Pejman had a very interesting strategy flipping vacant lots, until banks refused to sell him property after they found out how much money he was making. He also had a unique way of looking at his money at a young age, he would not spend any money unless it was an investment that made him money. Pejman has a ton of tips for money, real estate, and business. You’ll want to hear this one! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Pejman Ghadimi Real Estate Background:
- Self made entrepreneur, best selling book author, and real estate investor
- Three of his businesses collectively have grossed over $40M in revenue annually
- Most recent best seller, Third Circle Theory, focuses on achieving a higher level of self-awareness and leveraging the power of entrepreneurship
- Say hi to him at www.learnfrompj.com
- Based in: Palm Beach, FL
- Best Ever Book: The Alchemist
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff. With us today, Pejman Ghadimi. How are you doing, Pejman?
Pejman Ghadimi: How are you doing, Joe?
Joe Fairless: I am doing well. You said your friends call you PJ, so I will call you PJ. Are you good with that? A little bit about PJ - he is a self-made entrepreneur, best-selling author and real estate investor. Three of his businesses collectively have grossed over 40 million in revenue annually. He's got a book that recently came out, Third Circle Theory, which focuses on achieving a higher level of self-awareness and leveraging the power of entrepreneurship.
He's now building and developing luxury properties. Based in Palm Beach, FL. With that being said, PJ, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Pejman Ghadimi: Sure. Actually, a big piece of my background is actually I've made my first million dollars quite a long, long time ago, when I was 22 years old, in real estate, and then ever since I just got addicted to business. I've built a lot of different companies, one of which is really well known, called VIP Motoring, which is the world's first investment fund in alternative luxury assets. Then since then I've also launched Secret Entourage, Exotic Car Hacks and Watch Conspiracy - three very large online platforms that teach different aspects of entrepreneurship and luxury lifestyle.
Today I spend a lot of time just primarily kind of managing those businesses, because I have different line CEO's that run each of them. At the same time I'm also building and really going into rehabbing really high-end properties that are about usually the 1.5-2 million dollar range, and ultimately just kind of taking as much time as I can trying to do that, along with all the thousands of other things that come through the day.
Joe Fairless: How did you make your first million as a 22-year-old?
Pejman Ghadimi: Well, it was actually flipping lots. It was actually a really interesting concept. This was pre-recession, back in '08. This was in 2005. What I ended up doing is I was buying lots from some of the major builders without them actually knowing I was buying them. I used to live in Northern Virginia, which was in the Washington DC area, and it was a very booming market at that time. I didn't know much about real estate or anything else, but what I did understand, because I was a banker at the time - I really understood the way people and the psychology of what people were buying and how they were buying it, and then I also understood how builders were indirectly extorting people by adding premiums to lots or land just because of demand.
So people would line up in the morning, trying to buy a property, so there would be like maybe 50 to 100 people lined up for 10 properties available... So builders would come out and literally add premiums on the spot to some of these properties. It would be like "Well, if you want a house, the next five have a 50k premium", or "The next 10 have a 100k premium", and so on and so forth. So they were really raking in the cash, coming up with these made up premiums.
So one of the things I did is I figured out the angle as to where people were gonna be going to be buying houses the following year, and I started going ahead of time and making deals with builders and developers who were gonna build these areas to automatically secure 4-5 lots. This was interesting for them, because I was willing to put deposits on lots that didn't exist, and it was also good for them because it was at a time where there was no demand for their lots, because they had no models, and the market hadn't caught up in terms of location, where those people were.
So my main focus at that time was just to secure as many lots as I could, and I would go community to community before houses were built and try to secure anywhere from 3-5 lots. Then I would show up when those communities got hot, about a year later, and still I was one of the first guys that was gonna get his units... I would show up literally with these 5k deposits on these properties and I would sell these lots as allocations right before they were due for auctioning, to people who were in line, willing to pay 50k or 100k premiums. And I would sell it to them for 40k, or 10k-20k below what the builder was asking.
So I was ultimately flipping 5k allocations for anywhere from 40k to 70k, without ever having to take out a loan on a property, or anything. I did this 72 times before they kind of caught on to what I was doing, and eventually they put my photo in the back of their buildings and none of these sales centers would ever sell me a property.
It was really fun, because the first time I walked in there and I saw my picture, I swear, I flipped so hard, because I thought maybe the FBI was looking for me, or something... I thought I was doing something illegal, so I got really scared. I ended up sending my mother in there to pretend she wanted to buy a property, to ask them "Why is that guy's photo in the background?" They were like, "Oh, we're just not allowed to sell them a property." I was like [unintelligible 00:05:55.23]
Ultimately, that was kind of my first gig as a banker, that allowed me to really leverage perception and this idea of supply and demand, and make it work in my favor at a very young age.
Joe Fairless: How have you taken that approach, where you identified some demand, and you were able to be creative and resourceful enough to leverage that to profits? How have you taken that approach to your other businesses?
Pejman Ghadimi: Well, that's actually the whole core of what my business VIP Motoring was built off of. You see, after my banking career -- I was a very successful banker, and at 25 I got fired.
Joe Fairless: Why did you get fired?
Pejman Ghadimi: Because I was a prick. I was one of the youngest managers in the United States at 18, and by 23 I was an executive VP. That got to my head. I was driving a Lamborghini to work, and that wasn't working very well for a conservative bank. I was very arrogant and very cocky in my approach... But I was very successful. I was very good at what I did, but I was arrogant in my unhumbled approach in terms of how I looked at my peers or other individuals who were above me in that organization. It got to my head, so eventually I literally just fired myself, thinking they would call me back and be like "Hey, come back to work. Don't worry about it, everything's good." They never called me. So I literally walked out of a very, very good six-figure job, literally by just thinking I would get a call the next day, and it never happened. But after that career ended, I realized I would never be a banker again, because the odds of someone else hiring such a young banker -- even though I had a track record, but I had a track record from the only bank that couldn't back me up anymore...
So I decided to get into the field -- I loved cars with a passion, and the recession was around the corner; I understood (to answer your question) that people were gonna look for other places to put their money during a recession, because as a banker, I understood that FDIC and also investments in stocks, mutual funds and everything were gonna go to crap during a recession... So I was like, "Okay, we have all this money in the market, and it needs to go somewhere..." What we do know about recessions is that luxury goods get really cheap, but they don't necessarily lose their value, they just lose their perceived value because of the lack of demand and the high supply... Because the first thing you dump when you know a storm is coming financially are your toys. So I knew that cars, art, watches and things like that were gonna get dropped.
I had saved a lot of money, I had my real estate money, I had a bunch of really good saving strategies from my past, literally eight years of being all working (I put money aside), so I decided to go all-in and ultimately buy a huge inventory of exotic cars and luxury assets from distressed companies that could no longer carry the inventory. So I bought it extremely cheap, and ultimately, since I couldn't sell it, because I knew the recession would last a couple years, instead I decided to create an investment model that would allow some of my own clients at the bank who were very high-end investors that had money and they were liquid and they wanted a vehicle to park it in - ultimately they parked it in these cars and watches that they would never take delivery of, but I would ultimately become a storage facility for. So out of that - it gave birth to the world's first alternative luxury fund that is called today VIP Motoring.
Joe Fairless: It's fascinating. How much did you have saved when you went on your buying spree of the luxury vehicles and watches?
Pejman Ghadimi: I had a total of 2.6(ish) in cash, and then my property was paid off, my personal cars were paid off, so I had more leverage there in terms of taking out more equity. I had that as a back-up and put all my money (2.2 million) in buying inventory.
Joe Fairless: What year did you buy the first car for this business?
Pejman Ghadimi: I already had cars. This was originally a side business before it became a fund; it was just a car wash, meaning I was just doing ultimately detailing and customizing because I had my own exotics... So I just evolved that business and I went into buying exotics from dealers who were distressed in late 2007.
Joe Fairless: Got it. You said you had really good savings strategies... What are some of those saving strategies that you used to get to that point?
Pejman Ghadimi: You mean in my past?
Joe Fairless: Yeah, you said you'd saved money, you said you had really good saving strategies...
Pejman Ghadimi: Yeah, absolutely. One of my things from a very young age is I never spent money, I always invested. What I mean by that is very different than what most people perceive that line to be. I didn't invest in stocks, and all that stuff; that wasn't what I mean. I look at every single item I've ever wanted in my life as a possible investment, and if it's not an investment, I didn't buy it.
Even when I made some money, I didn't immediately spend my money, meaning I wouldn't go on vacations, I wouldn't go spending money in clubs, because those are things where your money disappears. When you go on vacation, for example, you spend $10,000 between your plane ticket, your hotel, your food and everything else. That money is gone by the time you come back. You have nothing to hold on to.
One of the ways I kind of entertained myself at a younger age, even though I wanted all the luxuries in life but didn't actually want to spend money on them, because I understood the importance of having money, because I came from a very poor family, was the idea that I would only put my money in things that were investment vehicles. A car can be an investment vehicle - even though we're taught that it's a depreciating liability - if you understand the dynamics of how cars work.
If you walk into a dealership and buy a car like a Honda or Nissan or even Lexus, we're gonna lose money because that little liability keeps depreciating over time even if we lease it and we're ultimately paying to drive a car. On the other hand, if we put our money in a Lamborghini, for example, that new was $200,000, but we're able to acquire it at $100,000, whose lifelong value will always be $100,000, we're now able to park our money, and ultimately, even if we're paying a monthly payment, we're only paying into our own equity.
When we go sell that car five years later for $100,000, we just recoup our own money back. This is what I call the wealth transfer strategy, and it's one of the big things I teach at Exotic Car Hacks and Watch Conspiracies - how to not spend your money but how to transfer your wealth into things that previously were known as liabilities but can be actual assets if you learn how to actually by them and acquire them.
Joe Fairless: What's another example, besides the Lamborghini, that might be surprising?
Pejman Ghadimi: Let me give you a very simple example of a watch. I'll give you one for men, one for women. So you can walk into a store like Macy's and you can buy the nicest watch they have in their store for maybe like $1,000. You just spend $1,000 on a watch. Or you can learn how to buy the right Rolex (most people know what that is) and if it's costing you 15k and you can acquire it for 6k, it'll always be worth 6k. So you can literally buy that Rolex, wear it, and it may even go up in the course of the next 2-3 years, so you could actually get out of it making money instead. So you'd rather spend $1,000 or invest $6,000? It's kind of that model.
For women, the same can be said for when you walk into a store and buy a Michael Kors purse for like $500 that has a worth of zero, or you go and actually find a Louis at 60% of its cost and it's always gonna retain that 60% of its cost.
So you could literally wear your Louis and then sell it and get your money right back into the next item you want to buy, if you later decide you want a Birkin or something else.
Joe Fairless: So there are two keys to that approach. One is knowing that asset class, because you've got to know the Birkin versus the Coach versus the Louis Vuitton, and the second is buying it at a discount. So how do you accomplish both of those things?
Pejman Ghadimi: Well, there's a couple of ways. In a simple nutshell, I teach it; that's the easiest way to do it. I teach it in different courses. But for the normal consumer, you just start looking at supply and demand and the ongoing pricing of the market. You can even look on simple sites like eBay or online to see what the secondary market is selling things for, and then once you understand that -- then the acquisition strategy is a very long conversation; I don't know if we have time, but I'm happy to go deeper into it... But you can acquire these items at a fraction of the cost, and then ultimately consume them without losing your actual spent money.
Joe Fairless: So I totally understand now that you've described it briefly; I know you go more in-depth with your materials. One easy way is just looking on Amazon, seeing what those items are, what the pricing is... In terms of buying it at a discount though, what are some strategies that you've used to do that?
Pejman Ghadimi: Well, you wanna buy luxuries the same way that I set up my fund back in the day. You wanna buy luxuries from people who don't want them. What I mean by that, for example, let's say you're buying a car - why would a dealer want to sell it to you way lower than its cost? That doesn't make sense. But because the dealer's job is not to consume a Bentley or a Ferrari or a Lamborghini, the dealer's job is to turn over inventory... And whenever inventory - regardless that it's in the handbag market, in the watch market or in the car market - is not moving, it's costing the actual business owner money, because there's money tied in inventory that's not moving. And since luxury goods are not high volume goods, inventory still needs to turn over for some type of revenue to be created.
One of the things people don't really understand is that dealers are dying to get rid of cars that aren't selling on their lots. The big argument becomes, "Well, why would someone wanna buy a car that the dealer can't sell?", but the dealer doesn't care what it sells; the dealer turns over inventory. The dealer is marketing 15, 20, 30 cars at a time, and you're looking for one car. That's the advantage of the person versus the business. The business looks at everything as a number, and looks at everything from the ability to just ultimately move it within a timeframe. If it doesn't move in that timeframe, it doesn't instantly change the marketing strategy, get better at it or anything, because it has too many variables to care for. It just disregards the item. By disregarding the items, it looks for an exit, and if you as an individual understand how to position yourself, you can become that exit for the dealership, for the watch store, for the handbag store and everything in between.
Joe Fairless: That's fascinating. Now, you're focused currently on building and developing luxury properties - is that correct?
Pejman Ghadimi: That's one of my focuses, correct... Because the same way that I've just told you that I never liked to spend money - it's the same exact thing. I myself love large homes and exotic cars and everything in between, so the way I kind of work is that every 2-3 years I ultimately either rehab a really high-end luxury property, or I build one from scratch and live in it within the first 2-3 years, and enjoy it; while I do that, I build another one and then transition into the next one, so that way I'm not only living completely free, I'm actually turning my own living situation into an income-producing opportunity.
Joe Fairless: Can you give some numbers or a case study on how you were able to do that and it works out financially?
Pejman Ghadimi: Yeah, of course. Let's say, for example, you can build a home for $900,000, that appraises for 1.2, but you're the builder, so you're able to build it for less than that. If you can build it for less (900k), you're building in areas where the market is shifting up. So that same home that I have 900k invested in, I'm living in that home; it takes about a year or less to build, but once I'm actually in it, I stay in it and ride the market up while I build my next one. So that home, ultimately its base value goes up to let's say 1.1 or 1.15, which is only 150k-200k up, not a big deal, but what ends up happening is for me to live -- I'll use a million dollar property as an example; that's roughly a $9,000/month mortgage, including your taxes and everything, in South Florida. So the cost of that for an entire year, for example, is roughly about 100k.
So if you're able to sit in a home for that year [unintelligible 00:18:25.12] and you're able to then - even if you have this mortgage payment or whatever it is - sell it for 200k more three years later, while recouping all the money you've paid on your mortgage or however way you structured it... If you have enough cash, then more power to you to be able to live without the actual debt or the interest... But the basic principle is that as the equity market moves up, the actual cost of the home is actually more, so even if you have fees or anything else, you're able to every three years just keep shifting forward and getting ultimately your own short-term rent back by living there.
So you're not only getting your surplus minus your fees, but you're also getting the actual equity which you've paid back each month as you put money towards the home.
Joe Fairless: And what happens in a market that just takes a dive?
Pejman Ghadimi: You have to kind of stay current with what's happening. The market doesn't shift in an instant. What we see is we see indicators - especially because I was a banker long enough - of how shifts are happening, because markets change across the board. The housing market is connected to the car market, it's connected to the luxury market - all of these things are interconnected. It's also interconnected to the tax market, it's interconnected to the supply and demand based on how many people are migrating into areas at any given time...
We can look at the government right now and see all of these new tax laws taking a toll on a lot of these really expensive to live in areas, like Connecticut, New York and Virginia, for example, and we can see that those states are now going to cost even more to live in... So you're gonna see migration towards other states that are like Texas and Florida, as an example. So that's why even the appraised values of properties are not going up at the rate that the demand is coming into the market, it doesn't' matter because demand, when backed by cash, pretty much avoids all appraisals or anything else.
So if you can pay attention to these markers and understand what's happening, then you're ultimately always staying one step ahead, and if you do see a trend that "Man, we may be getting a correction", then you wanna correct yourself six months before the market corrects you.
Joe Fairless: What are some of those indicating factors that you look for?
Pejman Ghadimi: One of the things I look for is the law and its relaxed state towards banks. For example, right now I look at the huge influx of money because of the private sector being so much more freed... Meaning with the current administration not caring so much about limitations and basic laws around business, what it ends up doing is it just deregulates and frees these capital markets, which become ultimately very aggressive, greedy markets very quickly.
We've seen how the administration is pushing back the Dodd-Frank, which became ultimately the guiding principle on how banks were supposed to operate after the recession, because obviously, we've seen the huge disaster that was, and all the issues there... But yet, now they're pushing it back, so we're going to see in the next 6-12 months more stated income programs on loans...
We're gonna see Main Street ultimately buying what Wall Street is selling. And whenever Wall Street does something and Main Street follows, when more of Main Street jumps on, that's a trend that stuff is ending; not stuff is getting better, but stuff is about to change. So if most loans on the market start becoming stated income, and those relaxed parameters keep staying the way they are, it's gonna cause a lot of the market to start being flooded with people who can't afford what they're getting on.
So the affordability goes up, but what's gonna end up happening - the supply is not there. What ends up happening is the cost of everything keeps going up and keeps going up because the demand is there and the supply is not, but eventually, that meets a threshold where that doesn't make sense anymore.
Joe Fairless: Based on our experience as an entrepreneur and as an investor, what is your best advice ever for real estate investors?
Pejman Ghadimi: Don't be emotional towards anything you do. Look at everything as a number and understand that other people look at everything as a number, as well. I think the more you master the math and the less you worry about what is happening to you in that equation, the further you get in your endeavors... Because money is nothing more than a number. It doesn't come with any emotions. People have emotions.
So if you've invested in a property and you're in it an extra 50k and it's just not there, don't waste time trying to justify that emotional connection you have to that property; get rid of it, get out of it, because the equation never lies. Money doesn't have an opinion, people do... So it's important to just follow that trend.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Pejman Ghadimi: I'll try.
Joe Fairless: Alright, I know you are. First though, a quick word from our Best Ever partners.
Break: [00:23:12.23] to [00:23:49.20]
Joe Fairless: Okay, best ever book you've read?
Pejman Ghadimi: The Alchemist.
Joe Fairless: Best ever deal you've done?
Pejman Ghadimi: In 24 hours I sold a watch that I bought for 30k, for 58k.
Joe Fairless: What's a mistake you've made on a transaction?
Pejman Ghadimi: I didn't factor in the terms of the transactions as much as I got excited by the numbers on the transaction, if that makes sense.
Joe Fairless: Will you elaborate a bit on that?
Pejman Ghadimi: Yeah, so I accepted a loan offer, meaning that I accepted a repayment on a property that actually required not just cash up front, but also cash yearly... So I became kind of the investor in my own property, and that was a mistake. I had another offer that was less total, but all cash, and I should have taken that up front... Because sometimes when you tie yourself down and you don't realize the opportunity cost of not the money - because if you have enough of it it doesn't matter - but the time commitment and the mental commitment of still being invested in something is what I undervalued there.
Joe Fairless: I hadn't heard it put that way in terms of owner financing, if we're offering that... I'm glad you mentioned that. Best ever way you like to give back?
Pejman Ghadimi: Through all the things that I teach, which just has become my everything.
Joe Fairless: And how can the Best Ever listeners learn more about what you're teaching and what you're doing?
Pejman Ghadimi: Everything we talked about, you can simply go to learnfrompj.com. It's a simple site where you can actually access all of my books; I've written 12 books. I have a dozen courses, everything from luxury assets, to business, entrepreneurship and everything in between.
Joe Fairless: That sounds like a lot of fun, and some will probably open up the eyes on a lot of different aspects of what you're doing, because you take a different approach than what's typical, and it's grounded in (from what I can tell) a lot of sound logic. If you had asked me prior to our conversation, "Okay, Joe, real quick... Lamborghini - asset or a liability?" [laughs] I would definitely have to say liability, but if we understand the market dynamics, as well as getting it at the right price and knowing how to do that, then certainly it could become an asset if you buy at the price that it most likely won't go under, because then you've only got upside.
So thanks so much for being on the show... I'm really grateful you were on, I learned a lot. I hope you have a best ever day, and we'll talk to you soon.
Pejman Ghadimi: You got it.