right now… And it’s kind of good and it’s bad.

So the free money that the Fed pumped into the economy has driven cap rates down on properties to unbelievably low levels, because their money was basically free, right? So the institutions that were loaning on those assets before are now the buyers of those assets. So what’s happening now is with the Fed — since they’ve used up on that and they’re not doing the quantitative easing anymore, interest rates are now rising, they’re trying to suck that liquidity back out of the market, so now cap rates are going to start going up again, because there’s gonna be a lot of assets hitting the market that need to be refinanced, that aren’t gonna make any sense 3-5 years from now; so there’s gonna be some opportunities there.

I’m very cautious, and I’ve worked very hard to put together what I’ve been able to put together, so for me, I’m always mindful that real estate doesn’t always appreciate, that it can be cut slam in half, if not even worse, depending on what’s going on in the markets… And you can’t always raise rents, and you can’t always fill vacancies, and you can have any number of things happen. But cash – you don’t have to evict, you don’t have to collect, you don’t have to chase down, you don’t have to ensure… Cash is king. If  you’ve got cash, you make the rules and you’re ready to strike when the iron is hot.

Joe Fairless: So with holding a significant amount of cash – pros and cons to that… Pros – what you’ve just said, you can strike when there’s an opportunity. A con is if you’re sitting on cash and it’s not making any money, then inflation is eating away at it. Any thoughts on that?

Greg Dickerson: Yeah… Potentially. And the dollar could lose some value, and there’s a school of thought out there that at some point the dollar is gonna lose significant value, if not become worthless… But that was if the Fed didn’t stop doing what they were doing. So with the Fed raising interest rates, they’re putting inflation in check.

I’m 51 now, so I just really don’t feel like in my lifetime, or your lifetime, we’re ever gonna see another 1970, where you’ve got double-digit interest rates, and lines at the gas station, and things like that; I just don’t think we’re gonna see that. I think what we can see is we’re gonna see a significant drop in the equities market at some point; there’s a little bit of an over-inflation there.  But as far as general, everyday inflation that you and me and everybody else feels – I just don’t think we’re gonna see significant enough of that in our lifetime to really be able to impact cash.

Joe Fairless: And there is a level of comfort, I believe – I’ll just speak personally; I have a personal level of comfort if I think about my investments as investments that I’m continuing to — if I’m selling, then I’m gonna 1031, so that I’m building a portfolio and I’m not having to constantly rinse and repeat and start from scratch. So is there any credence to that? Because with what you’re talking about – buy, build and sell, it sounds like that’s more of the “Buy, build it, renovate it, then sell, and then get out of there, get the cash, and then go do something else.” But in my mind, just as someone who’s looking to build a portfolio and have it scale and compound, that approach isn’t aligned as much as what I would wanna do. Any thoughts? And who cares about me personally, but just — there might be other people who think “Well, I want to acquire one, and then just build on that, versus constantly having to start over.”

Greg Dickerson: Exactly. And if you want to do that, you kind of have to do that. So if you wanna accumulate a number of assets, then hey, that’s a great model. So my model isn’t for everybody; it’s just kind of how I’m wired, and it’s kind of the same thing. The only difference is I’m building on the momentum of cash, versus building on the momentum of property. So for you to build a portfolio and get bigger, which is obviously — there’s two ways for you to scale… More properties, or more bigger properties, or both. In order to do that, you’ve gotta have some in order to keep going, because once you start growing and scaling, in order to be bankable and to raise the equity, you’ve gotta have a portfolio for people to have confidence in you and to provide that capital. So that makes absolute sense for what you’re doing.

If you’re holding those things for 20-30 years, then ideally they get paid down if you’re not refinancing and pulling equity out all along the way as you go… And there’s a school of thought there. I’ve done that in my career. I’ve refinanced, pulled equity out, and then sold on the back-end; another way to reduce taxes on assets. I’ve done a little bit of that as well. But there are some very, very wealthy people, and of course, institutional funds are going out and paying cash for these assets, and parking capital. So maybe at some point it can make sense to go ahead and just buy those things or pay them down and you own them, and when it’s time to hang it up, you’re done and you own all these properties outright… But what’s the difference in that and a big, huge pile of cash that you keep compounding? Do you see what I’m saying?

Joe Fairless: Yeah, I hear you.

Greg Dickerson: So it’s kind of the same thing; the only difference is my vehicle is the cash. So when I sell that deal, all my equity is coming out, that can go into a bigger deal, and then that goes into a bigger deal. Now, if you’re lucky enough, you could end up with a problem like Warren Buffet. Warren Buffet says “Hey, my problem is I can’t find deals big enough. I have to move billions to hundreds of billions. I can’t move a few hundred million. I don’t think I’m gonna have that problem, but that’s my philosophy – compound the cash, take the cash, make that work, versus the asset scenario… Because for me, in my career, in my track record and what I have done, that’s just kind of my fastball.

For you, and people that are doing what you’re doing, your fastball is continue to find the buildings, go to bigger buildings, and then continue to keep that momentum going down the road. That’s your fastball, because that’s where you’re at and what you’re doing… And again, I just started out as a builder, and that was the road that I went down, and that’s just kind of my world. It’s really interesting, you’re just kind of born into something, and a lot of times it’s just what you do.

Joe Fairless: Anything else that we should discuss as it relates to your approach on compounding the cash by never holding anything that we haven’t talked about already?

Greg Dickerson: I think we’ve pretty much covered it now. So there’s a risk. With real estate you have a risk. The place can burn down, you can get some down-zoning, you can lose your tenants, the political climate can change, fair housing laws… A lot of states are becoming tenant-friendly, landlord-averse… So there’s a lot of risk to owning a piece of property. It probably can never go to zero, but people are always gonna need a place to live… But there’s risk inherent with owning any kind of an asset, legal and otherwise.

When you own cash, really the only risk you have is being outpaced by inflation, or the institution that you have your cash in failing, which you’re insured to the FDIC level, but you’ve gotta spread that out a little bit, so there’s other vehicles you have to put larger sums of cash into… So there is risk there, that could potentially – if a bank fails and your cash is in there, you could potentially get wiped out and have no recourse, and/or who knows with cyber-theft what could happen to a banking system, or how long it can take you to get your cashback.

The other disadvantage to portfolio properties is they’re illiquid, whereas cash – you have immediate liquidity. That’s one of the advantages of the equity markets; stocks are very liquid, but stocks can go to zero.

So I would say that would be the only other angle to look at in terms of how you’re wired, and at my point in life, and the things that I’ve been through, including 2009, I’m very risk-averse. And the people that I know that made it through 2009 unscathed, they weren’t very leveraged, and they didn’t have a lot of equity tied up in their properties, or they owned them outright. The ones that were leveraged and had a lot of equity — so if you have equity in and guarantee the debt, that’s a bad place to be when 2009 happens. But if you have no equity in and you’re not guaranteeing the debt, it could be a good place to be… Because it’s the guy that says “Hey, I can’t sleep at night. I owe the bank a million dollars.” Well, the guy that owes the bank 500 million dollars sleeps extremely well, because that’s his partner, and they’re not going anywhere.

So the bigger you get, the more insulated you can be to an event; too big to fail, right? So that’s another thing that could be an advantage for you in scaling. The bigger you get, the more you owe the banks, and the more properties you have, the less likely it is they’re gonna let you fail… So that’s another side of it.

That would be really the only other thing. And again, I’m not saying my way is the best way, or your way is the best way… You can just kind of look at what’s out there and what people are doing. There are proponents that like to pile cash and put it in other vehicles that are less risky, or more risk-averse, and then there are those of the world that accumulate real estate and just build that and build that, and both models work. I don’t think one’s better than the other. I think you’ve gotta understand how you’re wired, what your talents are, what you’re the best at, and what your risk tolerance is and what you wanna do.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you?

Greg Dickerson: My website is gregdickerson.com. All of my contact info is on there. I can be reached at 434-326-3903. I’m in Charlottesville, Virginia, outside of DC, and always excited to talk about real estate investing, and the debate of buy, hold or sell. It’s always an interesting conversation.

Joe Fairless: Yeah, and you have opened up my mind to your approach. Very interesting. Some things you mentioned that will help reduce taxes with your approach – self-directed IRAs, 1031’s, opportunity zones and refinancing, then selling later. Those are four ways. I appreciate you being on the show, I appreciate you talking about your approach. I hope you have a best ever weekend, and we’ll talk to you soon.

Greg Dickerson: Thanks for having me. You as well!

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