JF2020: Private Lending With Joey Mure

Joey is a partner at Wealth Without Wall Street, a financial advisory firm. He is from Birmingham, AL and started off his career in the mortgage business in 2003 learning how to become an underwriter and eventually started to see a niche of opportunity to lend money to individuals who didn’t qualify under the mortgage guidelines. He shares the pros and cons of private lending and also shares a unique deal he did with an auto loan. 

Joey Mure Real Estate Background:

  • Partner at Wealth Without Wall Street, a financial advisory firm
  • Started career in the mortgage business in 2003 
  • Became branch manager and led 25 loan officers, gaining national recognition by 2010
  • Based in Birmingham, AL
  • Say hi to him at http://www.wealthwithoutwallstreet.com/home/ 

Best Ever Tweet:

“In terms of a lending perspective, think like a lender, make sure you’re covered and get creative.” – Joey Mure


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. With us today, Joey Mure. How are you doing, Joey?

Joey Mure: I’m doing great, Joe.

Joe Fairless: Well, I’m glad to hear that, and looking forward to our conversation. Joey is a  partner at Wealth Without Wall Street. He started his career in the mortgage business. In 2003 he became branch manager and led 25 loan officers, gaining national recognition by 2010. Based in Birmingham, Alabama currently. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joey Mure: Yeah, Joe. Thanks for having me. My background and being in mortgage – I realized that there’s a  lot going on behind the scenes. The banks make tons of money off of our need for finance, and I realized that I was doing a lot of things wrong in terms of my own personal finances, just from giving up unnecessary cashflows to other people, always paying down debt, always paying taxes…

There’s a number crazy things that I was learning, and I started implementing some of these things myself, that I was learning from a mentor and a coach… And about four years in that personally, I really saw the trajectory of my family’s finances going the way that I wanted, and I said “Man, this is exciting stuff. People need to know this.” I was at a conference, looking around, and there was only about 300 people in the room that were people that are certified to talk about these things, to teach these things… And I said “Man, there’s just not enough people doing this. Why don’t I do this?”

I was at the pinnacle of my career in mortgage, I enjoyed what I did, but I knew that I could have a much greater impact if I could help people implement the same things that I was doing. So in 2014 I transitioned to work with my mentor at the time, Russ Morgan; I think you interviewed him actually, Joe… And we started Wealth Without Wall Street to share this message with the rest of the world. So that’s what I’m doing now.

Joe Fairless: Okay. And with your background in mortgage, and you have a track record with private lending… Can you talk to us about that?

Joey Mure: I worked at one of the nation’s largest lenders, so I got trained to think like an underwriter. You don’t submit an application with somebody that you think “Oh, this person’s never gonna get approved because of this, this and this.” The collateral, the borrower, the credit… You start looking at things in the light of an underwriter.

So when I got out of the mortgage business, I was sitting on a lot of cash. We talk about usually life insurance as a vehicle for funding… I was sitting on all this cash value in my policies and I said “Man, what do I know the best? I understand the lending process.” And it was weird though, because I had never really thought about it in light of that, like “I could be the lender.” Then someone came to me and they said “Hey, somebody just came to my office and they need a private mortgage, because they don’t fit the criteria of a traditional loan.” I said “Really? I’m sitting on some cash…” They said “Would you wanna partner with me on this mortgage? They’re willing to put down 20%, and I told them that we’ll charge them 10% on a 15-year note.” I said “That sounds awesome. I’ll do it.” So that’s kind of my entree into private lending, and I learned some good things, some bad things along the way, but that’s how I got into it.

Joe Fairless: Okay. Well, natural question next – good things and bad things.

Joey Mure: The good thing was this was a really low-risk situation. It was 20% on a piece of collateral… I got an appraisal done, I knew what the value was — in fact, it was here in Birmingham, so I could drive by it; there’s a physical collateralized asset there, and that was great. Their payment history was great, so I  knew they’d pay on time. It was consistent cashflow… And it put money at work that was just sitting there idle up to that point. So those were the good things.

It had obviously a note, and a mortgage and all that stuff backing it up. I was the loss payee on their insurance policy… So I had all the things in place to protect me. The bad thing was I realized money in a velocity sense is way more important than money just growing at 10%.

Joe Fairless: Will you elaborate on that?

Joey Mure: Yeah. What I mean is I had — at the time, I guess that was somewhere around 75k of my money sitting in  a deal that as I grew this business, I realized “Man, I could be growing my business with a lot higher percentage than 10%, if I had access to that money back.” And here I was, I was committed to a 15-year note. So if they had held on to that note for 15 years, I’d realized that my goals changed. I didn’t want just the money growing, coming back to me at 10%; the access to my money was a lot more important, and it being tied up for 15 years… Gratefully, they paid me off in less than two years, because the interest rate was high enough that they were like “Well, I could refinance now… I’m in a different position.” And they did, so I got my money back.

Joe Fairless: And will you just take that one step further on why is access to your money over those 15 years more important than making 10%? Because some people might hear “Well, 10% per year (like your initial reaction was) for 15 years… That sounds great.” So why is that worse than the alternative that you’re talking about, where you have access to it?

Joey Mure: Well, let me say this – everybody’s goals are gonna be dependent on where they’re headed. And that’s what is so important. If you put into your GPS you have a destination, then you know how to get there. Well, in my position, I realized I was growing a business, and the business was the asset that was going to produce a much, much higher return than 10%. But I didn’t see that at first, so I tied up my money at 10%, thinking “Oh, this is a great deal”, and it was… Until I realized “Man, if I just put in that 75k into marketing, or into hiring a new assistant…”

For instance, in the last year we hired an executive assistant, and that money was far less than 75k, but it’s going to turn into hundreds of thousands of dollars in 1) a tech strategy we implemented, 2) we’re doing some land flipping now that’s gonna be very profitable, and she’s helping us with that… She has helped me to be way more efficient… We always talk about time as money, but when you look at what money I have could be helping me to grow my business, the ROI on that is far, far higher than just the 10%. Does that make sense?

Joe Fairless: It does.

Joey Mure: That’s what I was really kind of realizing within two years of having this money tied up in a mortgage. I was like “Man, I wish I had that money back”, and then lo and behold, they refinanced, so it was a blessing in disguise.

Joe Fairless: Okay. So is that a combination of the good and the bad that you recognized, with the private lending?

Joey Mure: Let’s say that I was in a different position than I was. Let’s say that I was in a regular job, or I had a business that was already really off the ground, and it was mature, and all these things… Then having just 10% working on the side, and money that would have been otherwise useless would be  a great thing.

I’m not saying that a 10% private mortgage is a bad thing, I’m saying for me where I was it was holding me back from potentially 100%, 200%, 300% ROI on my own business. So it’s kind of the way that that works, and I had three outstanding at the time; two of those refinanced back, and then the other one finally came back recently.

Joe Fairless: How many years into it?

Joey Mure: That one was three.

Joe Fairless: So all pretty short-term… Because it’s 10%, and once they can qualify for a mortgage rate, then they’re gonna do it, right?

Joey Mure: Yeah, gratefully they had that motivation. Otherwise I may still be waiting on that money.

Joe Fairless: So basically it’s looking at – in anything that we do, especially investing-wise – the opportunity cost. It’s 10% per year – great. 15 years locked up. Wonderful security for 15 years. But are we building a business on the side, or do we have alternative ways of generating that type of cashflow or greater with that level of safety? And then we just make a decision based on our goals, “I’m okay with a little bit more risk, so let me go this direction”, or “I want more safety, I wanna lock it in for 15 years. Let  me go this direction.”

Joey Mure: Exactly. And I can tell you, I learned through that I needed to go more short-term, so I actually did an auto loan shortly thereafter. Within a year or two after that I still was growing the business, and I had somebody come to me that had heard about the mortgage that I’d done, and they said “Hey, by the way, do you do auto loans?” [laughter]

Joe Fairless: Really?

Joey Mure: And I was like, “Never have… But tell me what you’re thinking.” And that would actually end up being a really good win for me, because I started thinking differently… And I said “Man, I’ll do it for a year.” He said “I’ve got this Suburban, and it’s owned free and clear.” It’s like a 30k vehicle. He said “All I need is 10k, because I need to get back on my feet on some things. I’ve gotten behind on some bills… It’s worth 30k. Here’s the title,  it’s free and clear.” And I said “Man, that’s good collateral against a 10k loan… But then I said “Okay, tell me what’s important to you.”

I knew cashflow was tight, so I set it up on just a minimum $100/month interest-only. I said “But in six months I’m gonna go up to $200/month.” So I’m trying to give him an incentive to pay me off early, to get my money back. Again, I learned a lesson there… And then I said “But when you pay me back, you’re not gonna pay me back 10k, you’re gonna pay me back 11k. And it’s like a lump sum. Use that increased pay-off.”

He said “Well, that sounds great”, because he was actually  a real estate agent, he was in the hardest part of the year, like around this time of the year (in December), and he said “I’ll have the money come spring-summer-fall, whenever the real estate market ticks up.” And sure enough, he paid me off. But the ROI on that was 26%. Even though I had that really small payment, it worked really well for his cashflow, and he was happy to do it. In fact, he came back to me and said “Hey, would you do that again another year?” So I did it two years in a row.

Joe Fairless: Was it a 10k loan for a vehicle?

Joey Mure: Yes, just against his current —

Joe Fairless: Right, but what was he using the 10k for? Another vehicle, or something else?

Joey Mure: No, just to catch up on bills and other things.

Joe Fairless: Alright, got it.

Joey Mure: Yeah. But then he paid me off, and then he called me back about two months later and he’s like “Hey, do you wanna do that loan again?”

Joe Fairless: What did you say?

Joey Mure: I said “Yeah, absolutely.”

Joe Fairless: Is that full-circle as well, or is that in the middle?

Joey Mure: Yeah, both of those have been paid back.

Joe Fairless: Okay.

Joey Mure: But then I had come a long way in the business and I realized it was a good learning opportunity… But I said “But man, I actually need to really focus in on where my ROI is coming from”, and it was from the business.

Joe Fairless: Yeah…

Joey Mure: But it was a great opportunity in the meantime.

Joe Fairless: Thank you for sharing that. I don’t think we ever talked about auto loans in 1,900+ interviews on this show, so thank you for that. What paperwork is involved with an auto loan?

Joey Mure: So it was really just a simple note that I had to just agree to on paper. It had to be added to his title. You’re essentially writing that in and then sending it in. Then I was added to his loss payee on his auto insurance, so he had to show me his declarations page and show that I was the named beneficiary if something were to happen and he had to claim it on insurance. And besides that, that was really about it. So it’s pretty simple. I actually had an attorney just draft up a simple note, and we just kind of went from there.

Joe Fairless: And being added to the loss payee on the auto insurance declaration page showing that – that’s if he were to claim a loss… Like if the Suburban were to go away magically one day, and he’s like “Someone stole it” and you’re out of Suburban, then you would get the insurance claim, not him, right?

Joey Mure: Well, I would get paid back.

Joe Fairless: You would get paid. Okay, so how did you think to add that in there? Because someone might not think about that, myself included, if someone said “I’ll do an auto loan.” And I probably wouldn’t do an auto loan, but it’s interesting… And if I did do it, I would do a note, and then I probably would think about being added to the title, but I might not think about the insurance thing.

Joey Mure: Yeah… I think what happened is my background being in mortgage…

Joe Fairless: Oh, right…

Joey Mure: I always had to think like a lender, and they’re always concerned about “Well, how could this money go away from me? What are the potential risks?” And if he were to total the car and didn’t have insurance – well, how was I gonna get the 10k that I owed? Now I have a worthless asset that I can’t get the money back, and I have no way to go back to him except for go to his personal credit, or whatever… So it really just gives you that second layer, that if something happened, I’m gonna get paid back.

Joe Fairless: Anything else that we haven’t talked about as it relates to private lending that you think we should?

Joey Mure: I think the main thing is just like that – if you can put on the hat of thinking like the lender… That was one thing. The second thing that I would say is get creative with the way in which you structure a deal. We had another client of ours in the community the other day. She said “Hey, one of my friends is looking to buy a commercial piece of property, and we wanna do the loan on it… And this is what they’re looking for. They want to do the loan 100% financing on a commercial piece of property.”

I said “Number one, that’s probably not a good idea. You don’t have any skin in the game from the person that’s buying it. They don’t have any money to lose, they could walk away from it any time. But what if you’re confident that the value is far greater? Then maybe there’s something there.”

So we started talking about that, we started talking about “Well, what if we set it up as interest-only payments versus amortized payments? How are the leases on the property? Are they six months, are they twelve months, are they longer?” There’s different values that you can put on different aspects of the deal, so we started thinking creatively, just like we did on that auto loan. If he went and took a title loan company, which is what his options were besides me, he would have probably had to pay $800/month, because they would have just done it on a simple amortized loan of 12 months, for $10,000, right?

But I said, “Man, his biggest need right now is cashflow, so let’s just do it as a really small interest payment, and then have him pay back more whenever he has this lump sum within a year”, and it just turned out to be really profitable for me. By hearing what was important to him, what he was working with, and then structuring the deal to be beneficial to him, it was a win/win.

Joe Fairless: I like that a lot. There are lessons that we should definitely apply towards our business – “we” meaning real estate investors – for sure. Think like a lender, because most likely a lender is gonna be involved, so you might as well start thinking like him, and proactively address things… And then get creative with how you structure deals.

Joey Mure: Yeah, and think about it from that lender’s perspective. You’ve got folks listening to this right now that are going out to maybe get their first private lender… If you’re thinking about it from their side – which, really that’s all of life. If we’re always thinking about how other people are considering what we have to say, then we’re gonna communicate that much better.

If you’re talking about “Man, I just wanna make sure you’re covered in this, so I wanna make sure that we add you on the title, on the deed of this property… You’re gonna be in first lien position…” If you give them the things that they wanna hear, they’re gonna be much more comfortable lending you the money, than somebody that says “Hey man, I promise you I’m gonna get the money back”, and you’re not speaking their language.

This is a great way to walk into that conversation and make sure that you’re set up for success to get that private lending in place.

Joe Fairless: What’s your best real estate investing advice ever?

Joey Mure: I guess I would say I’m not gonna be your best real estate advisor, because I’ve actually done terrible things, like bought a condo that floods all the time, and all this kind of stuff… So don’t take my advice on that. But in terms of a lending perspective, we’ve already kind of covered it, but think like  a lender, make sure you’re covered, and get creative.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Joey Mure: Yeah, let’s do it.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:18:18].00] to [00:19:08].05]

Joe Fairless: Best ever resource that you use for your business to stay up to date with the industry? News resource,  or something like that.

Joey Mure: Well, I’ll say this – the way that I stay current is doing our podcast. Continuing to hear what other people are doing, and staying close to the trends. I’m learning from all the people that I’m interviewing, and that’s helping me to stay current with our audience.

Joe Fairless: Best ever way you like to give back to the community?

Joey Mure: I’ll tell you the most recent thing… My wife and my five girls and I went and handed out dinners to shut-ins at Thanksgiving. So the people that couldn’t get to the homeless shelter – they allowed us to be a part of distributing those meals to them, their elderly or shut-ins. That was a really cool experience for our whole family.

Joe Fairless: What’s the best way the Best Ever listeners can learn more about what you’re doing?

Joey Mure: Our website is number one, wealthwithoutwallstreet.com. The community that we have –  you can find out more there, at community.wealthwithoutwallstreet.com.

Joe Fairless: Thank you so much for being on the show, sharing your advice on private lending, a couple lessons learned, and some things that we can apply in our real estate business… Put on the hat of thinking like a lender, and get creative with how you structure deals; in particular, think about what the other side is looking to accomplish, and then approach accordingly.

Thanks so  much, Joey, for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Joey Mure: Yeah, my pleasure, man. Thanks again.

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JF2013: Five Ways to Get Out of Your Boring Job With Michael Alan Tate

Michael has been in career advising and business consulting for about 25 years now. Before he found his calling he was at a job he was good at but no longer had any passion for and in fact, was making him depressed. Michael went to a career counselor in search of some help because he wanted to find something different and all that did was make him more depressed because they had him apply to 150 jobs and he only had one response. He later realized it wasn’t him or his resume per se but his strategy on how to find work. He shares five solutions he uses to help many of his clients during transitions to find careers that bring them fulfillment. He also shares an amazing tip on how to network instead of the old-fashioned way.

Michael Alan Tate Real Estate Background:

Best Ever Tweet:

“Ask for a job, and you will get advice. Ask for advice and you will find a job. ” – Michael Alan Tate


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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Michael Alan Tate. How are you doing today?

Michael Alan Tate: I’m great. Are you doing alright, Joe?

Joe Fairless: I am. Yup, looking forward to our conversation. Today, Best Ever listeners, Michael is going to get into the top five challenges people face when considering a career move. He actually has a book that just came out called The White Shirt: How to Find a Life-giving Career at Any Stage in Life. He’s the president and CEO of On The Same Page Consulting. Based in Birmingham, Alabama. First, do you wanna give the Best Ever listeners a little bit more about your background? And then let’s dive right into the five challenges.

Michael Alan Tate: Sure. I’ve been in career advising and business consulting for about 25 years. When I first got into my career years ago I made all the mistakes that you make when you try to change a career. I was in one that I was pretty good at, but I just hated it… And I went to a career counselor. I was depressed when I went there, and after I met with the guy I got a lot more depressed. He’s [unintelligible [00:02:10].17] resumes, told me I should be in HR.

I got one response back, and I thought “What in the world is wrong with me? I’ve got all this education and I can’t find anything?” I realized sooner rather than later that it wasn’t me, it was my strategy for finding work. I’d chosen the world’s worst strategy to find a job, which is using resumes and mailing them out, and all that sort of thing.

So I kind of said to myself at that time [unintelligible [00:02:36].09] turned into a calling, and I thought “I’m gonna do something so people don’t go through what I had to go through in finding a job, or work, or those kinds of things.” So that’s how I got started in this work. That’s really the essence of it all.

That’s what I’ve been doing ever since – helping people find their place in the world, and doing it in kind of a… My book says “a life-giving career, and doing it in a life-giving way, so you don’t get depressed”, and all that. There’s a good way to do it and a bad way to do it, and I teach people the good ways, and kind of coaching them through that stuff.

Joe Fairless: Well, let’s talk about that. I’ve transitioned from the advertising industry into commercial real estate, and a lot of people — I mean, we’re all evolving human being, so we’re always going through different stages in life… And this will be very helpful for a lot of listeners. So what are the five challenges that people face when considering a career move?

Michael Alan Tate: Yeah. Well, the first one is there’s three questions that you have to answer, in my book, in anything that you do. The first one is “Who am I? What are my skills, what are my talents? What are my abilities?” The second one is “Where is my place in the world?” and the third one is “How do I find it?”

Most people start with “How do I find it?” They just throw together a resume and start sending stuff out, but they don’t take the time to sit down and say “So what makes me tick? What are the things that make me feel alive? What are those subjects I love to be around?”, that kind of always give you those hints of where you need to go…

Then one thing I have everyone do, no matter what age they are, is to draw out a family career tree. All the careers that you have been associated with over your lifetime… Because your parents really affect how  you think about your career; not that you’ll go into that career, but there’s usually a link there somehow… So that’s one of the first things I have people do – take time to look back at  yourself and say “Who am I? What do I really want?”, because most people never really take the time to take that kind of reflection and do that.

So that’s the first thing most people do, is they get out there first, like “I’ll get my brochure together before I have my business plan.”

The other mistake that people make is they try to do their career change alone. You went through a career transition, right Joe?

Joe Fairless: Yeah.

Michael Alan Tate: It’s pretty lonely out there, when you’re hearing a bunch of no’s, and you’re getting a bunch of resumes coming back… So one of the keys to making job search work, in my opinion, is always having somebody to do it with you, and that’s why I wrote my book. It’s designed to actually be done with another person to help you get through those tragedies, those ups and downs and emotions when you have any kind of change like that.

The other thing is people try to do a shotgun sort of approach. Instead of using a resume, I have people develop a plan, a one-page plan that says “Here’s my current situation, here’s my background, here’s actually where I think I’d like to work – geographically, what kind of industry, what would the culture be like in the organization that I would work in… And then here are my skills and things I love to solve”, kind of on the left-hand side of the page; on the right-hand side is a list of organizations that might be places you might like to work.

So the secret of jobs searching, the key to everything is taking a plan and never asking anybody a job opening, never asking them if they know anybody that’s hiring; you simply say “Here’s my plan, would you give me some advice?” That’s different than networking, as you hear people say “Just go out and talk with people.”

What happens is you get there and they say “What do you wanna do?” “I’m not really sure…” And the guy is looking at you going like “I’m not a career counselor, I can’t help you with this side.”

Joe Fairless: [laughs] Right.

Michael Alan Tate: So the underlying theme of the book is ask for a job and you’ll get advice, ask for advice and you’ll find a career. Those are the pieces and the slips that people make. The answer in all this is it’s like any business; it doesn’t matter what it is, have a plan first. Then share your plan with other people, and… I mean, I do this with organizations, as well as individuals. It’s all the same process; put together a little strategy and just share it with people.

A buddy of mine is in non-profit work and he says the same thing about it. He says “Ask for money and you’ll get advice, ask for advice and you’ll get money.”

Joe Fairless: Yeah, I’ve heard that one.

Michael Alan Tate: You know what I’m talking about. So that’s the same principle of that. Anyway, those are some thoughts there, Joe…

Joe Fairless: Okay, so I’m taking notes, and as I’m going through this I wanna make sure I have them all written down and recapped… So one is ask “Who am I?”… So these aren’t really challenges people face, which is actually better; you’re giving solutions of  how to do the path, which is even better than — who cares about the challenges, let’s talk about the solutions…

Michael Alan Tate: [laughs] Right, right.

Joe Fairless: So the first is “Who am I? What is my place? How do I find it?” So really doing a self-assessment of what I want.

Michael Alan Tate: Right.

Joe Fairless: Second is having someone to go through this process with me, because it is an emotional event. Third is create a one-page plan so that you know what you’re trying to solve… So what are a couple other pieces of advice you’d have for someone?

Michael Alan Tate: Yeah, one of the hard things that people have — there’s two things that you need to realize when you’re doing a job search. A career is really just wearing a hat, a job title, and standing in a field/industry. You wear the hat — I don’t think you’re in sales anymore, are you Joe?

Joe Fairless: No.

Michael Alan Tate: But you were in a position, you were standing in this field… So what do you wanna do? You need to be able to describe, “Well, I’d like to either stand in this field or wear this hat. So I wanna be in sales, or I wanna wear this hat. I wanna stand in this field of real estate, or aerodynamics, or airlines”, or something like that… And people say “Should I follow my heart when I’m looking for my career?”, and I have to tell them to follow their ears… Because there’s certain languages that we innately love to be around. If you really take the time to think about that – you need to start thinking about the stuff you read, and the things you love to be around, and finding those things, those languages you love, because your interests will lead you to the industries that you would do well with.

I don’t know how you got from advertising to who you are now when you were talking about that, but those kinds of things – I’m sure you just had some kind of interest in that particular field… And understanding what that is, that’s another piece I would throw in that people need to do and think about.

Joe Fairless: Anything else that you think is relevant to talk about as it relates to making a career transition that we haven’t talked about already?

Michael Alan Tate: No, I think that’s pretty much it as far as the key points that I keep people focused on, to do that sort of thing.

Joe Fairless: Well, this has been very helpful. Thank you so much for being on the show, and talking to us about  different tips for making a career transition. I summarized them just a little bit ago, so I won’t go into the summary again.

How can the Best Ever listeners learn more about what you’re doing?

Michael Alan Tate: Well, my website is MichaelAlanTate.com, and my book is called The White Shirt. You can find that on Amazon, but there is a website for the book called TheWhiteShirtBook.com. On there you will see samples of plans that people have used to make career transitions. There’s actually a free gift for podcast listeners, where you can download a sample workbook that helps you work through that process; even if you don’t buy the book, I offer that to people. And there’s several more videos and tools on the website that people have found useful as they’re trying to consider what they’re gonna do with their next move in their life.

Joe Fairless: Outstanding. Well, thank you so much for being on the show. I hope you have a wonderful, best ever weekend, and we’ll talk to you again soon.

Michael Alan Tate: Thanks, Joe. I appreciate it.

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JF1998: Changing How You See Life-Insurance With Russ Morgan

Russ’s goal is to teach people how to build wealth without wall street. He shares the first step to building his client’s wealth by looking at the five pillars; Building cash flow, Cash Value, Real Estate, Business, and Lending. Russ will change how you see life-insurance when most people have the Walmart shopping mindset of paying as little as possible with the hopes of big returns, he suggests the opposite and explains an old secret in Whole Life Insurance. 

Russ Morgan Real Estate Background:

  • Started career in the financial industry, just to be in shock when the DOW Jones plummeted 800 points in 2008
  • Now Russ, with his company Wealth Without Wallstreet, helps clients invest their money in something safer, develop financial strategies, and plan for retirement
  • Based in Birmingham, AL
  • Say hi to him at http://www.wealthwithoutwallstreet.com/

Best Ever Tweet:

“An Insurance Policy when somebody pays a premium, I kind of refer to it more as a deposit. When that money goes into an insurance policy, it’s going to have to buy life insurance.  ” – Russ Morgan

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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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Russ Morgan. How are you doing, Russ?

Russ Morgan: Joe, I’m great, man. Thanks for having me on.

Joe Fairless: I’m glad to hear that, and it’s my pleasure. A little bit about Russ – he started his career in the financial industry, and then was in shock when the Dow Jones plummeted 800 points in 2008. We all remember that.

Now Russ with his company Wealth Without Wall Street helps clients invest their money into something safer, develop financial strategies, and plan for retirement. Based in Birmingham, Alabama. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Russ Morgan: Yeah, Joe. It’s funny when we read those bios… It says “Shocked when the Dow dropped 800 points.” Now it’s just a common occurrence. We’re not longer shocked by that; that’s become normal. Our kids would read that and be like “Well, the Dow does that every other month.”

So yeah, I came from the traditional financial planning background. I was a CFP for many years, and I kind of learned (I guess) the wrong way to do things. It was not the best way to do it, but you’ve gotta learn one way; you can borrow and pay retail, and I paid retail, like a lot of other people.

Then thankfully, I started to think back to a lot of the clients I was helping, whether they were being successful, that they were being successful in things that they understood, not in areas that they didn’t, and that kind of led me in the path where we are. My business partner and I started a company in 2015 called Wealth Without Wall Street. Funny enough, we created a podcast first, and then our company name followed the podcast, but it really spoke to exactly what we did – teaching people how to build wealth. It had nothing to do with Wall Street. Not that we’re against Wall Street in any fashion; we have people that obviously invest in that world, but… First and foremost, invest where you know; most people just don’t understand that, so that’s not where they invest.

Joe Fairless: Well, teaching people how to build wealth – I wanna build wealth. That sounds like fun. What do I need to know about how to build wealth?

Russ Morgan: Well, first, our processes usually fall into five pillars. That’s the way we refer to it. And we start with cashflow. It’s an old strategy, where you actually figure out how much money you have coming in and how much money you have going out. A lot of people don’t start there, Joe. They literally just go to the top of the pyramid and they say “Hey, what’s the most speculative thing I can get my money in?” and they start chasing those gains… And that’s the way to lose money. Warren Buffett always says “The best rule of investing is to not lose it”, so we start with building cashflow, building budgets around our money, finding ways that we can avoid giving a dollar away that we don’t have to, and that starts with better tax strategies.

A lot of our clients are typically frustrated with the amount of taxes they’re paying, so we work on that, get that right. Then they start working on “Well, where’s my dollars going that I don’t get access to?” It may be in 401Ks or IRAs, and they start redirecting those accounts. Then they start moving up the ladder to invest in any things they can control, which would be things like their businesses, their educations… And then secondly they start investing in things with collateral, and obviously that’s where real estate comes in, that’s where people wanna invest in other businesses, or start doing private lending. And ultimately, at the top of it, as I mentioned before, is speculation, and we do have clients that do that… But typically, it’s in smaller quantities, and not the money that is gonna make a difference in their life.

Joe Fairless: Alright, I wanna make sure I have those written down. Will you go through quickly just those five again? Because I got some of them down, but I wanna make sure I’m writing them all down.

Russ Morgan: Yeah, so the five is Cashflow, and that consists of lots of other things. Where they stick their cash; kind of a saving component. Now, our company is big and using cash value life insurance as a tool. Then going into kind of a controlled aspect, which is dealing with things like real estate, and then on top of that, that’s when you get into speculation.

Joe Fairless: Okay. Cashflow, savings, control aspect… What was the fourth?

Russ Morgan: The fourth is speculation.

Joe Fairless: Okay. Aren’t there five?

Russ Morgan: I’m sorry, I compound two things. So the five pillars is cash (like cashflow), cash value, then real estate, business, and lending.

Joe Fairless: Oh, shoot. Okay, alright. Got it. So those are your five pillars: cashflow, cash value, real estate, business and lending.

Russ Morgan: That’s right, yeah.

Joe Fairless: How do you make money?

Russ Morgan: How do I make money – two different ways we make money. We set up our clients with those cash value life insurance policies; that is the primary, core business model that we have. The second is we built a membership community, where people come in and they’re trying to learn that strategy among many others, whether it’s real estate ownership and businesses, or doing private lending. So we have a membership side as well.

Joe Fairless: Okay. And what investment are you most proud of personally?

Russ Morgan: I’d say business. For us, our business is made up of a couple of different areas. One, I’ve mentioned before that we do have an insurance business as a whole, but we’ve grown that business over the last two and a half years almost 300%, and it’s through avenues just like this – doing podcasts… We have a podcast ourselves, and that podcast has led us to taking a traditional business that was [unintelligible [00:06:25].12] like most financial business are, to now kind of an online platform.

Joe Fairless: Cash value life insurance is something that I imagine is challenging to explain… Or if not challenging to explain, then it’s challenging for you to overcome people’s barriers in their mind about that. First off, is that a correct statement?

Russ Morgan: Yeah, definitely. What we’ve learned is so much harder to unlearn, than to not have any exposure to it and to try to learn from the beginning.

Joe Fairless: So, disclosure – I’m not with you all, because we’ve just met, but I have a cash-value life insurance policy, so I’m aware of it and I’m a proponent of the concept…

Russ Morgan: Nice.

Joe Fairless: So what are the ways that you go about — well, I guess first let’s talk about what is it. We’ll start with that.

Russ Morgan: Life insurance as a whole – everybody knows what that is; you buy something that protects you in case you die. We all have that guarantee, but nobody buys the kind that will mostly pay off when that happens. The type of insurance that we use is a specifically designed life insurance contract with a mutual insurance company, meaning that the policyholders are the owners of the company, so any dividends that are paid, are paid to them. And we use whole life insurance, which is just one of the oldest insurance policies out there; it’s just a big, huge savings tool that acts a lot like a bond, a Treasury, a really high-entry savings account.

Joe Fairless: Okay… And why is it special?

Russ Morgan: Well, the special part of it is really in the design, Joe. And obviously, if you own one, you know a little bit about this… But the way that most people life insurance – they have kind of a Walmart shopper mind, where they literally wanna put as little money in and get as big of a death benefit as possible. Well, we do exactly the opposite. We literally try to sell people the most expensive life insurance policy they could buy. We try to put hundreds of thousands of dollars in and try to get the smallest death benefit that the insurance companies and the government will allow us to do it. That creates big, huge cash values, which – most people don’t understand that term, but just think about it as cash. You look in your checking account and you see cash.

I look inside of my insurance policies – they title it cash value, but it’s the same thing. When I call the insurance company up, I get the money deposited into my account like I just did yesterday – it’s something that’s really easy to do. Then I use it, whether I wanna invest in a piece of real estate, if I wanna invest into our business, I wanna buy a new widget, car, whatever it may be – I use that tool that way. The difference is that most of our cash is going through somebody else’s bank, which is the one on the corner that we all know and use, and they’re convenient to us; they give us suckers or Dum Dums whenever we drive by for our kids… But for us, we wanna have our cash at work, and our cash at work can earn 2%, 3%, 4% interest.

Joe Fairless: So you’ve got the cash value of $100,000, and you’re able to get access up to, say, $90,000 or so year one, instantaneously, and borrow against that, while that amount of money is still making a return while you’re borrowing against it, correct?

Russ Morgan: You’re hitting the nail on the head, and that’s probably the thing that excited me the most about this, Joe. Like I said, I started from a financial planning background, so… The first time I ever heard this I was at a conference in New Orleans back in 2005, and the guy who was explaining this had written this book called “Becoming your own banker.” I heard the word “life insurance”, and I thought “This has gotta be the worst idea I’ve ever–” right? Like, who would ever do that? And then he said the word “whole life insurance”, and I thought “Man, these guys are really slow around here, because my grandma may still have one of those policies, but nobody else.”

So it took me a while to get my arms around the fact that yes, my cash needs to stay at work, and every time that I would go buy something – before I started implementing this in 2009 personally – I would just take cash out of my checking account. Then that cash would be invested in whatever it was doing, but it no longer was at work, obviously, in my checking account. But what you said is what I didn’t understand; real estate investors use it to get the power of leverage, they understand the power of other people’s money… But yet, when they use dollars, they don’t actually do that. So whether I borrowed 100% of the money to go buy a piece of real estate and it starts producing cashflow, what do I do? … I stick that into my checking account. Then when I spend it, I’m spending cash that no longer can earn a dollar for me again.

But when we stick it in these insurance policies, just like you said, that insurance policy continues to earn for the rest of my life, or whoever’s life that the policy is put on… Because I can own policies – and I do own policies – on four other individuals; I guess more than that, since I have four kids… My wife, my business partner, and then [unintelligible [00:11:15].07] Seven individuals, I guess, other than myself. And I can borrow against those dollars, and now have the real estate, or business, or whatever my money is at work in, as well as I’ve got the earnings in the insurance policy.

When somebody really kind of put those things together for me, I had that a-ha moment that I was like “Boy, I wish I would have not been so stupid five years earlier.”

Joe Fairless: For me, it was a very challenging concept to grasp. I read two books… One for sure; I think I skimmed another book… And then I had many conversations. I interviewed probably ten people just on the podcast. Not because I was looking at it, but because I happened to interview guests who were focused on it… And I shared this information with a couple people who were more financially savvy than I am, just to make sure I wasn’t missing anything… And then I eventually signed up.

So in terms of how to build a business around it – let’s talk about you from a business standpoint… Someone says “You know what, Russ – this looks great. I’m in for a $100,000 policy.” How much money can you, as a business person who’s offering this to them, make on $100,000?

Russ Morgan: Do you mean me as a life insurance agent?

Joe Fairless: Yeah, because that’s one of the ways you make money… I have no idea – perhaps I should – how much you’re making in this.

Russ Morgan: Yeah. I’m gonna pull out a pen, because I don’t do the math that way, but… The way life insurance is paid – it’s paid through a commissions, and then there’s renewals, which is a beautiful thing. We’ve created a renewal business that creates revenue just like if I bought a piece of rental property.

So an insurance policy, when somebody pays a premium — I hate that word, “premium”, because I put unleaded gas in my truck; I don’t put Plus, I don’t put Premium… But insurance companies use that word “premium”, and I refer to it more as a deposit. When that money goes into an insurance policy, it’s gonna have to buy life insurance. A portion of the money that you put into that policy is going to buy life insurance. Now, it’s hard for me to give you a specific number, because —

Joe Fairless: Ballpark.

Russ Morgan: …whether you’re 30, or 80, in great health, in worse health, and whatever. In most situations, the average client that we have would come in and (say) put 100k year one, and is probably gonna put somewhere in the neighborhood of 25k to 40k a year thereafter. That’s a very typical scenario. And then at some point in time that number would even drop down either to zero, or maybe a much smaller number. In most situations we probably in year one make somewhere around 10k.

Joe Fairless: Cool.

Russ Morgan: And that kind of goes back to your point of… The way that we would design it most likely in year one – that person puts in 100k, designed the way that we would do it, but have access to borrow against probably somewhere in the neighborhood of around 85k of that 100k.

Joe Fairless: Does that 10k approximate profit increase or decrease over the years for you?

Russ Morgan: Oh, significantly down. At year two we’re getting probably about $2,500 maybe, down to $2,000. Somewhere in that range… Which is what is funny to me, because I’m always so transparent about the money part, because that typically is — people read about life insurance and they say “Oh, that’s just this big, huge commission. No wonder those guys who are selling it live in such nice houses”, or whatever it may be. People hear me about being down at my lake house, and they’re like “Oh, that’s how you pay for it.”

Joe Fairless: [laughs]

Russ Morgan: My wife was a dentist, and they’re like “Oh, what kind of car is she getting in? That’s the reason she told me I needed that crown.” But the reality is that you add up the math… So let’s just say somebody over a ten-year period of time gave us $325,000. That’s $31,000 over a ten-year period of time, on 325k, right?

Joe Fairless: Mm-hm.

Russ Morgan: What is that…?

Joe Fairless: That’s $3,100/year.

Russ Morgan: Yeah. So we start adding that up and we start comparing that to the typical investment fund that exists out there, and you start seeing “Okay, well the first year the person had 100k, the next year they had 130k…” You do that at 1%, and you start adding that up every single year. Do you know what happens at the end of year ten? You compare the two numbers and they’re usually about the same at year ten. The difference is after year ten, those renewals and things like that go away for the insurance stage… But they just keep getting bigger for the investment advisors… Except we’re doing the same thing.

So it’s funny that, again, there’s a lot of that on the front-end, but on the back-end it becomes a lot more time management and helping them… Which is fine, because our business is built that way.

Joe Fairless: And if someone puts in 100k year one, why would they want to, in subsequent years, put in more money? Why not just leave it at the initial 100k?

Russ Morgan: There are rules that govern the way these insurance policies are created, and it actually goes back to real estate. It’s funny how everything is connected to real estate… But you may know this – some people don’t; I didn’t know it early on… There were a lot of rules governing the way corporations could operate back in the late ’70s, early ’80s, and it allowed people to actually buy real estate in corporations. And because of the way that tax laws work, they would literally go buy properties that could be negative cashflow, but because of the write-offs with the corporations, they could technically through the tax laws create a profit. I don’t know if you knew that, but that existed.

Joe Fairless: No, I didn’t…

Russ Morgan: So of course, the legislation changed on that, and it changed the way those corporations could be taxed. All of a sudden, those loopholes got changed, or tax codes got changed… So there sits all these real estate investors – and obviously, the tax attorney have to find a way to make money, so they start looking around and try to figure out “Well, where can I put money that has a lot of benefits?” And at the time, life insurance had the ability where you could do exactly what you said; they could take  a big, huge lump sum of money, just dump it into the life insurance policy – they call that a single-premium policy – and they knew all the benefits of the life insurance, meaning that once it got in there, it no longer would be taxed. And if they took it out in the form of a loan, it would stay tax-free. And when they died, the death benefit would be income-tax-free to their heirs.

At the time, in the early ’80s – as we all know, that’s when we had super-high inflation, we had interest rates of 12%, 13%, 15%, crazy things, so these insurance policies were earning 8% to 10% tax-free. So for somebody that was in the 50% bracket – which most people by the way don’t realize the top bracket in the early ’80s was 50% – do the math; somebody earning 8% to 10% after-tax was equivalent of earning 20%.

So this was a really big thing. Well, of course, that didn’t last very long. There were two laws that were passed [unintelligible [00:17:55].29] in the early to mid ’80s, that then changed that rule. Long story short – in order for it to be a “life insurance policy”, somebody has to pass a seven-pay test, and that means money has to go in in a very systematic way over seven years in order for it to qualify. So someone can’t just go in and dump 100k in in day one and then say “Okay, I’m done”, without having to then have the rules that govern 401Ks and IRAs happen to them. And our clients are trying to avoid those rules, meaning they wanna access the money without paying penalties before 59,5… And ideally, they don’t wanna pay the tax when they get the money out, so they wanna pass that seven-pay test.

Joe Fairless: Seven-pay – does that correspond to seven years, in this example?

Russ Morgan: Exactly, yes. Seven years is the seven-pay.

Joe Fairless: Okay. And are there any advantages to the policyholder to do it after seven years?

Russ Morgan: Well, it’s funny – that’s a very common answer; most people think of “I wanna stop paying it”, because like we said earlier, it’s a premium, so we think of that as an expense… And early on, people’s mindset is that way, Joe, up to date, I don’t have anybody that stopped. I’ve been doing this for the last ten years, and once they realize it’s a deposit — if you put a dollar in your bank and they added $1,5 to your account, when would you ever stop putting a dollar in, if you had the dollar? You probably wouldn’t, right? You’d just keep doing it.

Joe Fairless: Right.

Russ Morgan: And that’s what happens with these insurance policies. Once you realize “Well, I put a dollar in in year one and I got 85 cents.” If that happened every year, I wouldn’t wanna do that. But that only happens the first couple of years and then I start putting a dollar in and a dollar shows up, and then it starts slowly becoming more than a dollar. So if I’ve got money coming in from, say, rental property, and say my cashflow is 150k for the year – well, I’m gonna consume most of that money, especially if I’m no longer working and that’s my main stream of income, it’s gotta go somewhere.

Well, if I had an insurance policy, for instance, that I could put 150k into, I could pay the premium (the deposit) into the policy, and then I could turn around and take it out in the form of a loan or a withdraw and use it to live on. Well, as long as I’m doing that and it makes financial sense, then I’m gonna keep doing it.

So most of our clients get that, they go on and it’s like “Man, this is really just a cashflow management tool. It’s no different than putting it into my checking account; I’m putting it here.” Now, it takes a while to get to that point, that’s not day one, but that’s what they get to, and it’s like “Oh, okay. Yeah, I’ll keep doing it.” But there are the options, as long as they buy the right types of policies – whole life in particular – that they literally could stop making a premium, they could stop making a payment, and their cash value would still grow. It would grow to equal the death benefit, because that’s [unintelligible [00:20:40].15] created to do.

Joe Fairless: When you’re at an event and it’s maybe a happy hour, and you have not spoken at this hypothetical event, so they’re strangers to you – you to them, them to you – and they say “What do you do?” and you mention this concept, I imagine you get some whacky looks from people, and dismissive comments. What is your approach to those comments and looks, if that is the case?

Russ Morgan: Well, first of all, I probably don’t have that conversation with them…

Joe Fairless: Yeah, you don’t even try to do it. It’s too much.

Russ Morgan: I don’t, because our business is online, so I don’t do that… But I have had those conversations, and it’s very common, Joe — again, it goes back to what do you know. And I always see this as a means, not the end. And I think that’s where people get caught up – they think “Why would I ever put money into an insurance policy that you say earns 3%-4% when I’m earning 25% in my real estate deals, or I’m earning 1,000% or an infinite return in my wholesaling deals?”, or whatever it may be. And I say “Well, that’s what you wanna get to, but your cash has to come from somewhere.” So if you and I came by the same investment and earn the same rate of return, it really comes back to “Okay, where did your money come from?” Yours came from a checking account, mine came from an insurance policy. If I can earn 3% a year and you earn zero, who do you think is gonna be ahead in the long-term?

That usually is a starting point, but there’s a great video I always refer to people to go watch if they haven’t seen it. It’s called “Backwards bicycle.” Have you ever seen that one?

Joe Fairless: No, never heard of it.

Russ Morgan: Oh, it’s amazing. It’s a seven-minute YouTube video; I don’t know if you have kids or not, but I would totally tell you to watch it, and if you have kids, let them watch it. They’ll love it. It’s a guy that happens to work as an engineer. He was trying to teach a point that we have these biases, and we have to know that as we go into things. So what he did is he took a bicycle – actually, the engineers that were working with him created this bicycle that when you turn the handlebars left, the wheel turns right, and when you turn them right, it turns left. So you’ve grown up riding a bicycle, you think “I can figure this out. I’ll power through it.” And he traveled all around the world, proving to people that literally you cannot make one revolution on the chain without falling off. Our brains are not built to do it, and that’s the concept, that a lot of people have learned things one way, they have this cognitive bias, and their brain is kind of in that rut… So sometimes you have to show them there is another way, but they’ve gotta be willing to learn, and if they’re not willing to learn, it doesn’t matter.

Joe Fairless: I will be watching that at the next break, in between my interviews. I’ve already got it up on YouTube. That’s gonna be a fun video, it looks like.

Taking a step back, what is your best advice ever for real estate investors?

Russ Morgan: Best investment advice ever for real estate investors… Follow your actual knowledge in it. Don’t invest in things just because you think others are doing it and they’re doing it well. Follow what you know, and if you don’t know it, go learn it before you do it.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Russ Morgan: Let’s do it!

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:23:53].09] to [00:24:29].17]

Joe Fairless: Best ever business deal that you’ve done?

Russ Morgan: Best ever business deal… The partnership that I created with my business partner about four years ago. I left another business opportunity and our business has exploded since then, and it was because I started leveraging somebody else’s talents in areas that I was deficient in.

Joe Fairless: What have you lost the most money doing?

Russ Morgan: Bitcoin, Ethereum, money machines… Things like that.

Joe Fairless: I thought everyone became Bitcoin billionaires with the Bitcoin stuff… What happened to you?

Russ Morgan: I bought the miner, thinking that was gonna be the way, and I bought them right before everything plummeted, so the money I spent on them — obviously, I knew they were gonna go down in value, but when the amount of money that they’re profiting every month is less than they cost to maintain them, it’s not a good idea.

Joe Fairless: Best ever way you like to give back to the community?

Russ Morgan: My wife and I are part of a program called The Fellows Initiative, that’s associated with the church we go to. It’s a leadership and development program. It’s a nine-month program that the students that go through it have to have a host family, so we hosted one of the people from that course for the last three years in our house.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Russ Morgan: WealthWithoutWallStreet.com. We’ve got a podcast (Wealth Without Wall Street) and other things that we do and talk about are there.

Joe Fairless: I enjoyed our conversation. I didn’t know what we’d be getting into, and I’m glad that we got into the cash value life insurance policy stuff, and just talking about the details there… So if anyone is not aware of it, now you are. And if you were aware of it, you were probably confused  about it… Be honest. As I still — actually, I’m not confused on it; I’ll give myself some credit. But it took me a while to grasp the concept.

And I forgot to mention, after doing all that stuff, one important part of what put me over into the category of doing it is an investor friend of mine. He invests with us, and has done so for a while. He did it, and he’s like “Hey, you should be doing this”, so I was like “Alright, fine.” After all the research, a good word of mouth from someone.

I enjoyed our conversation, Russ. I hope you have a best ever day, and we’ll talk to you again soon.

Russ Morgan: Alright. You too, man.

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Best Real Estate Investing Advice Ever Show Podcast

JF1162: Get Out of Debt Through Real Estate! With Joe Turney

4 years ago, Joe had a negative net worth (had more debt than income and assets). Joe self educated himself by reading real estate books and taking online courses. He took another full time job for one year to gain some capital, after a year of working 16 hours a day, he had enough saved up to purchase his first rental property. Now, 3 years later, Joe has accumulated $2 million class A single family homes. Hear how you could do the same thing Joe did, he’s living proof that it really does not have to be complicated! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Joe Turney Real Estate Background:

  • Owner Blue House Realty LLC
  • Accumulated $2 million in A class single family homes which generate $100k passive net income each year
  • Starting from a negative net worth, in less than 4 years
  • Complete 10 to 12 flips each year with an average profit of $25k each
  • Based in Birmingham, Alabama
  • Say hi to him at Joe@joeturney.com
  • Best Ever Book: Leading An Inspired Life

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, 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 fluffy stuff. We’ve spoken to Barbara Corcoran from Shark Tank, Emmitt Smith, the hall of fame football player – who is also a real estate developer, I bet you didn’t know that; go listen to that episode – and a whole bunch of others.

With us today, Joe Turney. How are you doing, Joe?

Joe Turney: Hey, I’m doing great.

Joe Fairless: Nice to have you on the show. This is gonna be fun. A little bit about Joe – he is the owner of Blue House Realty. He has accumulated two million dollars in A class single-family homes, which generate $100,000 of passive net income every year. He started from a negative net worth and has gotten to this point in less than five years. He completes 10-12 flips each year with an average profit of 25k, and he’s based in Birmingham, Alabama. With that being said,  you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Joe Turney: Yeah, Joe, no problem. I’m basically just enjoying a new career change; I was in the software development world for many years, and the corporate world, and basically just got a little too old, so I started a career change. I found a local mentor, a local person who had done well in real estate, he gave me a few pointers and I took off from there.

I’ve never seen anything where I could turn just a savings account into a lifetime of retirement income in just a few years. I’ve had a lot of success in a short period of time.

Joe Fairless: Let’s talk about this… Let’s dig in deeper and in more detail. You started with a negative net worth – how do you have a negative net worth? I’m trying to think about that.

Joe Turney: [laughs] That’s a really easy question to answer, actually – you owe more than you’re worth on everything that you have.

Joe Fairless: What did you have that was putting you in the negative?

Joe Turney: Our mortgage on our home was too high, [unintelligible [00:03:04].25] very little in savings. Just a combination of several factors put it right at zero or negative.

Joe Fairless: So four years ago you have a negative net worth, right?

Joe Turney: That’s right.

Joe Fairless: And what was your job?

Joe Turney: Software development. I owned a computer software company.

Joe Fairless: Okay. You had a negative net worth, so clearly things weren’t going incredibly well four years ago.

Joe Turney: I’d been on a slow downward spiral for many years, and not paying much attention to it.

Joe Fairless: And then what happened?

Joe Turney: Well, basically I woke up and took some financial classes and learned about real estate and investing, and decided to make a change… So I took a second full-time job for a year, and got some savings accounts built up, and took that savings account and turned it into the real estate that we have today.

Joe Fairless: Which classes did you take and where did you take them?

Joe Turney: Well, I say classes, but it was mainly books and education on websites. Actually, one of the books I read early on was your book, The Best Real Estate Investing Advice Ever. But mainly books from Amazon, the books on there that were highly recommended – I got those and read them.

I’m kind of out in the country here and outside of town, so I didn’t have a lot of local support or anything like that. I guess if you wanna take classes, there’s really no formal education other than self-education.

Joe Fairless: So you read a bunch of books and you took a second full-time job for a year – what was that job?

Joe Turney: Just another software development job, just a second shift. [unintelligible [00:04:35].24] at the time.

Joe Fairless: What hours were you working in your full-time job, and then what hours were you working in your second full-time job?

Joe Turney: Basically, from 8 to 4 during the day, and then from 5 to midnight, roughly. There was a little bit of overlap, but in the computer world you can work remotely sometimes, so…

Joe Fairless: So you were able to work from home for those hours?

Joe Turney: Partially, yes.

Joe Fairless: Partially. And then did you have to go in some days?

Joe Turney: Yeah, it was a busy, hard year. I don’t recommend it, but it was my way out. If you don’t wanna change something, you’re gonna be stuck there forever, so I just changed something.

Joe Fairless: Good for you! I applaud you for doing that. 8 AM to 4 PM, and then 5 PM to midnight – you did that for one year. You put money into a savings account, and what did you buy?

Joe Turney: I bought a rental property. My first house was a local foreclosure just about a mile from my house. I bought it through the foreclosure process, and I kind of stumbled upon the concept of the buy it, renovate it, rent it and refinance it strategy. I kind of stumbled upon that on my own, before I even heard about it. I bought that with cash, got it rented, and I went to my local bank and they gave me a loan on it for 70% of the appraised value, which happened to be more than I had in it.

The light bulb went off for me immediately, that I did that ten more times in a two-year period. I renovated, refinanced as fast as I could go.

Joe Fairless: Wow… With the same bank?

Joe Turney: Well, what I found was a lot of the local portfolio lenders, they have personal limits that they can do in-house, so when I would hit a limit with a bank, I’d just start over with a new bank. It was divided over three local banks.

Joe Fairless: Okay. I mentioned that you’re buying class A single-family homes, because that’s what was written in your bio. What is a class A single-family home?

Joe Turney: Like I said, there are properties where there’s very little [unintelligible [00:06:38].29] in the neighborhood, where most of the buyers in that neighborhood are gonna be homeowners with mortgages. That’s probably the best definition I have. In my area, that works out to about $125,000 to $150,000 range is about the minimum per house.

Joe Fairless: And on average, what are you getting in rent on those?

Joe Turney: Approximately $1,200/house/month.

Joe Fairless: So you have $1,200, and say you’re buying it for 150k…

Joe Turney: That’s the appraised value, but I’m paying roughly 70% of retail.

Joe Fairless: Okay, now it’s getting clearer. So the appraised value is 150k, so in that case you would buy it for around $105,000. Yes, that’s right. Or buy it and renovate it for 105k.

Joe Fairless: All-in.

Joe Turney: Yes, all-in.

Joe Fairless: Is that your rule of thumb, 70% on the retail price all-in?

Joe Turney: Yes, and that’s based on my local lenders; they told me that’s what their limits are.

Joe Fairless: Oh, okay… To do the refi?

Joe Turney: For refinance that’s what they told me their limit was, so that’s what I work with.

Joe Fairless: You have two million dollars in these homes… How many homes do you have? Like 20?

Joe Turney: Yes, exactly 20, actually. I have 15-16 single-family homes, and one fourplex.

Joe Fairless: Okay. That’s incredible. Are you using the same approach for all of them, where you buy it, renovate, rent it and then refi it out?

Joe Turney: Yes. I’ve done that basically 20 times in a row now.

Joe Fairless: [laughs] I love this story, because it doesn’t have to be complicated, does it? You’re doing the same thing over and over and over and over again.

Joe Turney: Basically, the 20 provides me with enough income to cover all of my living expenses and day-to-day bills, and we paid off all those debts to fix our net worth problems, and then decided we don’t wanna live at the bare minimum anymore, so we started doing some house flips a few years ago, and that’s been a fun ride, too.

Joe Fairless: Each property, what does that make you every month on average?

Joe Turney: If I had to average them, probably about $450 net, after all mortgages and expenses.

Joe Fairless: Wow, $450 net… So you’re all-in at $100,000, and it’s renting for about $1,200. Let’s see. That’s 1.2%. Let’s say $1,200 is the rent, and the expenses, mortgage and everything – it’s gonna be around $750, $800, $850 you said?

Joe Turney: Yes, that’s with everything added together – taxes, insurance…

Joe Fairless: All-in, yeah. I bet you’re self-managing.

Joe Turney: No, actually I don’t. My biggest priority at this point in my life is lifestyle, so I don’t manage anything. The property manager takes care of 100% of all maintenance and problems, and the rents come in through ACH transfer, and the mortgage payments go out through ACH, so it’s 100% hands-off.

Last year I may have gotten three or four phone calls for the whole year.

Joe Fairless: What would be — and I’m not asking you the money question yet; I always ask everyone “What’s your best real estate investing advice ever?” I’m gonna ask you that later, but what would be your advice for someone who wants to do exactly what you’ve done with this model?

Joe Turney: The first thing – I really don’t think it works without capital. You’ve gotta have either a line of credit, or home equity, or cash. It doesn’t work at all unless you can pay cash upfront for the house. Because generally, a cash offer on any house, you can get at least a 20% discount off retail, and your banks are gonna loan you 70% of retail, so you’re really close. You only need a 10% bargain to make the whole thing work.

So the best advice would be to get some capital or a line of credit or a lender or a partner with money, something to start the process.

Joe Fairless: Are you a handy person?

Joe Turney: I can be. I don’t really enjoy it, but I can be if I have to.

Joe Fairless: How did you fix up the properties along the way?

Joe Turney: Well, the first two or three I did actually myself; I do recommend that, too – when you’re first starting out, to at least do it enough where you know how long things take, how much they should cost, how hard they are… But after two or three homes, I just hired local contractors or handymen to fix the properties.

Joe Fairless: What’s that experience been like?

Joe Turney: Very challenging, to say the least. In fact, just a few months ago I just started a salary payroll and put some of the best people I know on salary, so that I don’t have to keep trying to hire and chase new contractors.

Joe Fairless: I haven’t heard of doing this yet, especially since you have a third-party management company. Why not have the third-party management company handle the renovations?

Joe Turney: What I found is I do at least want to know what’s happening with the property. Now, my people that are on salary, they do some maintenance on the rental properties, but it’s only mainly repairs. For the most part, they’re working with me on house with the projects, but the property manager has the direct phone number of my employee, so they can call for help.

Basically, it’s just pre-paid… Maintenance costs – it’s already paid for on a consistent basis. There’s no unknown expense for maintenance. [unintelligible [00:12:14].00]

Joe Fairless: How much do you pay a person on salary to do the maintenance and how busy are they with 20 properties?

Joe Turney: They’re not very busy at all on maintenance, but if I didn’t have house flip projects going, then it wouldn’t work financially. But roughly $20/hour will get you a really high-quality person. And on a flip, you’ll come out way ahead, but if you’re paying people maintenance on properties that didn’t need maintenance, you would actually lose money.

Joe Fairless: And how many people do you have on salary?

Joe Turney: We have three.

Joe Fairless: Three people? And you’re doing 10-12 flips a year, so basically you’re averaging about a flip a month.

Joe Turney: That’s right. These three guys by themselves can renovate a single-family home in four weeks. It works out really nice.

Joe Fairless: Wow. That’s interesting… What a fascinating model and approach. You make it sound so simple.

Joe Turney: [laughs] Simple is one word, but maybe not easy. It takes some work, because I have to buy things at such a discount, and my market is so strong in this area… It takes me a lot of legwork and a lot of research to find a good deal; it takes a lot of time.

People believe they wanna do it until I show them my 50-60 written offers that I made in the last few weeks, that all said no; then they realize it’s not that fun every day.

Joe Fairless: You make 50-60 offers a week?

Joe Turney: Oh no, in the last few weeks… About that much a month.

Joe Fairless: Okay. Is there a way that you learned to scale that so it goes more quickly than how you started doing it?

Joe Turney: Delegating, obviously, was a big step for me. We let people run the office side of things. I still do basic bookkeeping, but I hired on some help for accounting and things like that. But for the most part, it runs by itself. The employees are very trustworthy, they run everything; once they get started, they don’t need any supervision. The rentals run without any supervision… Basically, my full-time job is just finding the next good deal. I enjoy that part of it, so it works out really good.

Joe Fairless: Let’s talk about how you find that next good deal… How do you do it? What’s your approach?

Joe Turney: Well, I know a lot of people spend a lot of money on marketing to houses and things like that, but I haven’t had very good luck with that personally. I really just watch public sales, for sale by owners, the MLS system… I look primarily for vacant houses or bank-owned houses on the MLS system. Anything that’s been on the market for 120 days or more shows up on my report each day… Things like that.

It’s hard to sell properties in my local area.

Joe Fairless: The last deal you bought, what are the numbers on it?

Joe Turney: Actually, we’re under renovation right now on the last one I just bought… It’s a local property, a single-family home, a four-bedroom home. The value – it will be worth about $145,00 when it’s finished. I paid – I’m trying to remember the numbers off the top of my head… I believe I paid $57,000 for it, and we’ve got roughly a $30,000 budget for renovations, and that’s gonna be a flip.

Joe Fairless: How do you decide which ones to flip and which ones to keep in your portfolio?

Joe Turney: Well, at this point I’ve got a really good portfolio that I’m happy with. It performs well and it has very low maintenance. At this point, everything I’m buying is just for flips, primarily… Unless I happen to get an unbelievable deal on a great house, everything else I’ll just sell at the end.

Joe Fairless: And assuming that you continue to make money on those flips, you’re gonna collect more and more money, so what do you plan on investing that money into?

Joe Turney: The best return I’ve got right at this moment is to simply pay off the properties I have; it gives me a really good return. But then I really want to expand out into some larger multi-family. I’d like to get some down payment money built up for some multi-family, just to get higher cashflow.

Joe Fairless: What is your best real estate investing advice ever?

Joe Turney: I believe if I had to tell someone what to do, I would say to design your lifestyle first, before you even start your real estate business. Decide what you want your life to look like. What I have today is word-for-word exactly what I wanted five years ago. My daily routine is exactly what I wanted it to be, but if I didn’t know what I was trying to build before I started, it’s very possible I could have built the wrong real estate business, that didn’t give me the lifestyle I wanted.

Joe Fairless: What’s your daily routine look like now?

Joe Turney: Basically, my biggest pet peeve is there’s no alarm clock; so I get up whenever we wake up…

Joe Fairless: What time is that, usually?

Joe Turney: Roughly eight o’clock.

Joe Fairless: Okay.

Joe Turney: I check the morning MLS listings, see if there’s nothing new or interesting, then I go to the job site and check to see how folks are doing there, and then the rest of the day I’m really out looking for other properties. I’m meeting with for sale by owners, or talking to other agents in the area to find anything new that’s happening.

A lot of times I’ll read the legal ads in the papers to see if there’s any foreclosures coming in my area.

Joe Fairless: Has that resulted in any closed deals, the reading legal ads in the paper?

Joe Turney: Yes, actually my favorite one I ever got came out of a legal ad. Sometimes it works. No one process works everytime, but that one works occasionally.

Joe Fairless: Please elaborate on that deal.

Joe Turney: It was actually a lakefront property right here in my area; very nice, level, lakefront [unintelligible [00:17:42].04] with its own boat ramp… There was a legal ad in the newspaper that had an attorney’s name in it, with no contact information. There was no property address, there was only a legal description. It took me a lot of homework to figure out where the property was to start with, and then to find contact information for the lawyer who would answer the phone, to find out when the sale was gonna be. So that was a great investment.

We ended up paying about $60,000 for it, and it was worth close to 200k… And it was just because I was the only one — it seemed like I was the only one that did my homework ahead of time to find out when the sale is gonna be, where the property is, is it vacant, who is the attorney doing the sale, what time is it; I went to the courthouse and did my title research ahead of time… So there was a lot I had to do for prep work to get ready for it.

Joe Fairless: How did you find the attorney’s name to contact?

Joe Turney: Well, the attorney’s office name has to be in a legal ad, but they don’t have to give you contact information; they just have the name of the law firm, so I had to do my own research to find out how to get in touch with them.

Joe Fairless: Was that just a simple Google search?

Joe Turney: It started with that, yeah, but a lot of the phone numbers I got went straight to voicemail, so I had to call some other closing attorneys in the area and ask them if they knew how to get in touch with them, and eventually someone knew the attorney. They gave me a cell phone number and I called them.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Joe Turney: I believe so.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:19:16].27] to [00:20:14].06]

Joe Fairless: Best ever book you’ve read?

Joe Turney: I’d have to say Leading An Inspired Life, by Jim Rohn.

Joe Fairless: Oh, I love Jim.

Joe Turney: Leading An Inspired Life – I look at it like an encyclopedia of personal development.

Joe Fairless: I’ve never heard of that book, so I haven’t read it. It’s gonna be on my list. I’ve watched a bunch of YouTube videos.

Joe Turney: It’s my favorite; it’s the biggest one he ever wrote, so you’ll recognize it.

Joe Fairless: [laughs] Best ever deal that you’ve done that you have not mentioned already?

Joe Turney: That I’ve haven’t mentioned… So I mentioned the lake house already; probably the next favorite one I’ve got is a single-family home I bought. Actually, it was another foreclosure. I got it through a foreclosure sale, but I had already done a lot of due diligence on it. It was actually move-in ready when I bought it; it was on the MLS for sale, and it was already move-in ready. The day I bought it, we put it up for rent and it rented the next day, and within three days we had a tenant living there.

That’s been almost four years ago now, and I’ve never been back in the house again. It’s been probably my favorite one.

Joe Fairless: How come you haven’t mentioned the four-unit as being one of the top two favorites?

Joe Turney: [laughs] It’s kind of like picking your favorite kid, I guess.

Joe Fairless: Right, okay.

Joe Turney: That one has a unique story, too. Actually, I went to a local seminar a couple of years ago where there was a speaker talking about the power of owner-financing. I had never even considered that before. I came home from that seminar and sent an e-mail to every multi-family in my area – the listing agents – and asked them if they would consider owner financing. And out of about 39 listings, I had one that came back and said “Yes, maybe”, and it was that fourplex. I bought it with owner financing.

Joe Fairless: [laughs] How did you do it? Tell us the deal structure, please.

Joe Turney: The property was valued probably in the $230,000 range roughly, maybe a little higher… But I just made an offer. I had to ask the listing agent ahead of time what the seller wanted, so I just wrote word for word what the seller wanted in my offer, and sent it in. They wanted 10% down payment, and then we amortized it over a 20-year loan, the balance.

Joe Fairless: That’s phenomenal. Wouldn’t you wanna do that every time?

Joe Turney: Yeah, absolutely, but that’s the only one I’ve ever gotten with owner — well, I can’t say the only one, but that’s the best one I ever got with owner financing. It came out of a seminar. Like I said, just go do it; I went and did what he said, and it worked. I got one out of 39.

Joe Fairless: Wow. This is such a fun interview, because you’re so matter of fact with the simple approach, but it’s effective, too. What’s a mistake you’ve made on a transaction?

Joe Turney: Every time I fail to do enough due diligence ahead of time, I’ve ended up not coming out [unintelligible [00:22:56].01] The biggest mistake I ever made I believe was I bought a single-family home off the MLS system; it was a two-story home, nice-looking; behind the shrubbery around the front of the house, the foundation was white around the house, and I just made some basic assumptions, and that assumption really cost me a lot of money.

That assumption was that the white stuff behind the bushes was the foundation. It was not a foundation, it was plastic; the house had no foundation. It was sitting on blocks, like a mobile home, and I was shocked to say the least when I discovered that. That was just because I didn’t inspect it closely when I bought it.

Joe Fairless: How much did that cost you?

Joe Turney: It cost me about $13,000 to have the house raised up and put a foundation under it.

Joe Fairless: What’s the best ever way you like to give back?

Joe Turney: Now I really like for people who are in my situation five years ago, people who want out of the rat race – I really like helping people get out of that rat race, showing them what I do and say “Here’s your steps, you go do it.” It’s not complicated, but it’s very rewarding.

Joe Fairless: What steps are in that process, that you tell someone to do, that we haven’t talked about already?

Joe Turney: I guess the biggest step we haven’t talked about is you really need to have a good working relationship with a local portfolio lender, or someone who lends out of the local branch of their office, a local bank who will loan you money, because obviously, the whole merry-go-round doesn’t work unless the lender is gonna loan you the money at the end of the process.

I would recommend starting with a credit application and a loan application with a local bank before you buy your first property, just to make sure you can do it.

Joe Fairless: And you said “credit application” – so if you don’t have a house identified, you can still do a credit application with them?

Joe Turney: What I tell people to do – in fact, I’m teaching this to my own son at the moment – is go put your application in and tell them a fictional property, that you’re willing to buy a single-family home, and finance 70% of the appraise, with a rental income of $1,200. “Assuming those factors, would you approve my loan?”

Joe Fairless: So you’re telling them about a fictional property, you wanna buy it at 70% of appraise value, and it rents for $1,200?

Joe Turney: Yeah, and then they take the loan office — because it’s a local bank and you’re dealing directly with a loan officer who can make a decision without underwriting, it just goes much better. They actually can talk to you one on one and tell you yes or no in person, without a lot of hassle.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Joe Turney: E-mail is the best way – Joe@JoeTurney.com.

Joe Fairless: Thank you for spending time with us. Thanks for talking about your story, sharing all the lessons learned, simplifying the process for us so it’s easy to understand. You’re buying at 70% discount, you’re renovating, you’re renting out and then you’re refinancing out the proceeds, and then doing it again. Is that right?

Joe Turney: That’s in a nutshell, that’s it.

Joe Fairless: Yeah, that’s it, and you’ve accumulated two million dollars in single-family homes in four years by taking that approach. You’re finding good deals by looking at the public sales, talking to for sale by owners, looking at the MLS – the vacant houses on the MLS in particular – and anything that’s been on the market for 120 days or more. I also loved the story about you just go into a seminar, hearing some guy talk about owner financing, you e-mailed 39 listings for multifamily deals, e-mailed the broker, asked if they’re interested in owner financing, one of them said yes, and you just wrote up the terms exactly how they were wanting them written up, and there you go, you’ve got a place… And it worked out just like that, right?

Joe Turney: That’s it. It’s still the highest cash-flowing property we have obviously, because it’s a fourplex. Yeah, it’s been a great deal.

Joe Fairless: Well, this has been a great interview, Joe. Thanks for being on the show. You did our first name proud, I’ll tell you that right now. I hope you have a best ever day, and we’ll talk to you soon.

Joe Turney: Thank you, Joe.

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Best Real Estate Investing Advice Ever Show Podcast

JF1080: After a “Guru” Class, he Applied the Teachings and Earned $10,000 in 30 days! With Brian Trippe

If you’ve been skeptical of going to the classes that charge a couple hundred for a weekend of education, listen up! Brian went to one of those classes, and it paid off big time! Now he’s closing in on owning 80 cash flowing doors and teaching others to do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Brian Trippe Real Estate Background:
-President of Alabama Real Estate Investor Association, and a local coach/mentor
-Holds over 70 rentals, tax liens/deeds, buys and sells notes, sells homes with owner financing, and has a mobile home park
-Full-time real estate professional since 2012 and his main focus is wholesaling
-Based in Birmingham, Alabama

-Say hi to him at info@alareia.com

-Best Ever Book: Cash Flow Quadrant

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Joe Fairless: Best Ever listeners, 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 fluff. With us today, Brian Trippe. How are you doing, my friend?

Brian Trippe: I’m doing awesome, thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Brian – he is the president of Alabama Real Estate Investor Association. He holds over 70 rentals, he does tax liens and deeds, buys and sells notes, sells homes with owner financing, and has a mobile home park. He’s a full-time real estate professional since 2012, and his main focus is wholesaling. Based in Birmingham, Alabama.

With that being said, Brian, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Brian Trippe: Yeah, that’s kind of crazy you named off all that stuff; it makes me sound like I’m a bigger deal than what I think I am… But I started with nothing about five years ago. No money, bad credit; I went to a little seminar and heard a little spiel, and I bought into it and just kind of took it from there. At the time I was a college basketball coach, believe it or not.

I made more money on my very first deal that I did in an entire year coaching basketball, so right then and there I just knew that I needed to make a change. I still love basketball, it is still a passion of mine, but I had just got married at the time, so I just had to stop kind of chasing that dream and start taking life a little bit more seriously.

Joe Fairless: You started with nothing, five years ago you went to a seminar – what was the seminar?

Brian Trippe: Rich Dad Education. I read the book a long time ago, and I’m not even joking, I thought Robert Kiyosaki was coming to town to speak, and I was gonna go, I was like “Oh man, I’m excited.” I get there and then they sell me into a package.

Joe Fairless: When I went to the three-day event for like $300 — I didn’t go to the $10,000 stuff, but I went to the three-day and that was incredibly influential on my career path. Is that the same one you went to, that $300 for a weekend?

Brian Trippe: Exactly. It cost me $200 at the time, and me and my wife went… And every time the guy that was up there – every time he said something, my wife would like tug on my sleeve and she’s like “We need to do that. Hey, let’s do that.” And I’m just looking at her like, “Are you kidding me?”

You know, what’s really interesting about it is it was a passion I never knew existed. Real estate – I just devoured every piece of content I could get my hands on, get my eyes on, listen to… I actually got a little book – it’s on my shelf right now, it’s called Find It, Close It, Profit. They just gave it to me as a gift; it’s about a 150-page book. I read that in one sitting, I was so interested in real estate… Because I didn’t know anything about real estate, and I just knew that it could be something.

The trainer that we had — I’ve got a lot of bad and good things that I could say about it, but the trainer that we had actually gave us a 15-day action plan and I just went and did everything he said to do and I ended up making $10,000 on my first deal.

Joe Fairless: Wow. In a month and a half… Let’s talk about that – it was your first deal… Then we’ll talk about other stuff, but first deal, 15-day action plan, coming out of the seminar; it took you about a month and a half to make $10,000 on it?

Brian Trippe: It was a wholesale deal, and to be honest, I had no idea what I was doing. Looking back on it, I made every single mistake possible, there’s no question about it. I didn’t know how to talk to a seller, I didn’t know how to talk to a buyer, I didn’t know how to put them together, I used the wrong attorney, the attorney didn’t even know what was going on, they didn’t even know how to do the transaction… I did everything — I was kind of like, “Yeah, I’m the owner of the property, that kind of thing.”

I’ve learned since to obviously be honest about everything and upfront about everything, but I just kind of did everything wrong, that I would not normally do, and just kind of fell backwards into it. That’s just kind of a testament to just kind of taking action and just going for it and just trusting the people that had done it before you.

Joe Fairless: You mentioned the wrong attorney – why is it the wrong attorney?

Brian Trippe: Well, I said the wrong attorney because they had never even heard of wholesaling; they didn’t even know what it was, they didn’t even know if it was legal, but they kind of like looked into it a little bit. I was just like, “Well, do you think you could do it? What’s the bottom line here?” and they said, “Yeah, I think we can do it” and by the time we actually got done with it, the guy goes “Wow, that was really cool! You just made $10,000, you need to show us how you did that!” [laughter] That was really cool.

Joe Fairless: You never wanna be teaching the counsel what you’re doing, that’s always a bad sign. It’s okay to teach real estate agents sometimes, “Hey, this is the type of deal I’m looking for.” I had to do that on my property, but holy cow, teaching the actual legal counsel – that’s a whole other set of–

Brian Trippe: And I’m teaching him something that I didn’t even really, fully understand either. [laughter]

Joe Fairless: That’s pretty good stuff. You said you didn’t know how to talk to the buyers and sellers – what were you saying, compared to what you would say now?

Brian Trippe: Well, I wasn’t being 100% forthright. I’m sitting here saying that I’ve got the money, I wanna close on this property asap. I’m telling the eventual end buyer that yeah, it’s my property, and I’m selling it. Really kind of illegal, to be honest with you. You can’t really do it that way and be legal, and I just didn’t know any better… But I think through doing is how most of us learn the best, and man, I’m telling you, that one deal gave me confidence. I wanted to just go out and do more deals; it gave me a little bit of experience, and it was a really, really good thing.

I don’t know that if I hadn’t done a deal that soon, I don’t know how serious I would have taken this whole real estate thing.

Joe Fairless: Yeah, you built on the momentum.

Brian Trippe: Yeah, for sure.

Joe Fairless: You’ve got a mobile home park – please talk about that.

Brian Trippe: Yeah, I love it. I’ve been listening to your podcast a little while and I know that one of the questions is the best investment you ever made… This mobile home park is the best thing I’ve ever done in my entire life when it comes to real estate. Mom and pop owned it, they called me off a WeBuyHouses bandit sign, and they said “Do you buy mobile home parks?” and I was taught a long time ago “Don’t ever turn anything down”, so I said “Maybe. Let me take a look at it.”

I ended up talking to this guy for about six months. He wanted way more for it than what I thought it was worth…

Joe Fairless: What did he want, and what did you think it was worth?

Brian Trippe: He wanted 1.3 million, and I thought it was worth about 900k. I ended up getting it for 760k. I put 60k down, he owner financed the rest of it. The payment on it is pretty high; I always ask this question to any seller, “What do you need to make this deal work?” and he just needed $6,000 a month to live, for what he felt like was the rest of his life. So I said “If I give you that $6,000/month you need to come down to my price”, and $6,000/month equates to a 12-year mortgage, so I’m paying this thing off – I’ve had it for about a year and a half now; I’m [unintelligible [00:08:37].02] I’ve got so much equity in this thing; I owe about 600k on it right now. I’ve turned it around, I think it’s worth between 1.1 and 1.2 right now, and on top of all that, I’m cash-flowing it between $4,000-$5,000 a month.

Joe Fairless: Good for you, congratulations on that! That’s fun to talk about, and listen to. It had to be a learning curve…

Brian Trippe: The mobile home park?

Joe Fairless: Yeah.

Brian Trippe: I’m gonna give a huge shoutout to Frank and Dave, the mobile home park gurus. I don’t know if you know who they are or if you’ve spoken to them…

Joe Fairless: Yeah, I’ve interviewed Frank on the show.

Brian Trippe: Frank Rolfe – yeah, he’s come on my podcast as well. He is a super, super down to earth, great guy that gives so much value. I took their course, which is dirt-cheap compared to real estate courses. I took their course about two years before I actually bought this thing, because I wanted a mobile home park. I was kind of sold on the idea of owning dirt and not having to own trailers, not having all the maintenance requirements that come with all that; I just wanted to own dirt, and I was kind of sold on that from my very beginning stages of researching real estate in general.

So I’d always wanted one, and this one just kind of fell in my lap, and it’s been the best thing that I’ve ever done in real estate.

Joe Fairless: You took the course, but then implementing content that you read and watch is a lot different in real life, because there’s a lot of grey between the black and white… So what was the grey area that you had to fill in as you went?

Brian Trippe: I think it’s like anything – you don’t know anything until you’re actually doing it. Theory is fine, some of us go to college and we learn a bunch of theory, but none of it really matters until you get out in the real world. A couple of things I took away from the coure was if you’re new or you’re an inexperienced mobile home park investor – city water, city sewer. If you have city water and city sewer, you are gonna get yourself out of like 90% of the trouble that you could possibly get yourself into. By not having well water and not having sewage treatment plans and septic tanks and all that garbage, if you’re new you can easily, easily get into big time trouble and get way over your head.

The biggest problem that I identified with this park right off the bat was that the previous owner was not charging for water. Even though it was city water, they came up to the road, the park owned the whole water system, and everything was individually metered, he just wasn’t reading the meters.

If you’re just charging everybody $40/month for water, if you’re just getting charged a flat fee for water, you just leave the post pipe running; water’s not valuable to you, so you just do whatever. What I found was the average water bill was about $100/month is what they were using, but they were only being charged for $40. As soon as I corrected that and I fixed about 30 water leaks… I learned all this through that program that I did. As soon as I did those couple things, I just increased the value of this park almost by two times.

Joe Fairless: How many lots were at the park?

Brian Trippe: 59 lots, and there’d been 100% occupancy since June of last year, so almost for a full year.

Joe Fairless: And you bought it a year and a half ago, you said?

Brian Trippe: December 2015, yeah.

Joe Fairless: What were some of the first things you did other than the water approach?

Brian Trippe: Water was by far and away the biggest deal. I raised rents on day one.

Joe Fairless: How did you justify that to the people who were complaining about you doing it?

Brian Trippe: There were two complaints. The lot rent was $155, market rent was $250, so I brought it only $20 and I told everybody right off the bat, “Do you want me to go up to $250 today, or do you want me to go up $20/year for the next four or five years?”, so everybody agreed they wanted to do $20/year for the next five years, and that’s fine.

Joe Fairless: It’s like saying “Do you want a million dollars today, or do you want a dollar for a million days the rest of your life?”

Brian Trippe: [laughs] But I was very honest and forthcoming with them. I said, “Listen, your lot rent – you’ve been getting away with super low lot rent for a very long time, you’ve been paying only $40/month for water and sewer, but you’re using $100/month on average, so a lot of things have to change”, and everybody in the park completely agreed.

I came and I cleaned it up — which there’s no accountability, it was just stuff everywhere, just garbage everywhere, a bunch of vehicles on blocks and all this stuff that I had to get corrected. They saw me, I was coming in there, I did it myself. I came in there with a team of a couple of people, and we went in there and worked on it and they saw how much I was actually putting into the park. From a time standpoint, I was there, addressing their concerns, and they respected it. I don’t wanna say they liked me, but they respected it.

Joe Fairless: What has been the most surprising part of owning the mobile home park?

Brian Trippe: Oh man, I don’t wanna say it’s easy, but it’s kind of easy. It’s been kind of easy. In the very beginning it was really hard. It took me about three full months of being there almost every day, but I don’t really know how to answer the question. I’m kind of on cruise control; even though it’s only a 20-minute drive from where I live, I’ll go check on it only once every couple of weeks, once a month, just because I’ve got an on-site maintenance guy, and he texts me everything that’s going, “Hey, this guy’s doing this.” He texts me pictures, and I can kind of address things from there. It really has just been a really great investment.

Joe Fairless: You have 70 buy and hold rentals – is that correct?

Brian Trippe: I’m actually approaching about 80 doors right now. Just full disclosure – I include the 59 mobile homes in that.

Joe Fairless: Well, they have doors, so that makes sense.

Brian Trippe: That’s right, that’s right.

Joe Fairless: Okay. So are those single-families, the eleven?

Brian Trippe: Yeah, I’ve got single-families and I’ve got an office building as well where my office is, that’s kind of like a strip mall. I was kind of taught this from the beginning, and this is what I teach as well, when I teach; I’ve got the REIA and I’ve got the podcast (I do all this other education), and what I was taught and what I teach is you either need to wholesale and take those profits and buy passive income, or you need to fix and flip and take those profits and buy passive income.

You’ve gotta have an end goal in mind. You can’t just go and wholesale forever, or fix and flip forever. It’s the very rare guy that can do that. You’ve gotta have some sort of end in sight, and for me the passive income piece — I love commercial, I love multifamily, I’m in the market right now for an apartment building, but I’m kind of on the belief that we’re about to take a little downturn, so I really haven’t bought a whole lot lately. I’ve just been kind of stockpiling cash and just waiting for the right opportunity.

Joe Fairless: And the podcast that you referenced – is that AlaReia Masterclass?

Brian Trippe: That’s correct, we started a REIA, we call it AlaReia. We’ve got the AlaReia Masterclass Podcast – it’s completely specific to Alabama real estate, and then obviously goes with our meeting; we have our meetings once a month, it’s the second Thursday of every month.

I do a little daily show on our YouTube page as well; you can just search AlaReia.com… I’m kind of creating this cloud of real estate education that’s specific to Alabama, and in particular Birmingham. We’re going to [unintelligible [00:15:29].21], we’re going to Montgomery and some other places, but I have a huge passion for affordable real estate education in our area, and just kind of helping and teaching our community.

Joe Fairless: What type of investing — because you’ve done tax liens, buying and selling notes… What’s your least favorite or has been the least successful for you? Fixing and flipping, wholesaling, or whatever?

Brian Trippe: Yeah, I would definitely say fix and flip is — I don’t wanna call it weakness, it’s just not something I like. I just don’t like doing it, I guess because I got started wholesaling and seeing that instant check, versus holding something for 4-6 months, and then you could open up a wall and find this or that… I just feel like there’s so much risk to it. I do 2-3 a year, but managing the projects becomes just a bear, and it’s not something that I like doing very much.

Joe Fairless: Yeah, maybe if I had the skills to fix and flip (which I don’t), maybe I would… But just from all the interviews I’ve done, wholesaling by far is smarter, in my opinion, than fixing and flipping, because of what you said. The limited liability or zero liability that you have in terms of financial commitment, as well as the velocity of money that you have when you wholesale, versus a fix and flip… You don’t make as much usually, but you certainly don’t have the grey hairs and the headaches and the risk that’s associated to it.

Brian Trippe: Yeah, absolutely. And you can do as many as you want at the same time. You don’t need a certain amount of money to do two, three, four, five wholesale deals at a time, like you would for flips.

Joe Fairless: What is your best real estate investing advice ever?

Brian Trippe: I’m a big believe in honesty and integrity. I’ve built a reputation… I’d rather give up some profit in order to preserve that. I’d just say, walk in integrity, walk with honesty, and do your business the right way, ethically. There’s no way I would have been able to build this REIA — we’re young, too. I mean, we’ve five months old. We’re averaging about 75-80 people right now, we hope to have 100 at our next one, but there’s no way that that ever could have happened if I would have smeared my name, if I would have given up integrity for profit, stuff like that. And there are people that do it. It’s so cutthroat, real estate investing locally, and I’m sure it is nationally, as well. It’s so cutthroat, and it’s so competitive that I just take that equation completely out of it.

I don’t wanna compete with anybody, I wanna collaborate – I say that all the time. I don’t believe in that, I don’t believe it has to be that, I just believe 100% with honesty, integrity, and then the chips will kind of fall as they may.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Brian Trippe: Let’s go.

Joe Fairless: Alright, let’s go. First, a quick word from our Best Ever partners.

Break: [00:18:14].11] to [00:19:12].29]

Joe Fairless: Best ever book you’ve read?

Brian Trippe: The Cashflow Quadrant.

Joe Fairless: Best ever deal you’ve done?

Brian Trippe: The mobile home park, no question about it.

Joe Fairless: Best ever way you like to give back?

Brian Trippe: Through REIA, it’s my baby right now. I’m doing everything to nurture that thing and to grow it and to do it the right way. I’m not bringing a bunch of sleazy sales people… It is genuine real estate education. There’s a huge need for it in this area, and I’ve got the support of a lot of the big-time local real estate investors. They come to it and support it, and there’s no way that I could have been able to do that without their support. So no question about it, the REIA, and just real estate education in general.

Joe Fairless: What’s a mistake that you’ve made on a transaction that you haven’t talked about already?

Brian Trippe: I have made a couple of mistakes – I think we all have – but I haven’t made just the massive, tens of thousands of dollars mistake. I’m very conservative.

A couple of mistakes that I’ve made is I’ve gone into some areas – even within our town, even within Birmingham – that I didn’t know as well; I thought I knew them, but I really didn’t, and I would go ahead and make a purchase and it’d not really be worth what I thought it was, after the fact.

I’ve done that a couple of times, but you’re talking about losing $3,000-$4,000, not tens of thousands.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Brian Trippe: You could definitely connect with us anywhere; you can just search AlaReia. The best way to reach me is my e-mail address, info@alareia.com. Go to AlaReia.com. You can go to our Facebook page, which is /AlaReia. You can look us up on YouTube… A lot of great ways to see what we’re doing here in the Alabama real estate market.

Joe Fairless: Well, Brian, thank you for being on the show. Thanks for talking about the mobile home park case study certainly, and also your start with the Rich Dad, Poor Dad seminar and how you got going, did that 15-day action plan, made 10k on a wholesale deal, made a bunch of mistakes along the way too, course corrected since then, that’s for sure… And I liked the case study with the mobile home park in particular, because we got into a very successful deal that you did for the first time in terms of asset class, and your approach, and how you got up and running. Frank Rolfe has been on the show before, and he just provided a bunch of really good information on mobile home parks. So Best Ever listeners, you can go to BestEverShow.com and search maybe “mobile home” and Frank’s episode will come up.

Thanks for being on the show, Brian, thanks for sharing your best ever advice, and we’ll talk to you soon!

Brian Trippe: Awesome! Thanks, Joe.

 

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Best Real Estate Investing Advice Ever Show Podcast

JF1052: He Purchased his First Flip at 21 Years Old With $0 Out Of Pocket! With Nick Armstrong

Nick had 3 kids and a full time job when he got started, the only thing he knew was to TAKE ACTION! Today he shares a lot of real insight into the world of fix and flipping. He’s made a lot of mistakes, fortunately he learned from all of them and kept moving forward. While he has had success so far, it seems as though this is only the beginning!  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

Best Ever Tweet:

Nick Armstrong Real Estate Background:
-Owner of Armstrong Investment Groups, LLC At 23 years old
-Within his first 18 months he has done over $1,000,000 in transactions
-Recently secured 3 private investors over the course of the past 3 months
-Runs a video blog: Armstrongs in Real Life
-Based in Birmingham, Alabama
-Say hi to him at www.flpbhm.com
-Best Ever Book: Success Curve

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Joe Fairless: Best Ever listeners, 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 fluff.

With us today, Nick Armstrong. How are you doing, my friend?

Nick Armstrong: I’m doing well, man. You?

Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Nick – he is the owner of Armstrong Investment Groups at 23 years old, and within his first 18 months he has done over one million bucks in transactions. He has recently secured three private investors over the last couple months, and we’ll talk to him about why he’s doing that… And he runs a video blog.

This interview is actually going to be on YouTube as well, on his video blog, as well as mine. With that being said, Nick, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Nick Armstrong: Yeah. I’m 23 years old, I got married when I was 18; I married my high school sweetheart and we had three kids, fourth on the way, due in October.

Joe Fairless: Congrats!

Nick Armstrong: Thank you, I appreciate it. I started in real estate probably less than a year and a half ago (about 18 months ago); I actually got started through Bigger Pockets [unintelligible [00:03:28].22] just started networking. It really came down to me searching for opportunity. I knew nothing about real estate, I got started through a book.

Joe Fairless: Which one?

Nick Armstrong: Rich Dad, Poor Dad – that one got me kind of started, which lead to 50 other books, which ultimately got me here today… But my first step really started from networking; I was scraping for any kind of opportunity. My first deal – technically, it wasn’t my first deal, but I tried to buy a duplex we were gonna house hack in and then rent the other side out… And we got this close to closing on it, and I was getting an FHA loan (FHA was basically gonna be the loan). I was gonna have to put 3,5% down, and they wouldn’t fund it.

Joe Fairless: Why?

Nick Armstrong: They said that they would not fund an investment property. The way that it was structured – it was a USDA – my down payment was gonna be piggy backed onto another loan, because I was broke. I was 20 at the time, and working full-time at a fast-food restaurant.

Joe Fairless: Which one?

Nick Armstrong: Chick-fil-A.

Joe Fairless: Okay.

Nick Armstrong: I’m actually still there part-time until July. So that’s kind of how I got started; I’m scraping every day, looking for any kind of opportunity that I can find, and I’ve found one.

Joe Fairless: One million dollars worth of transactions… What does that entail?

Nick Armstrong: Basically, what I do is I flip houses; I don’t mean wholesale. I fix, flip, renovate and then resell. The way that I got started was a joint venture partner reached out to me – it was an out of state partner. I don’t like the idea of asking for money, I just like to find opportunities out there and say “Hey, would you like to get a piece of this opportunity?”

That’s basically what happened – I said “Hey, I’m in Birmingham, and I’ve got this deal.” Somebody reached out – he was a JV partner – and it was kind of a dream come true for me, but his terms were “We fund the acquisition plus the rehab, 100% of everything, and then we split 50/50 at the end of it.”

That to me was a dream come true, because I’ve always been somewhat of an entrepreneur, I’ve just never had the funds to do anything; I was gonna try to start wholesaling, but I didn’t.

Joe Fairless: Where did you post — was it the Bigger Pockets forum?

Nick Armstrong: It was.

Joe Fairless: Okay… In like the Marketplace area, or…?

Nick Armstrong: It was. Basically, what I was doing was I was driving for dollars, looking for houses in Birmingham that had For Sale signs, and I was trying to get in touch with the owners. A lot of the people were actually wholesalers (I didn’t know this), but there were also people that were willing to seller-finance their properties, so what I was doing was I was calling these owners and I was saying “Hey, would you be willing to seller-finance this property?” and they said yes.

I would take pictures of it and all that kind of stuff, I would go on Bigger Pockets, and I’m like “Hey, here’s this opportunity. Who wants to get on board with it?” Like I said, essentially, that’s how I got noticed on there; it was from doing stuff like that.

Joe Fairless: So you were initially looking for seller-financing properties to basically help the individuals who were selling their house sell their house through seller financing, and you were trying to wholesale the deal, right?

Nick Armstrong: Yes. It was basically anything and everything that I could try; I was just taking action, and it obviously led me to the right place… But I’m still working with these partners and I’ve secured two others, but we actually just closed on a house yesterday, and then — we bought a house yesterday and then we sold a house last week, so things are moving pretty well hopefully for this year.

Joe Fairless: Let’s go back to that first one – the joint venture partner reached out to you after you posted about the deal, and they said “The terms are we’ll finance 100% of everything, split 50/50 at the end of it.” What were the numbers on the deal?

Nick Armstrong: This one was a foreclosure, it was a Fannie Mae. We bought it at 67k, we put about 27k into it, and we sold it for 134k [unintelligible [00:07:09].13]. We bought two more after that, so I’m at five with them right now… So five purchases with them right now.

Joe Fairless: Over what period of time was that first one?

Nick Armstrong: A lot longer than I thought it was gonna take… We were doing it with a flat fee; we didn’t use a realtor to list the property. We were using a flat fee company.

In my area, it took a little bit longer because we were pricing it kind of at the top of the range for that area. I learned that as I went. It took me less than 35 days to rehab the property, but then it sat for five months. Those holding costs – they’ll kill you if you’re not careful. We learned a lot on that one, but that’s kind of how the numbers [unintelligible [00:07:44].27] with that.
Joe Fairless: And roughly you and the joint venture partner each came away with about $20,000?

Nick Armstrong: Less than that. The holding costs, depending on what market – especially if it’s an HOA area or certain things like that, that will hurt your bottom line for sure.

Joe Fairless: What ended up being the profit to each of you, roughly?

Nick Armstrong: We made about 23k off of it.

Joe Fairless: Total?

Nick Armstrong: Yes, [unintelligible [00:08:06].14] We purchased it for 67k, we sold it for 135k. For my first deal, it was probably the best that it could be, because I’ve had a lot of nightmares going into the first deal; I didn’t sleep a lot at night. I went out of town and I came back and I was like “Oh gosh, the basement wall is gonna cave in” or something like that. I kind of got freaked out, but it worked out.

Joe Fairless: How did the joint venture partner know that there was an alignment of interest, other than the 50/50 split?

Nick Armstrong: So I’m in Birmingham, and they were in Florida; they told me that they didn’t do any business with anybody that they didn’t meet in person, so I drove down there, kind of on a leap of faith, because you hear all kinds of stuff… You hear all kinds of stuff like that.

Joe Fairless: Yeah, you probably brought a hunting knife with you, right?

Nick Armstrong: I did [laughter] That’s kind of one of the things I wanna get as far as a point across for this – you create the opportunities, you don’t stumble upon them.

So anyway, we drove down there, they met me, shook my hand… It was like this two-day conference and I learned a whole lot. They knew what they were doing, I was pumped up…

Joe Fairless: Was it an actual conference, or it was like experiencing a conference?

Nick Armstrong: I said conference, but it was like a get-together with like 12 people. It was very, very secluded; there were not many people in this group, for obvious reasons.

Joe Fairless: What are the obvious reasons?

Nick Armstrong: How many places do you know that fund 100% of the rehab plus the acquisition? You want it to be more tight-knit, especially whenever you’re talking about that amount of money; some people are purchasing 30 houses at a time. I would probably wanna keep it pretty tight-knit, too.

So I went down there, shook everybody’s hand and I met them. They had actually done two or three deals in Florida with these people; I met up with them and I asked them how their experience was, and I studied up on the company a lot before I got my feet wet with anything. Then once I was assured that this was the real deal — it was still a leap of faith, I’m not gonna lie. People laughed at me, my friends laughed at me, I lost friends, family laughed at me… They were like “You’re an idiot, these people are scamming you”, but now these same people are coming back and ask me for jobs or money, so it’s kind of funny. But I took a leap of faith, I went down, and it’s rewarded me.

Joe Fairless: Just from an alignment of interest standpoint – you didn’t have any of your own money in it; did they make you sign anything? Because I’m putting myself in their shoes… Certainly the 50/50 split on the upside sounds really appealing, but I’m sending you $94,000 total, and you don’t have any money in it. Did you have to do anything to put their mind at ease or sign anything?

Nick Armstrong: Yeah, there’s a joint venture contract that you sign that basically says that everything is theirs. So if I [unintelligible [00:10:43].07] and run, everything is theirs; they’ve got all that equity in that property. Essentially, I was just gonna do everything. It was per property, so it wasn’t like “For six months I’m under contract with these people.” With every property it was a different contract.

Joe Fairless: Alright. One question that I’m gonna start asking guests – and you just helped me with this – is in addition to your purchase and your renovations costs, what were your holding costs, and are you including that? Because on the surface it’s $41,000 profit, but then when you said it took five months and the holding costs, it knocked down the $23,000 profit, and that’s huge. Was it the HOA fee that was the main thing? Because that’s $17,000 or $18,000…?

Nick Armstrong: Yeah. You’ve gotta figure the insurance… Basically, what we figured into the holding costs were 1.5%. We still had to pay to list the property, we had to pay concessions; concessions are a huge thing down here. Everybody wants to buy a house with zero money; they don’t wanna put any money down.

This house was beautiful. It was completely remodeled, but they wanted the roof checked, the HFAC checked out, they wanted everything fixed… I had to build a [unintelligible [00:11:57].27] at the back of the house. Crazy stuff, and all that stuff adds up, and it just kind of compounds every month. You’re cutting the grass… I live in Alabama; humidity is crazy, so the grass is always up six inches every week. It’s a lot.

Joe Fairless: That’s good to know. That’s something that I will start asking moving forward with all fix and flippers, so I’m glad that you told me about that and we talked about it.

Okay, so that was the first deal, you made money. Congratulations, you made money on the first deal; you got into it with no money of your own, you went down to Florida with your wife, with your hunting knife and you made sure that things were on the up and up, and you didn’t get kidnapped, you got funded, so great. How many deals have you done to make up that million dollars worth of transactions within the first 18 months?

Nick Armstrong: We’re at five with them. We’ve renovated three… We sold three so far. So we bought/sold, bought/sold, bought/sold. We got an offer on one of our properties yesterday. We bought that one at 59k, we put 27k into it and they offered us 120k, but I’ll be countering back, because it’s listed at 125k I think right now.

The one that we just purchased yesterday, we purchased it at 60k, we’ll probably put 30k into it, and it will sell for 135k easy.

Joe Fairless: Just so I’m calculating correctly – you’ve done five total deals?

Nick Armstrong: With my out of state people.

Joe Fairless: With your out of state people. What I’m tracking towards is that million-dollar in transactions in the first 18 months. Five total with your out of state people, and then how many without the out of state people?

Nick Armstrong: Without the out of state people we closed one yesterday. Like I said, I’ve just secured these two local people, so the funnel is filling with buying more, but as far as transactions buying and selling, [unintelligible [00:13:51].04] Does that make sense?

Joe Fairless: Oh, so you’re double-dipping?

Nick Armstrong: I’m double-dipping, but yeah, that’s how much money I’ve made, if that makes sense.

Joe Fairless: Got it. So for example, towards that million dollar mark that I mentioned earlier, each property is counted twice.

Nick Armstrong: Yes, I would say probably a little bit more, because the first property that I’m talking about, we bought it for 67k and then we put 30k into it. So I’m counting every dollar that I’ve managed, if that makes sense.

Joe Fairless: Okay, cool.

Nick Armstrong: Give me a couple years and that will be in net worth, or whatever, but…

Joe Fairless: No, that’s fine… I was just trying to track how you got to the million dollar in total transactions within 18 months, and I get it now… It’s including the purchase and then the sale. Alright, got it. Five total deals that you’ve seen through from start to finish, correct?

Nick Armstrong: Yes.

Joe Fairless: What was the most challenging one other than the first one?

Nick Armstrong: The second one. The first one, I figured that I knew everything and I would use the same people and they would take care of me as far as my contractors, and  stuff… [unintelligible [00:14:52].28] he’s actually a mutual friend, and I trusted them… And then I got burned.

Joe Fairless: How so?

Nick Armstrong: I paid them weekly… Don’t do that, ever. Pay them by the job. It took four weeks longer than it was supposed to. I’m a very compassionate, laid-back guy, and the fact that I knew this person added on… It was just stressful for me. So I got burned, let’s just put it that way. I trusted somebody I shouldn’t have trusted, and it was my fault.

Joe Fairless: Same thing happened to me when I was living in New York City and I bought my fourth house… The first three did not need renovations, the fourth one I got a little cocky. Even though I was living in New York, I bought in Texas, and — the first three were in Texas, that was fine, but the fourth was in Texas and needed work. I hired a family friend’s family member who I knew really well, grew up with, and they took me behind the woodshed and just beat me with delays of the project, and went like $15,000 over budget. I had no clue what I was doing, and I learned the same thing – it doesn’t matter if you know them or not, you have to have an alignment of interest and structure it properly. So instead of paying weekly, like you did, now how do you pay contractors?

Nick Armstrong: Basically, it’s obviously per job, per item. We’ll have a spreadsheet now to where if we’re [unintelligible [00:16:12].02] like “This is how much I pay per door.” If it’s not Joe, it’s gonna be Bob. “Bob, if you don’t want that job, then I’ll pay Joe, per door.”

Joe Fairless: What do you mean “per door?”

Nick Armstrong: A prehung door. Let’s say I’m gonna pay you $50 to hang a prehung door; regardless if that’s Joe or Billy – it really just depends on who wants the job – I tally it all up and I’m saying “Hey, this is how much this job pays. Who wants it?” Most of the time it’s the same people that asked for it, because they’re the people that are hungry and are willing to work. You’ve gotta deal with that stuff… Contractors are probably the hardest part of this whole business, especially if they start trying to get buddy-buddy with you and you start getting emotions attached to it… You can’t, you have to break that off.

Joe Fairless: So you have identified what each task will cost and what you’re willing to pay for it, and you go to the contractors and you say “Here’s what needs to be done, here’s how much I’ll pay you per task” and “Do you want this?”

Nick Armstrong: Yes.

Joe Fairless: Okay. Do you also pay them up front?

Nick Armstrong: No, not unless — so the way that my out of state people work, and I’ve learned this and experienced it, too… The only people that I’ll pay up front is flooring people – people that are installing carpet, and stuff like that – just because that kind of makes sense, and it’s only like $60 up front, especially if you’re buying it at Home Depot, or Lowes, or what have you. That’s the only money up front we’ll put. Everything else – materials, everything – we paid for separately.

We Home Depot has a cool thing where you [unintelligible [00:17:34].18] you scan everything and then it sends to the officer’s cell phone number and they confirm payment… So it’s all simple. These contractors – they’ll upcharge everything that they can.

Joe Fairless: You said you’ve got three private investors… Are those three in addition to the Florida people?

Nick Armstrong: No, two are local, one is out of state, and I haven’t even done any deals with my second local person. My cards are right right now, and I just wanna make sure that I play everything correctly. As of right now, it’s working. Where I plan on my business going is just to have a big group of people and funds to work with, and to borrow money from each other… That type of thing. This is years down the road, but I’ve secured two so far in the past 18 months, so hopefully I’m on the right track. We’ll see.

Joe Fairless: How does the conversation go when you talk to private investors about investing in your deals?

Nick Armstrong: Basically, I show them what I have done and I explain to them the structure that I’ve used to work with my out of state partners. If you have money sitting in a bank, that’s not doing anything, who wouldn’t want to earn extra money on the side? Does that make sense?

I’m basically selling a product, and the product is money. Who wouldn’t want to be making 12%-20% return on their money that’s just sitting in the bank right now? When I go through these spreadsheets that we use for all these houses and closing costs that we talked about earlier, and they know that I understand what I’m talking about and how extensive all this stuff is… And even if the market dips, 10%-12% overnight, because we were gonna net 30% at the end of it, we’re still gonna come out clean, even if the market does dip overnight.

So that’s kind of how — I had everything well organized. Everybody likes organization, especially people that have money; they want somebody coming in there that’s giving them a clean presentation of what they have to offer. Like I said, I go back with what I’ve done in the past, and most of the time they’re good with it.

Joe Fairless: What is your best real estate investing advice ever?

Nick Armstrong: Other than “Don’t trust anybody ever…” — I’m just kidding. [laughs] But you really do, you have to keep a tight leash on people; so trust, but verify business. It’s also a numbers business. I think that my biggest advice that I can give somebody, especially if they’ve already started – if they haven’t started, then my advice is start; start somewhere. I started by talking to homeowners in Birmingham that were just trying to sell their house, and I was putting it on Bigger Pockets. Just start somewhere… But don’t ever trust anybody just because they’re a professional… Whether it’s a real estate agent, whether it’s a contractor, really get three, or four, or five, or ten bids per property for anything, whether it’s plumbing, or even just trying to sell a house.

On my first deal, a contractor tried to sue me because I didn’t pay him for an estimate. A free estimate – I didn’t pay for it, so he went to his buddy that was a lawyer and wrote up this [unintelligible [00:20:20].25] letter and sent it to me, and was like “I’m gonna sue you for $5,000.”

Joe Fairless: What happened with that?

Nick Armstrong: Nothing. He was just trying to scare me.

Joe Fairless: Did you act on it?

Nick Armstrong: No.

Joe Fairless: You didn’t respond in any way, and it just went away?

Nick Armstrong: This is how I responded… I do a lot of yellow letter campaigns, so I was doing pre-foreclosures in the area, and a property that he owned was actually foreclosing, so I sent him a yellow letter saying that I would like to buy his property [laughter], and I never heard anything back from him. I’m sure that was probably enough for him. But I never heard anything from that… Me and him both knew that he was just trying to get money. It’s just kind of how that worked, but it scared me to death for the first little while, but then I was like “There’s nothing that he can sue me from.”

It’s just kind of crazy, but that’s my advice… Especially if you’re already in this and you’re newer, don’t trust anybody just because they’re a professional or because they’ve done it. Really verify yourself and never assume anything.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Nick Armstrong: Absolutely.

Joe Fairless: Let’s do it. First, a quick work from our Best Ever partners.

Break: [00:21:22].01] to [00:22:24].11]

Joe Fairless: Best ever book you’ve read?

Nick Armstrong: The Success Curve, by Jeff Olson.

Joe Fairless: Best ever deal you’ve done?

Nick Armstrong: Probably the one that we just purchased yesterday. We purchased it for 60k, we’ll put probably 25k into it, and it’ll sell for 130k.

Joe Fairless: Oh, that’s the one you mentioned earlier. Are you including holding costs there?

Nick Armstrong: I am. This is a different area, so it’s just a little bit different, and it’s with a different partner, so it’s structured a little bit differently.

Joe Fairless: How is it structured?

Nick Armstrong: It’s the same, it’s still 50/50, but with the way that [unintelligible [00:22:51].02] on the money, basically; it’s like a certain little percentage out of every month, basically. That’s another reason why the holding costs are so much. You’ve gotta figure out how much your money is gonna cost you per month.

Joe Fairless: What’s the mistake that you haven’t mentioned that you’ve made on a transaction?

Nick Armstrong: Man, there were so many… That’s pretty terrible to say, but…

Joe Fairless: You’ve already mentioned some really good lessons.

Nick Armstrong: Yeah, I’ve learned from every single one of them. The biggest mistake really is just assuming something without verifying; that is the biggest mistake that I’ve ever done – assuming that something is gonna cost this, whenever I haven’t really verified it; I’ve just kind of got an idea, basically. Those little things add up so much at the end of a project…

Joe Fairless: What’s the best ever way you like to give back?

Nick Armstrong: I love mentoring people, and especially kids that are my age and younger than me. They ride around with me because they’re interested in some of the deals that I’m doing. Some people are interested in wholesaling, so I talk to them about how to actually generate off-market leads with yellow letters, and stuff like that, and the success that I’ve had through that. That’s kind of how I can give back – developing people that are younger than me.

Joe Fairless: Where can the Best Ever listeners get in touch with you?

Nick Armstrong: YouTube – Armstrongs In Real Life; it’s out daily vlog. We video everything, mostly to remember us and our family. I’ve also got [unintelligible [00:24:05].20] Instagram – I post all the videos of my business, and pictures, stuff like that. I’m hitting it really heavy with social media marketing right now.

Joe Fairless: Nick, thank you for being on the show. Thanks for talking about how resourceful you were getting going – and you still are, but that’s just the foundation of everything… You were driving around, finding houses that had Sale signs, and then talking to them, seeing if they’ll do seller finance, posting those… Eventually, that lead to an opportunity where you had a good deal, you found a joint venture partner (thank you, Bigger Pockets) and you were able to get the first deal done.

Lessons learned – holding costs (that’s a big one), and just overall maybe competitive pricing in certain submarkets, as well as the contractor stuff. But overall, holy cow, congratulations! You’re not leaving your Chick-fil-A job and you’re gonna be doing this full-time. Props to you, my friend. I’ve really enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you soon!

Nick Armstrong: Alright man, thank you.

 

 

 

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