BiggerPockets Real Estate Podcast - 53: Investing Without Loans and Retiring Early with Jason Hull

Episode Date: January 16, 2014

On today’s episode of the BiggerPockets Podcast we have an incredible chat with financial planner, real estate investor, and an all-around great guy – Jason Hull. Jason has a great story of how his early mistakes led to his conservative but effective strategy of building wealth through rental property… all without the use of leverage, loans, or doing any labor. Jason has some terrific insight into the way our human behavior causes us to act and invest, – so don’t miss this entertaining and informative show that will have you looking at your real estate in a whole new light. Read the transcript for episode 53 with Jason Hull here. In This Show, We Cover: Getting over-extended with his first deals and facing the housing collapse The “Oh Crap” backup plan The only two ways to make money in real estate Separating your skills from what the market is doing Getting “lucky” in real estate Getting to “P.I.R.E.” = Passive Income, Retire Early Why Jason doesn’t use leverage (mortgages) How to find an awesome property manager Working with a Financial Planner Stocks vs. Real Estate… Where is the balance? Why you should open a Roth IRA with $100 Links from the Show Jason’s Post – How NOT to Invest in Real Estate… A Case Study BP Podcast 052: Buying Apartment Complexes, Raising Millions, and Building a Profitable Business with Ken McElroy Facebook Post about “How Would You Spend $100?” The Two Most Painful Words a Landlord May Ever Hear… BP Podcast 050: Getting Started and No Money Down House Flipping with Mike Simmons Books Mentioned in the Show 123 Home Depot Entreleadership by Dave Ramsey The Goal by Eliyahu M. Goldratt The Four Hour Chef by Timothy Ferriss Tweetable Topics Invest for the cash flow. The appreciation is just gravy. (Tweet This!) I want to be lazy when I retire! (Tweet This!) Having money problems with your spouse is a sign of bad communication. (Tweet This!) Connect with Jason Jason’s Website: HullFinancialPlanning.com Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 53. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Hey, everybody, what's going on? This is Josh Dorkin, host of the Bigger Pockets podcast here. with Brandon Turner. Hey, Brandon.

It always cracks me up when you start with the, hey! And did you hear my dog in the background? That's my new puppy. I did not, and I don't care. It's my cute new puppy. Come on. Yeah, yeah. So all as well, things are happening. January is starting to really pick up lots of new people hopping on the site. And, you know, the podcast as well.

Actually, last week, our show with Ken McElroy was. That was a huge hit. Huge hit. People love that show. If you haven't listened to it, go listen to it. After this one, of course. Yeah, yeah, yeah, definitely do. Show 52, BiggerPockets.com slash show 52.

Well, speaking of tips, why don't we jump to today's quick tip? Quick tip. All right, today's quick tip. We have a forum on Bigger Pockets, which is called the Success Stories Forum, so that 10 times fast. success stories.

And not only is that well worth checking out to get inspired by your peers, but we really, really, really recommend you take every little success that you have and share it. Because the more visible, the more public you are with your accomplishments, the more people who see that you're doing good things, you're being successful. And as a result, you're going to attract new investors and other folks to look into him and check you out. So definitely recommend checking out the success story forum. I also recommend when you're recording a show, you don't text somebody on your cell phone. As I sit here, I'm watching Brandon texting. I don't know who he's texting.

My electrician. Somewhat disrespectful, Brandon. You were going on and on, you know. All right. So you're having electricity problems? Yeah, I got a hot water heater, electrical problem. Anyway, yeah, I'll deal with this. Well, I got a boiler problem, so, you know. I've got problems.

All right. It's very snarky. All right, so today we've got a pretty cool guy. As our guest on the show, we've got Jason Hall from Hull Financial Planning.com. He's a financial planner, obviously, and a real estate investor who takes a little bit more of a conservative approach to his investing than some of our other guests. So I definitely think you guys are going to enjoy hearing his thoughts, his stories, and his strategies. You know, everybody's got a different way of going about it. And it's, I don't know, I think it's pretty

fascinating to check it out. I had an opportunity to hang out with Jason at a conference a couple months ago and we had a lot of fun. So it's kind of cool to have him here on the show. I know Brandon, he got to spend like hours and hours cooking at an airport or something. I think I'm sure we'll learn more about that as we go on. That you will. Yes. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect

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slash rookie. Terms and conditions apply. Hiring Indeed is all you need. Yes. All right. Well, with that, let's let's hop into the show here. Jason, nice to have you. Welcome, welcome aboard. Hey, thanks for having me. I appreciate it. Yeah. Well, it's good to reconnect again. I know we hung out quite a bit a few months back at a conference and we hung out at the airport afterwards, which was fun too. So, yeah, it's always fun to hang out with you. It was a lot of fun watching the people walking by and noting the interesting fashion trends of the airport.

You guys sound really exciting. Boy, I want to hang out with you. We had like, what, like three, four hours to wait for our flights. We'd have sat there and, yeah, chatted. So anyway, let's awesome. Really interesting. People don't care about that, you know. Can you keep talking about that?

It's not nearly as interesting as seeing some Grammy winner at the car wash. That's true. Yeah, Josh did see a Grammy winner at the car wash. I didn't see a Grammy winner. His name he cannot recall. Oh, stop. You guys are being annoying. All right, let's start this.

Could we start here and stop ripping out? You guys, like, seriously. All right, let's do this. Jason, so how did you get into real estate investing? Well, I was in the Army and I got out of the Army and I had about six months between the last day that I had to show up for work in Fort Knox and the first day of law school in Virginia. And I was bored and I was watching light night television and there was this real estate investing secrets infomercial. And it looked really interesting. And so I actually attended the seminar, the little free seminar that they gave of where it's basically two hours of pitch for joining their course and this that and the other.

and hey, I thought I could make millions of dollars, no money down, flipping real estate. And so that's actually how I got into real estate investing was I got suckered in to an infomercial. Nice. Fortunately, I've learned some lessons since then. But yeah, that first introduction, it was these people that were, you know, his associates and advisors and, you know, realistically, he was making a lot more money off of selling these infomercial products. than he ever did of a real estate. Yeah, that's true.

I tend to think that about most of the salespeople out there. They make far more off of the sales than they do off of actual the real estate. But, you know, it's a good business. It's a good business. Yeah. Why are we doing real estate? Come on. We should just go on the road, Josh.

You and I could have some fun. Neither one of you just got the hair with this guy had. We could bring Jason with us, you know, hang out at airports, pick people out. Instead of the people that are offering the credit card offers as you walk by the gates, it could be the three of us offering some sort of infomercial product. There you go. I like it. That'd be awesome.

All right. So you got, quote, suckered in to this whole thing. And now, did that actually lead to you getting started? Or did that? Okay. Okay. It actually led to my first deal. Okay.

My first deal was in a little town right outside Fort Knox called Elizabeth Town. It was a VA foreclosure. It was a four-bedroom, two-and-a-half bath. Just your typical, it was a cookie-cutter neighborhood, almost like a love at town. And fortunately, it didn't really require anything in terms of fixing it up, getting it right. It was ready to rent, ready to move in the first day. Of course, I thought I could buy it. I haven't gone through this infomercial.

I thought I could buy it, slap on a coat of pay, add 25% to the price, list it, and sell it. which was, of course, fallacious thinking because there was a whole reason it was sold at that price. So we wound up renting out the property for a couple of years. And we were more than covering the mortgage payment, more than covering the property management fees. But, you know, being in grad school with no other source of income, the last thing in the world I've wanted was a six-month vacancy and having to cover the mortgage. So we wound up selling it and didn't get back into real estate until 2000. 2004, so probably another four years after that. And then, and this was the article that I wrote about,

the first guest post I did for you on Bigger Pocket was we started doing real estate development because we were friends with a builder. And so we kind of went on a deal with him where we'd buy the lot, we'd fund the construction loan, and he would do the building. And the first one was great. We made probably 100% cash on cash off of our investments. we thought, hey, we can do this again. We bought a second property. And it was going along fine. And we needed to keep the, we needed to keep the crew together. And so we wound up buying more properties.

And we got overextended. And so that slowed down the real estate again until we could get rid of all those properties. So I'll link to that article because that was a really good one that you wrote. And I'll put that in the show notes at biggerpockets.com slash show 53. But for those who haven't read the article. Can you kind of explain, I mean, what exactly were you doing with those properties? Yeah, so we were doing spec homes. It was in a, it was in a resort, a ski resort. We had bought a lot. We had the builder go build a pretty nice second home for skiers. The first one we sold before we even broke ground. So we had listed, we had the architectural drawings. We had the, you know, the CAD cam view of what it looked like. And it's sold right away. And we thought, holy, cat.

payter. The first mistake that we made, though, was not somehow tying any changes and modifications that the people wanted to the price that they were paying. So they paid the same price, and we wound up getting stuck with the mortgage for six months while they're doing modifications. But we still wound up with that about 100% cash on cash return. We bought a second lot. We were going to do the same thing. We wanted to keep the crew together. We bought a couple of other lots thinking, hey, we can flip this just as quickly. And it didn't happen that way. That was 2006.

And the market for particularly vacation homes just fell through the floor. And we wound up, we still made a profit on the second one. But by the time that had rolled around, we realized we were in danger of going under if we actually built on the next two lots. So we just sold the lots. And it took a long time to get rid of it. Gotcha. Gotcha.

I just want to step back really quick to that first property that you bought because you said something that I actually want to repeat here. And I think it's super, super important that we emphasize. You bought this VA home and you slapped the coat of pain on and did a little touch up and thought you were going to yield nice profits on the deal. And, you know, so essentially you didn't do anything. You bought it and said, hey, I'm going to just buy it and resell it and make a killing. Yeah. Yeah. And that was the whole thing that these infomercials led you to believe was, hey, I can, I can, if I find the right property and I buy it at the right price, then I can just through the magic of wishful thinking, somehow mark it up some significant amount and make a profit off of it. And the thing was, I wasn't creating value. And that's where you make money in real estate. You either buy because someone's in a distressed situation and you have insider knowledge about. that distress situation or you've got to add value.

There's no other way to really make money. Yeah, perfect. At least in my experience, there's no other way to make money. No, I think I agree. And I think I don't think I could have put it on any better. So thank you for saving me the breath. Well, I think it's interesting. I went through kind of the same thing with my first, I guess you could say my second.

My first flip was before the market crash. My second one was during the market crash as I was watching all those flipping TV shows and they were so exciting and watching people make $100,000. on, you know, throwing some paint and carpet into a place. Say, I flipped, I got excited by the TV shows too. And in the same way that you ended up with a rental because of it, I ended up with a rental because of it. And it was cash flow every month.

It's great. I still own it to today. But it was, so it's funny how like in an indirect way, those TV shows or the gurus in your case, like they still led us to the place where we should have been all along. But they let us there in a very roundabout, painful way maybe. Well, and it's okay. If you're a flipper and you've got the skills and you know how to redo a kitchen better than someone else or do it for cheaper or whatever, that's fine. But have a backup plan. And I didn't have a backup plan. The backup plan was, oh, crap. I'm now in grad school. Holy cow, what do I do? And I had no income. That was the other thing. I was in grad school. I had no income except for my summer internships. And that's, and I had no income. And that's, certainly wouldn't have been enough to cover our mortgage. So what kind of real estate investing are you doing today?

So I invest in single property or single family homes. Our portfolio right now is seven single family homes and one condo. The condo is where the unintentional landlords. It was the lights that we lived in. We moved. We couldn't sell it so we rented it out to cover the cash flow. I primarily rent in single family homes. You know, if a duplex or a quad came up and the numbers were right, I would do it.

But for me, I feel like where we live and the kind of the network I have in place and the understanding of the market, I have an informational advantage by investing in single family homes versus something else. And I've been approached for commercial properties. And I just don't know that market. And I refuse to invest in a market I don't know about where I don't have some sort of informational advantage. And we were talking earlier about people who watch. the HGTV, the real estate flippers shows, whatever, and they think that they can do it. Or, you know, you invested, you bought, you flipped in a rising market. There's something called attributional bias, which basically says if something good happens,

you attribute it to yourself. If something bad happens, you attribute it to external factors. And that happens, it happens in the stock market and it happens in real estate investing. So for the stock market, you know, if you happen to invest in Google, at the IPO and it went up and now you think, oh, I'm this great investor. It may just be that the market rose in general. I mean, the S&P 500 was up 23% last year. You could just have caught the rise and tied and may not have the skills that you think that

you have. So it's really important to be able to separate out what are my skills versus what was the market giving me. Is that, you know, I think that's kind of similar to how I go to the restroom every time my team is losing. and then they turn it around. Precision. Yeah.

Well, let's again. Mark Cuban has a quote that said in a bull market, everyone is a genius. That's kind of the same thing, right? Yeah. It's the same in a rising housing market.

And, you know, it wasn't until 2008 that we suddenly found ourselves with our pants down. And, you know, I'm sure, some of our,

you know, just like the backup plan was oak crap, now we have her pants down. Yeah, there you go. It's the pants were down when we had the old crap. I,

I feel like that's where all the gurus, like, a lot of them tend to come from is they were the geniuses in a bull market. And so they then put out, you know, all this, I'm a professional. I know everything in the world there is to do. You know, I really hope that's what sets apart bigger pockets from everyone else. Like, I really hope that more than almost anything else is that Josh and I never, like, even though we're hosting this podcast, we never claim to really like know what we're doing. I mean, like we have our experiences and we have what's worked for us and what doesn't. work for us. But like, I mean, none of our guests, nobody ever claims to be like the expert at knowing what we're doing here. And, uh, yeah, I like to think that's what sets things apart.

So, well, I think, I think that's a good point because, you know, I mean, we've had some, some folks who are, you know, beyond, I mean, more experience than the three of us, you know, multiply 10 times over. And yet they still will talk about the fact that they're just figuring things out. So like last week, we asked Ken McElroy, you know, what are some of the mistakes you made? The answer was, were we talking about just today? Like, that was perfect. Like, I love that. I mean, like, yeah, we don't have it all figured out at all.

And I hope the people listening to the show know that. I mean, we talk about numbers and properties we buy in. But, you know, this is a game that we're all playing and we're all playing it together. And I think that's what makes it exciting. Well, and in real estate investing or just investing in general, the idea is that you want to take multiple cracks at something that has a reasonable. chance of doing well. So that if one of them does great, great, if one of them whales, then that's okay too. You know, it hurts a little, but it's not going to sink you. You know, the people, and to me, this is the hardest thing to think about is when you're getting in, it's hard to

diversify. You know, you got to take that one crack. It's going to take a significant amount of capital or a significant amount of risk. And it pretty much has to work if you want to keep rolling it. Otherwise, you've got to be patient and you got to wait and you got to accumulate enough capital to where you can have eight, 10, and 12 properties so that you diversify your risk away. Yeah. Yeah. You bring up something interesting that I didn't really put a ton of thought into until now. A lot of people come out. They try it and they expect to succeed and, you know, a lot of them fail.

And, you know, you're not always going to get a hit on your first shot. And, you know, what really does set people apart who are going to be successful and make it are the people who say, okay, you know what, just because I didn't have a great deal on this first deal doesn't mean that this isn't a good place for me to make money. You know, that would be like saying buying some stock and losing a little bit and then saying, well, I'm done with stock, stock, stock, you know, it just, you know, and you see it a lot. You do, and you hear it a lot, and, you know, we see it a lot in real estate. And I guess, you know, I guess I kind of want to encourage newer investors, you know, if they didn't do as well on that first deal that they thought they were going to do, you know, give it another shot. You know, don't just quit.

Don't just give up after that first try because you never know what's going to come next. And you're going to get better, you know, the past is going to educate you hopefully and you won't make the same mistakes. And Eddie Johnson, who's on the U.S. national soccer team, I just heard an interview with him. He had great quote, even though it doesn't apply necessarily to what we're talking about is, or he wasn't talking about real estate investing. He was talking about soccer. And he said, you don't fail if you don't make it. You fail if you don't make it and you give up. And so, you know, if you're a first-time investor and it's two things. One, again, make sure that you. you've got that contingency plan. Hey, if I can't flip this, can I rent it? If I can't rent it the price I want, what's the price that I need? Where are the things I can do to salvage a deal? And that secondly, if it doesn't work out, make sure that you've got some sort of process review. Did you make a mistake somewhere along the way? Have a mentor or someone who's experienced

in real estate investing or a wise agent, not just a brand new green behind the years, real estate agent who's just trying to get a 3% commission, someone who's actually help people walk through investment deals and ask, hey, where are the steps, where could I have improved? And if your process is good, sometimes it's luck. And it's just like investing, you know, if you have a good process, then as long as you're doing and sticking to your investment feces and everything is okay, you know, sometimes there's going to be luck and you just can't dodge luck and and you have to expose yourself

to the upside of luck too you know if you if you bought and bought in bought in 2008 2009 2010 probably by 2015 2017 you're going to look like a genius yeah yeah yeah yeah that makes a lot of sense well so though you you started with that one property you did a few of these spec builds What came next? I mean, obviously you said, you know, you've got a couple properties. Now you've got seven properties, seven single families in the condo. What kind of came in between? So I started my own software development company and ran that for seven and a half years and actually sold it.

And so starting to have some significant cash flow out of that. and so we wanted to get back into real estate investing. We knew it was a good long-term kind of steady, steady growth vehicle, not just for the income, but a little bit of capital appreciation, although we don't buy expecting capital appreciation. Anything that comes is gravy as far as we're concerned. We buy it for the income. I have to make the numbers kind of look right.

We've yet to hit my ideal. which is that bigger pockets, 10% cash on cash return, haven't quite gotten there. We're at about 8.7%. So that's what we started doing with the sale proceeds, was acquiring these single-family homes. We had decided back in 2007 that we wanted to move to Fort Worth. And so we actually bought a foreclosure back then, and that was our first investment property. and then as we started getting the funds from the sale of the company, every time we get a little bit of money,

we'd call up our property manager and say, hey, we're ready for another one, and we gave her kind of our parameters, which are the bigger pockets guidelines, and she goes hunting for us. And what are those, sorry.

Yeah, that's what I was going to ask. What are those guidelines? What do you mean? So it's two sets of guidelines that we live by. One is the assumption that you can only spend 50% of the income. that you make and that you set aside 50% for the expenses. We don't use leverage, so we buy all cash. So for us, it's 50% profit or cash flow or bottom line.

And then the other one is that we are trying to get 10% cash on cash return annually based on the purchase price. Now, we haven't gotten there. We're usually in the eights. But for us, because of our plan, so we want to get to financial independent, so we're financially independent. We wanted to get to what I call Pire, passive income, retire early, which is you can retire. Your expenses are covered by 50% of your rental income plus a little bit of margin, not accounting for depreciation.

So we wanted to get there as quickly as possible. So we were willing to trade buying the properties now to accelerate the timeline rather than waiting and waiting and waiting and waiting for the income rate 1%. Let's touch on that again. You just said pyre and you said that was passive income. That sounds good to me. I like this whole fire concept. Let's talk about that a little bit more. What was it again you said?

And then let's, I guess, dwell on that. Yeah. So it's passive income retire early. So there's the whole fire, financially independent retire early. and fire is based on effectively can I take 4% of my assets every year and live off of those. So based on Bill Bingens, SafeMax, Withdrawal rate. I like to go one a little bit further, which is I don't want to be actively managing withdrawing from my stock. I don't have a stock portfolio, a mutual fund portfolio every month or every year for living expenses.

I'd rather just have checks come out. And so for us, we are using our rental property portfolio to create that stream of passive income that will help us bridge early retirement all the way through until Social Security when we'll slowly start selling our properties and converting it back into assets. Because, you know, as a 60-something-year-old, I don't want to be calling my property manager every month and having those, oh, well, what should I invest in next? I just don't want to fool with that one that age. And my property manager is going to be that age.

She's probably going to be retiring. So I have that risk. So to me, that is almost the ultimate. So if you had a pension, it'd be the same way. If you had annuities, it'd be the same thing. For me, rental properties are kind of like a stream of annuity payments. And so I want to be lazy when I retire. It's a great way of putting it.

It really is. I think the people who get it obviously see it in the same light. And I don't know, I'm the guy who focuses on cash flow as well. I'm not a big appreciation guy. I mean, I think get it where you can. If you're building or buying in an area of growth, then you're still buying, well, at least in my book, you still go for the cash flow. But then all of a sudden, you know, you'll get the appreciation bonus, right?

So that's great. What I don't want to do is depend on this appreciation. Get to age 65. Find out it's not there and then have yet another, oh, crap moment where I'm going to have to suddenly go back into the job market after having been out for 20-something years. No, tack with that. Why no leverage? How come you're buying all cash?

Why don't you buy all cash and then do a refi, take cash out and use that to expand the portfolio? You know, I looked at that. And for us, it doesn't really, it doesn't accelerate the timeline any. So the leverage doesn't really get us into any into a position of Pire any quicker. So somewhere between two and three years from now, we will achieve PIR based on what we're buying and what we see coming in. Leverage doesn't, it doesn't move the needle any in terms of achieving Pire. And yes, while we've got, we've got the assets to where we feel like, you know, the cash flow would be there. We can back it up. It's a very, very low risk proposition. It doesn't get us incrementally more properties that cash flow incrementally more. So, I mean,

I've evaluated it. If I had a 10-year time frame, then based on where I am now and having enough cash flow from my rental property portfolio to support leverage, I would do it. So that's just based on, it's just based on the timeline. Yeah, it's solely based on the timeline. And that is the one exception to the no debt rule that I have is if you have enough cash flow from your rental properties. I know this is all mental accounting. I mean, you can have income from your job or from other things too. But I just like that. like to keep it clean mentally. If you have the cash flow from the income properties to more than cover a long-term vacancy in your leveraged property, and for me, that was two to one. So I had to have

two properties that were cash flowing to cover one leveraged property in order for that to work out, then I'm fine with that. I really don't have any heartburn about that. But for most people, they over-lever. I've been there. I've been over-levered. I've had the lots that were mortgage and having to write the mortgage check every single month for five years while waiting for the dag on things to sell. It sucks. And I don't want to be in that position. Yeah. It makes sense because, like you said, your timelines maybe two, three years for this.

Like, I mean, I'm pretty sure you, for return on investment, you could probably achieve the 10% that you're wanting if you leverage. I mean, that shouldn't be difficult at all. Yes. But does that 2% difference make a difference on a two to three or time frame? Probably not. Not enough to sacrifice that risk. So again, it just comes back to It's like the people that

That optimize That completely optimized for having no income tax And then wind up spending part of that money Like oh, well I can get 2%. You can't get 2%. I can get 2 tenths of a percent in a money market fund But because the money's there They wind up spending it and they defeat the purpose

So you know, it's that same thing Is does the leverage really move the needle For your long-term goals? I mean, if you're trying to if you're trying to accumulate a portfolio of 30 properties and you've got 10 already and you want to lever up 3, 4, 5, that's probably fine. And then as those get paid off, you know, you use the cash flow from the other 10 to pay off the debt on the 3, 4, 5 that you've got and then by the rents repeat. I'm fine with that. Yeah.

Well, it reminds me, we asked a question on Facebook a couple weeks ago, and it got a ton, a ton of comments. I think we're over 100 comments now. And I basically asked if you had $100,000, would you put it towards, you know, a $20,000 down payment on five different properties? Would you buy $100,000 property all cash? Or would you put that $100,000 as a 20% down payment on like a $500,000 apartment complex? And so, like, if you had $100,000, there's a lot of different options you have based on leverage, right? That was a fascinating, fascinating Facebook, I mean, discussion because it's so different. I mean, every person argued a different point.

I mean, like, yeah, well over 100 comments on that Facebook thing. And I mean, I encourage people. Go check it out. Go Facebook.com slash bigger pockets. I'll tell you what we do, which is we buy $250,000 properties. You know, you diversify your risk a little. I found that I, there's a break-even point, of course. But, you know, where I am, I will get more of a return on cash from $250,000 properties

that will off of one $100,000 property. And I mean, we just experienced this. So we lived outside of Fort Worth up until about three months ago. And we had a three, two and a half, you know, typical starter home, starter community. We sold it and we we are parlaying that into effectively to rental properties. And we could have rented the property out that we had lived in and probably gotten $1,100 in rent. Or we parlayed it into. two rental properties that each got $900 in rent.

So where we are, it makes more sense to buy two of the smaller properties. And then, you know, if you want to then use those two and lever up and buy another $50,000 property, go for it. And then let the cash flow pay those off and just keep rolling because I know mathematically leverage is the right answer. I mean, I know that. And I'm cool with the mathematics. But all those people who have either hawk their credit cards to put a down payment on that first flip property or whatever, you know, what it's like to go to bed at night going, oh my God, what if I don't get through the eye of this needle.

I am screwed. I've been there 50 times in the last 10 years. I mean, over and over where you lay in bed at through. Probably. Yeah. You probably eliminated a couple of years out of your life for it. Probably. I think you make it really good point.

But yeah, it's, it's, it's, it's, and you know, if you're young, if you're 20-something and you, you've got a, you've got a useful degree, you've got a good job, a good job prospects and you're employable. You know, I mean, if you're a civil engineer, you're generally employable versus an arts major or something. and you know if something bad happens you've kind of got that backup of your income to be able to cover it and you want to take the risk fine you know as long as you make an informed decision and you know what you're going to do if if things don't work out great but don't go crazy and over lever yourself i mean i would not do the five properties at 20% each not even though you're diversified theoretically you're diversified but now you've got five times the mortgage payments. And if the worst case scenario happens, you're going bankrupt.

And that's something I think you can avoid. You can lever smart without risking bankruptcy. And not just the five times the mortgage payments, but you also have five amount of phone calls from the property manager. And you have five times the insurance documents that are being sent to your house every day because something's wrong. Like just admin, administrative stuff is the more properties you get. People don't think of that.

I think we think in terms of math and numbers, but there's a lot of admin stuff that goes on behind the scenes. My wife spends probably 30, 40 hours a week just doing admin stuff on our properties. It's horrendous. And I use the property manager. If you go, if you lever five, then you can't afford the property manager. You're out managing that property yourself. And, you know, it depends on how you value your time. But I value my time a little bit more.

And so I'm willing to hire the property manager because, the only time I hear anything is like one of our tenants died in the house, which, you know, it's a terrible situation. It was at Christmas. It was on his daughter's birthday. I mean, it was all sorts of sad. But and so, you know, obviously we help out in those situations. But otherwise, I don't hear anything except for, hey, you know, your tenant in this property lost a job. He moved. I've already got ran it out. Or the hot wire here went. And here's how much it's going to cost, and here's the bill and it's already taken care of. Sounds like you have a good property manager.

I have an awesome property manager. Can we talk about that? Because, you know, the world is easy when you have an awesome property manager. And when you're in a situation where you don't, it sucks. Because I've been there and it's absolutely atrocious. And, you know, you're up just as much, if not more than the guy who's got, you know, all his money on credit cards. So how did you come about to find your property manager and really what makes them a good property manager? So she is the second generation property manager.

Her mother had the real estate firm and then did the property management and then the mother just wanted to do the real estate. And so she handed off the property management portfolio to the daughter. So we interviewed a couple of potential property managers when we first bought. And she actually came out at the lowest price, not percentage-wise, but at the lowest rent. She said, hey, you know, we could try and rent out for $1,200 bucks and it might sit vacant for six months. But I know if I ran out at $1,000, it will get rented as opposed to every other property manager that was saying $1,200, $1,200. That's great, yeah. And I would rather it be rented because it doesn't take very long for that opportunity cost to make it a bad decision.

You know, it only has to be vacant for three months before that's a poor decision. And so, you know, we obviously interviewed her more than that. She's the president of the local chamber of commerce. So she's really tied in to the community. She's very active in the community. She's part of the Lions Club. She's part of the Rotary. So I think because everyone knows who she is, and she doesn't advertise, she's got this little dinky office.

You can drive right by. It's literally on the other side of the tracks. You can totally miss it, but she's very, very involved in the community. She's got kids that are active in sports. So everyone knows who she is. And so anytime someone has a problem, either, hey, I've got this property that I need to get rid of, or I need to to go live somewhere who they turn to. They turned to her because she is so well connected in the community. And it's a little small community, probably 13,000 people, but she's, aside from the

mayor, she's probably the most well-known person in the community. And that is an enormous asset. Yeah. You know, that is worth its weight in gold. I have not haggled with her over any pricing because what the last thing of the world I want her to do is start treating me as anything but her number one client. Yeah. Yeah. No, that's great. And the other, what were the other attributes about her that made you choose her above and beyond the other folks you interviewed when you first started meeting her? I think it was because she had a reasonable portfolio size. So when we first started using her, she probably had 80, 85 properties. She's now probably got 110. You know, so she's not, she's got enough to where she does it.

She's got that network of, you know, the painter and the roofer and the handyman and all that good stuff so that she don't get hosed on pricing. But she doesn't have 500 properties to where you're just a drop of water in the ocean. And she's overwhelmed and she can't service everyone. And she had a waiting list. She was like, I've already got people that I can just give them. a call and I can put them in here. I got weighing list 10 people deep of people that are ready to go. And so between that and her connection with her mother, you know, her mother was the realtor. Her mother had the deal flow. Now she's got the deal flow. So other investors that want to get

rid of their properties or, you know, someone hears of something somewhere with someone doing something because she's always at the games or talking to people or whatnot. I think all that kind together really made it worthwhile. Yeah. That's cool. Yeah. Yeah, your point about pricing is one that I think most people probably wouldn't even think about up front, but, you know, as an investor, not on the rental side, but on the, on the sales side, you know, if I go and I interview, you know, a bunch of real estate agents to sell my house, the one who comes at the top price is definitely not the one that I'm looking at

right away, you know, because, you know, you're taking a risk. the higher you go above the median price there of these folks that you're interviewing. And I'd say the same is potentially true on the rental side. You know, if everybody's saying rent is somewhere between here and here and somebody says, you know, you're probably going to mitigate your time loss by dropping it X percent. And, you know, frankly, over time, we could always raise it and get it up to the next point. Yeah, it might not be a bad strategy.

strategy to get the ball moving. Yeah, and I'm willing to do a dangle, you know, to say, okay, well, we'll try and rent this property at $1,250 a month. Let's leave it out there for a couple of weeks. If you don't get any bites, we'll drop the price. You know, I'm okay with taking an aggressive approach, but making it time bounded. Yeah. As opposed to, you know, I'm going to wait until I get $1,250, dadgum it, because then you may be waiting for months. And that's money that's not coming into your pockets.

It's not an expense. It's not a check that you're writing, but it's still lost money. I mean, look, the bottom line on a rental property is this. If you're not renting the unit, there's two reasons for it. It's overpriced or the place looks like crap. I mean, really, there's nothing else to it, you know? Yep. So, you know, people ask all the time on the forums and, you know, well, I can't get tenants.

What do I do? Drop your price. Yep. There's an article I wrote on the blog a few weeks ago called the two most painful words, a landlord will ever hear, and the words were, I'm moving, because vacancy is the worst, I mean, that is the highest expense probably that anybody pays. Over the course, I mean, yeah, like, you know, you know, eviction's going to cost you with damages five grand. But over the course of all your properties, vacancy is always going to be probably your highest expense.

Absolutely. And she's delivering 8% off over our portfolio. properties and has us in some long-term leases. So I actually expect that that number over time will go down. And to me, you know, so based on the bigger pockets numbers, they assume a 16% vacancy rate. Well, she's making 8%. I'm paying her 10. Really, I'm only paying her 2% based on kind of your averages of vacancy rates. It's a good way to look at it. She's more than worth it. Yeah, that's cool. She's totally making up the money. Most investors spend more time chasing deals than reviewing their insurance.

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cheaper than learning the hard way. All right. So, Jason, you are a financial planner. That is what you do for a career. So it would be a shame not to touch on that kind of aspect of your life and how that affects your investing. So first of all, for those who don't know, what does a financial planner even do? So my job, as I see it, is to first and foremost help you figure out what's important

to you in your life and what your goals are. And then and only then do I start talking money. And the first thing I do is make sure that you've got a safety net for everything bad that could happen to you. And then and only then do we talk about how much you're spending and how much you're earning. And only after that do we talk about how to invest. So for whatever reason, and probably because this is what all the Strip, all financial advisors do. and this is what they show on TV and their CNBC and all this. Everyone seems to think that the financial planning equals investment advice.

And while I am a registered investment advisor, which means that the SEC believes I can offer investment advice, it's only 20% of the overall picture. I think 80% of it is really figuring out your life, aligning your goals, allowing your actions towards it, and align your spending against what's important in your life. And then making sure that if you step out in front of the beer truck, tomorrow and either get killed or get maimed that you aren't in some horrible Medicaid nursing home

as a result of it. And so to me, that's the important stuff. Can you know? Was it what you want to be when you grow up? What do you want to do when you retire? When do you want to retire? And is that realistic? And then we start talking about how do you invest to make that happen?

Hey, so my wife is going to be at a restaurant in town next week. you know, can you accidentally bump into her and talk to her about our spending? I love you, honey. Well, I think that's the conversation that you agree to have. And you know, the funny thing is.

I bring it, I, you know, half of what I do is marriage count. Well, that's what I'm going to say. And that's not, ironically, it's actually not an issue for us, but I do bring it up because I think it is an issue for most people. I think where most people fail is in their ability to communicate with one another about their spending habits. Yep. Absolutely. There's another podcast on another place that's not nearly

as cool as bigger pockets where I talk about advice for newlywood couples. And 50 to 53% of divorces are caused by money problems. And to me, money problems is a euphemism for poor communication. Yeah. And, you know, you can have, you can be tight on money and not have money problems. You can have a lot of income and have money problems. And it's because you're not communicating. You haven't, you haven't sat down and really built the relationship with your spouse that you agree on what's important and that you're both going in the same direction. And to me, you know, when people say, oh, it's his money or it's her money or he earns this, I earn that. that's a red flag. You're not communicating. It's we. You know, you made those vows that said two shall be joined as one. And if you are thinking as one, then you have communication problems and you have marriage problems. And that's not something that a financial planner is going to magically make disappear overnight. You've got to do something else with regard to improving your communication so that you can get your goals in place so that you have a plan and you execute

on the plan. And then it's not a money problem. It is we, maybe we don't earn the money that we want and here are the steps that we're taking to improve it or we spend too much in certain areas and here are the things that we're doing to reduce our spending. Yeah. Yeah. No, I think it's great. And I think you're right. I mean, a vast majority of the people that I know who have gotten divorced. It was completely due to financial issues, and it could have been predicted up front easily if these guys had communicated. And the sad thing is in premarital counseling, you know, you get a preacher, a pastor, a priest of shaman, whatever, who doesn't know about, rabbi, I'm sorry, rabbi.

Well, having not gone through Jewish premarital counseling, but they're people with a cloth, so to speak. And, you know, they probably don't earn a lot. They don't spend a lot. They haven't really been exposed to a lot of money problems. So they glossed over it in the premarital counseling. I mean, I remember mine was, do you have money problems? Well, you know, we've got credit card debt, but we know about it. We're addressing it.

Okay. And then on to the next thing. He wanted to talk more about sex and where you're going to live and this, that, and the other, than the money part. It was that quick and the money part. So there's got to be something else. You've got to really work on it before you get married, when you get married, and during the marriage to have that communication. And just to clarify, you said your preacher wanted to talk to you about sex. Yeah.

All right. I think in my premaral counseling, I think we had that discussion as well. awkward, but we're living in it. Well, I'm wondering then, do you advise against couples

from having separate checking accounts or is that a different issue? Because I know some people like Dave Ramsey, you know, he's very against that. So what are your thoughts? For most of your expenses, you do keep a joint checking account.

We keep separate individual checking accounts for our, I call it Blow Fund, which is, you know, you're, as long as it's not illegal, immoral, or unethical, I don't care what you spend the money on. So we each set aside a little bit of money each month that, you know, if she wants to go buy Jimmy Chushue's great. If I want to go buy something for the man cave, great, no questions asked.

As long as there aren't police knock on the door or there's going to be some sort of lawsuit that comes as a result of the purchase, we don't care. But we do have a joint account for our regular expenses. And you may want to rename the blow fund to something other than the cocaine fund. Now you know why I spend my money on. So here's a question. How does somebody find a financial planner who isn't just about, you know, hey, you know, you got to pick the stock, you got to pick that stock. You know, you want somebody who's going to help you with the budget. And you want to somebody who's going to talk about your death. You know, you want somebody who's going to talk

about life insurance and wills and trusts and help with that above and beyond all the other, you know, stocks and bonds and real estate. Right. Right. So I'm biased because I am one, but I believe you should pay a fee only financial plan. That's the actual term that we use. someone who will either charge you a flat fee or by the hour is not going to sell you a product, that is not going to try and sell you front-loaded mutual funds or anything like that. And I also, aside from cases where people don't have the mental wherewithal, so for example, if you're 75 years old, you probably want someone to manage your money for you because you're more susceptible to making cognitive errors, particularly mathematical errors, than a 25-year-old is going.

But in most cases, if you're young enough and you're savvy enough and you got your head straight, you don't need someone to manage your money for you. And they're going to charge 1% of your assets that they manage for that quote-unquote privilege. And it's usually to underperform the market. And there to me is I have a conflict of interest because let's say you're a bigger pockets, listener, and you go to a financial planner who does assets under management. Well, his incentive is to get as much of your net worth under his management as possible. So he's going to tell you, sell your real estate portfolio and give it all to me and let me manage it, which is why I think having someone who doesn't manage money, who the other part is, is that they have to have a fiduciary duty. So if you're a CFP, you have to have the fiduciary duty.

If you're a registered investment advisor, you have to have the fiduciary duty. And what that means is that I'm going to put my client's best interest first and not my own. Whereas if you get a salesperson, they don't have that legally binding fiduciary duty. And there's a psychological bias that if you trust me, I can screw you over and you're not going to care.

Yeah. It actually has been shown and proven over and over again through blind trials that if I can get you to trust me, I can screw you over and you're not going to care. How many people think, oh, Bernie Madoff, he was a good guy. He was fun to hang out with at the country club. Sure, he took $10 million from me, but he was fun to go drink him with. Yeah. Same idea. Yeah.

And not that, I mean, don't get me wrong. Financial players are not out to screw you. Don't, don't, you know, I'm not saying that, but there is an underlying subconscious conflict of interest when you have someone who is, who is paid based on how much of something he can do for you. And an hourly planner is going to have a conflict of interest too because they're going to get paid more or the more they work for you. So it's up to you to say, hey, I'm going to bound.

Here's what I want. and I don't want more than, I usually say it's 10 to 6, 12 to 16 hours. You know, if someone wants more than 16 hours worth of work, then you've got to have a pretty special case. You have to have a special needs child. You have to have a very high level of net worth. You know, there has to be something that differentiates you from 80 to 90% of the people that are out there.

Gotcha. Well, so what are fees? I mean, I'm not asking for yours, but kind of, you know, a lot's 150 an hour. 150 now. Yeah, it's on my form ADV. It's on my website. I got nothing to hide. Is that typical? Is that high-end, mid-end, low-end? Where is that fall? I think it's going to be average for the industry. You know, I've got, I'm what's called a CFP certificate. So I passed the CFP exam. I've only been a financial planner for a year and a half. But I also built and sold a company, a multi-million dollar company, and I'm financial independent. So I've been there, done that, got the T-shirt. So I've been there, done that, got the T-shirt. So I've, got the, I kind of have the credentials as well as an MBA from a top 10 school, even though that doesn't guarantee I know crap about personal finance. It does know I know numbers. And I have my own rental property portfolio. So, you know, I can again speak from a position of having done it. So fees generally for me would be $1,800 to $2,400,400. Higher end, you would go $5,000. If you just

want to check up, it might cost 500 bucks. Yeah, gotcha. All right. So, you know, that brings us to the next thing that I think is really important about financial planning. And I think it's the fact that most financial planners don't talk about real estate, at least the commission guys, because, again, it's not in their interest. And rarely, rarely, I mean, you know, look at the, you look at any of the financial magazines. Most of them look at real estate as an aside. CNBC,

they'll talk about real estate at a macro level, but they're never going to dig in. Fox business or Wall Street, nobody really covers it. And we do bigger pockets, and I think we do a fantastic job of it. But

why the heck are the people who are responsible for educating us about the world of money and not talking about real estate. Well, it goes back to the incentives. I mean, if you think about it, if I can get you into a REIT or into some sort of REIT mutual fund that I'm going to get one percent of out of every transaction, then that's where I'm going to put you. And it's a whole lot easier to say, well, just go into this REIT than to educate someone on what it takes to be a successful

real estate investor. And honestly, I think, you know, I can't say this for certainty by I imagine a lot of financial planners eat their dog food. And so if they're saying, hey, invest in ABC mutual fund, they're invested in ABC mutual fund. So they don't have the experience. They haven't, they haven't done it. They view it as an asset class in a macro sense. And, you know, we all know that the real estate is very, very local. And what works in Fort Worth, Texas, doesn't work in Charlotte's, Phil, Virginia. So it takes a lot of, it takes some general knowledge, you know, the bigger pockets rules. Heck, that's pretty much, I tell clients who are interested in investing in real estate,

here are the bigger pockets rules, here's the links, go read, get smart, don't pay me $150 an hour to regurgitate, which you can go read. Yeah. So really all I do is is validate. Hey, if you want to do real estate investing and, you know, this is your approach, this is how you think about it. And that's where you go get smart. And then if you want me to validate your numbers and your models, sure.

Yeah. You know, that's 75 bucks or 150 to validate your models versus however many hundreds or thousands it's going to take for me to teach you what I know, which is, you know, basically what you guys do. Yeah, yeah. Well, how about balance? Real estate investors, they tend to be all or nothing, 100% real estate and nothing else. They don't want to be in the market. They don't want to deal with it. And non-investors, non-real estate investors, they typically don't touch it. They don't mess around with it. So where is the balance? And should there be, I mean, frankly, I think there should be some kind of balance between it? And how do you kind of manage it then?

So there should be a balance, but it may not be 50-50. So if you are a seasoned real estate investor and you can eye a deal and you can find a deal and you can swing a deal and you're going to make 10, 12, 15 percent and you know it, you know, you have enough experience that you know what you're going to get, then why would you invest in something that's not in your wheelhouse? So, you know, I'm a fan of investing what you know. You know, I'm an entrepreneur, so I invest in small business. And real estate is kind of that secondary area of my expertise. But, you know, we still, we fund our IRAs fully. My wife has a SEP, 401K. We will invest in those, and those go into the stock market.

And they go into mutual funds, and they're boring old index funds. Because I'm too stupid to figure out what the market's going to. going to do tomorrow and so are 99.9% of investors. That's not true. That's not true, Jason. You are, you are far smarter than really stupid. So I'm marginally stupid. But, you know, and even let's just, let's just assume I'm smarter than the average bear. I still can't beat the market. Right. And so, what about all the people that aren't smarter than the average bear? Or all the people that think that they're above average drivers that fall prey to the Dunning Kruger effect. So we do fund those because the Dunning Krueger effect is, yeah, I'm sorry.

As we make big giant eyeball. The dying Kruger effect is where you think that you are better than the average person with no actual reason to believe it. So the common one is what 93% of people think that they're above average drivers, that's the dying Kruger effect. Oh, I drive. That guy's an idiot. I must be a good driver, Dunning Krueger. And so there are a lot of people in the market

that are falling victim to the dying Kruger effect that they can out, they watch two shows on CNBC. They see Jim Kramer going, bye, bye, bye, bye, bye, bye, so, so, so, so, so, and hey, I can do that. And they also fall victim to something else called Apophonia, which is, you know, the numbers that go across the ticker on CNBC.

I think he's making up words now, Brandon. No, APO, P-H-E-N-I-A, Apophonia. It is where you start to see patterns and numbers that don't have patterns. Or you're at a roulette table, and it's been red the past seven times. Oh, yeah. It must be red next.

Or it's going to be green because, or black, it's going to be black, reversion to the mean. That's where you're seeing patterns where patterns don't exist. So, you know, we fall prey to all these behavioral bias. when we invest. And you can fall prey to them in real estate investing too. But if you've got enough experience, that's what you've been doing for a long time. You know how to swing a hammer. You know

how to run a deal. Why would you invest in something that you don't know about? The reason that we invest in index funds, in our IRAs is because that is what we will use when we get older to fund our lifestyle. When we're in our 60s, we don't want to have properties anymore. We start to slowly decumulate our properties and sell them off. We'll have this nice batch of money that we can live off of. So that's for the future. The income from the rental properties is for now and for the immediate future.

But it is a good ballast so that later on, when you don't want to deal with real estate, you've got it there. It's already set up. You're taking care of. Nice. You know, sorry. I was just going to say, yeah, I just learned Baccarat. And I was at a casino a couple months ago with my buddies. And it's a fascinating game. If anyone listening, gambles and you've never tried mini Bac. It's actually really fun. But the whole thing with Baccarat is like you're trying to find these patterns and basically it's a two-way bet. You bet for the banker or you bet the other way. And you got these guys and there's these cards and they're charting all this stuff.

And it's like, oh, you're trying to find patterns and I play it. I have fun. And, you know, like, what the hell are you doing, guys? I mean, this is, it's a flip of a coin. You're literally getting in a coin flip and you cannot chart a coin flip. And, you know, I think a lot of people fall victim to the fact that, you know, investing in a lot of things is really. just a coin flip for you unless you understand the business. And I think that's why Warren Buffett is one of the most admired people. You know, if you think back to when the stock market bubble was

happening, and Buffett's like, I'm 2000 or so. I was a stock trader back in the day, so I used to really watch the market closely. But he's like, dot com, I would never invest in a dot com. I don't get it. I don't understand how it works. I don't care how crazy these prices. are going, it doesn't make sense. I'm going to invest in Coke. I'm going to invest in the railroads, whatever it is, insurance, because it's predictable, understandable to him. And I think it's an important point. Don't go spreading your money into things that you don't get just because somebody else tells you to, hey, I got this latest and greatest thing. You should back me. Don't do it. I've done it. I've been burned. And, you know, I hate seeing people lose their money. I remember

My mom, I know so many people who lost their shirts because they were investing based upon advice of some financial advisor or stockbroker or somebody else who said, this is the hot thing. If you don't get it, if you don't understand it, if you don't really get how it works, what are you doing? And chances are if you know something and you're really good in an area, you can leverage that knowledge into profit easier by starting a small business, by doing something else, consulting, whatnot. not, then by investing in stock. So the company that I sold does search engines for websites. And so if you go to Zappos and you look for red shoes and you find red shoes, that's what we did. And so I knew that industry cold. And there was one company called Autonomy that we had a pretty easy time stealing their customers because it was hard to work with. It was kind of clunky. It was outdated. blah, blah, blah. And autonomy was a public literary company. And if I had to use my insider knowledge,

I mean, legal insider knowledge to say short autonomy, I'd have gotten killed because HP paid over the moon for autonomy. Yeah. So even though you know something, you can't control it. And to me, in order to be successful and to profit off of your investments, you have to have differential knowledge and you have to have control. Do you have control in real estate? You can control the deal. You certainly can control the deal. You can control your tenants. You can control what sort of improvements you make.

You can control what sort of property manager you use. Sure. Can you control 100%? No. You can't control 100% anything, but you can control a lot of the variables. Whereas in investing in stocks, you might have differential knowledge, but you don't control the psychological behavior of every other investor in the market. And so that's why index fund.

And that's why people buy real estate, that's why people who get that by real estate. You know, over the years that I've been doing this, I think that's one of the biggest psychological reasons that I tend to hear from people is I have some control of my destiny with real estate. I don't have control with anything else. You know, I can set the price that I pay.

If I don't want to pay it, I don't pay it. You know, I can control a lot of factors and mitigate my losses. And with enough experience, you can say with a reasonable set of expectations, what is it that I can get if I sell it? What can I rent it for? How much will it cost me to improve it?

And then you can back into how much do I want to pay in order to get the return that I'm looking for? And you also know when you have enough experience that that deal that looks so great that you want to jump on isn't the only deal. that's ever going to come around. Yeah. You know, another trait that I like about real estate,

and not that we want to make this, you know, obviously the real estate versus stock show, but in real estate and with small business, so you'll appreciate this, is that you can leverage creativity in place of cash where you can't do that as well in other industries like stocks or index funds, things like that. Like you, I mean, you can do a little bit of leverage, obviously.

But that's why I like to recommend. If people are interested in real estate, if they've got five grand, they could do so much more with that five grand in real estate than they probably could anywhere else. Now, they could lose it also very, very easily. But $5,000 towards, you know, towards, I don't know, direct mail sending it out to motivated sellers, things like that. You could turn that $5,000 into 20 or 30 fairly easy because it's a business.

It's not a investment as much. Yeah. I mean, if you've got $5,000 and you can contact a bunch of motivated sellers and you can get in contact with people with money, you can get in the middle where money changes hands. And that's the way I make money. And I mean, that's the way I make money in any business. It doesn't matter if it's real estate. It doesn't matter if it's financial planning.

It doesn't matter if it's software development. If you can get in the middle when money exchanges hands and take a little bit of it, then you're in good shape. Either that or you have to be able to create value. So if you can take the $5,000 and go in with someone and be the person that paints and sand and does all the work, you know, you buy the material. you do all the work, and the other person is frying the finances, and then you split 50-50, you're probably going to get a pretty decent return on your cash.

Yeah, we talked actually with Mike Simmons a few weeks ago on one of the, I think it was episode 50. He talked about that's how he flips houses. He partners with people on a 50-50 deal, and they provide 100% of the financing and the repair costs, and he manages the whole deal from beginning to the end, and they split whatever they're made at the end 50-50. And so he's leveraging his creativity for his not using cash. It's a fantastic business model.

I love that model. So very cool. It's also really nice to hear. I just want to add, like, I don't have a 401K. I don't even like fund my Roth IRA or I don't do any of that. And I always feel bad. I'm like, oh, I really should. I should take, you know, but it's nice to hear you say, you know, I know I can, like, I know I can get 20 to 30% return on my money right now.

In my market, I know for a fact I can get 20% without even like having to try that hard. So it hurts me to put that into a, you know, a stock or a mutual fund that I know is not going to earn more than 10% or, you know, so it makes me feel better to hear a, you know, a qualified person telling me I'm okay. So I would say, and this applies to to all your listeners, is if you can, if you are eligible for it, is open a Roth IRA and put a hundred bucks in there or whatever the account minimum is. And the whole reason for that is that there's a five-year time frame that a Roth IRA has to be open and funded for five years before you can withdraw your contributions tax-free or I'm sorry, penalty-free. And so even if you just put a hundred bucks in there, your clock starts. And so in five years, it can become your floating liquid fund, your emergency fund if you need it. Because then you can withdraw the contributions, penalty-free because you've already cleared your five-futable. your window. And because of the way that the taxes go, it winds up being three years and eight

months if you do it right. But yeah, so if you can open up a Roth IRA and you're eligible, do it. Because that money, here's the difference between investing in the stock market and investing in what you know in real estate, is that let's say you fund a Roth IRA. Let's say that you meet the income thresholds and you fund a Roth IRA and you pay the taxes now. you are done paying taxes. So in 30 or 40 years when you're when you're at Social Security and you're trying to manage for tax thresholds so that you don't have, you know, you don't go into the next tax bracket, you've got this pile of tax free money that is available to you. So there are advantages.

There are tax advantages for doing some investing in the market in IRAs. just so you've got those kind of tax deferred or tax-free options later down the road. Yeah, and just so people know, like, I'm not saying I'm not going to do that. Like, I want to. I still feel bad that I don't do it. But lately the last few years, it's just been like, it's like, you know, Kmart Blue Light Special around here. So it's really hard for me to take that, that five grand and max out my Roth for the year when I know that- Where do you invest? What town is it?

What town is it? Potunk, Washington, is that what you call it? Oh, okay. Yeah, there you go. So anyway, that- But those are the best. places. Podong Washington is the best place to invest. Oh, yeah. Because there is an informational disadvantage. There's probably two or three good old boys to know everyone. Yep. That would be great.

I'm a good old boy. Yeah. No, Brandon is he's literally like the second most famous person in his town to the mayor. Yeah. And that's where you want me. I mean, you know, I would rather invest in Podong, Washington as a real estate investor than invest in, say, Atlanta. where it's probably everyone's an educated buyer.

Any distress is going to be pounced upon by 50 investors. You know, you don't have that, that informational advantage that you can act on in some of these, in some of these markets. So, I mean, well,

I want to live in Podong, Washington? I'm just saying, see? I like my small town. Anyway, no, but I agree.

I want to, I agree completely. The rural, rural thing is a you know. Oh, I mean, that's where our real estate portfolio is, is rural.

We're investing in rural. We live in urban. I mean, we live in downtown Fort Worth, but it's, all of our investments are in rural because that's where the informational advantage is. Yeah.

There you go. All right. So as we come to a close here, we've got a section of the show that we like to call our, it's time for the fire round. Fire! As opposed to pyre, it's fire. Yeah, and that was your Beavis and Butthead rendish the fire.

Fire. All right, so these questions all came from the Bigger Pockets forums somewhere in there. A lot of them are kind of personal finance questions because you are a personal finance pro. But they're all kind of relating to real estate as well. So these questions were just going to fire at you and you get to fire them right back at us. Number one, pay off debt first or invest in real estate? Yeah, I'm done. Good.

There you go. Do you want me to explain why? How serious is this firing? I was just, yeah, I was curious too, Brandon. I mean, because that was probably the most terse response you've ever had. That's what I like about the fire round, though. And now we're going on about it. Loviating.

No, I think that's great. I mean, I like quick answers. There you go. All right. So how do I buy on an online. auction site? Well, I just did this. This is my second one that I purchased. So I use auction.com. There are others. I think Williams Tranzen. There are some other ones. But I used auction.com. I narrowed down the area that I was looking for and applied kind of the same rules, the same

bigger pockets, rent rules and purchase price rules. But then I used a little psychological trick. So what happens with the auction.com auction is when you make a bid, it extends the auction by two minutes. So if you're trying to be a sniper right at the end and get the last bid in, and it emails you when you've had your bid beaten. But the email lags. It takes about 30 minutes for you to get the email in. So instead of bidding early, what I do is I wait until the very last second and I put in my bid. because if the person was winning and doesn't know it and isn't watching, they'll get beaten without notification.

Nice. Good tip. That's very sneaky of you, Jason. Oh, I am very sneaky. It's a very good idea. All right. So do you have any other quick tips on how to buy it an online auction beyond that? Because I think that's an awesome tip.

Yeah. Although the closing, you have to have your money ready. they are going to want you to close usually within 15 business days. They're going to want a wire of at least a down payment right away, if not the full purchase price. There are a lot of them that are all cash, but those are usually the best ones because there are many, many fewer buyers in those than in the financing accepted. So I tend to troll the cash-only ones because the pool is a lot smaller of people I got to beat. And, you know, we're totally screwing up this fire around here because I got more questions for you. What typical price range are you looking at on these online auctions?

For me, it's in the 40 to 60,000 range, and I can rent those out. I mean, usually we have to do probably $10,000 to $20,000 worth of repairs. I mean, there are foreclosures for a reason. But I can rent those out for $1,200 a month. Nice. So you're getting the 2% rule. that's good. Close.

Oh, yeah. That's good. That's very good. Cool. All right. Josh, are you content? I'm always content. I'm always content.

All right. The third question. I'm in the military based overseas. How can I invest in U.S. real estate? Save your money. I was stationed in Germany. And one, you don't want to invest overseas because you,

you're going to be a true absentee landlord. You're going to have to deal with their property laws. You may have to deal with F-BAR and F-BTER. So just save the money. F-BAR and F-BATCA are the two rules that have to do with expatriation and repatriation money from overseas. And the reason that a lot of banks don't want to deal with U.S. expatriates is because once there's more than $10,000, there's all this reporting requirement. It's anti-money laundering, basically, is what they're looking for. So you don't want to have to deal with all that, especially if you're not a national of the place that you live in.

So save up your money. You know, that way when, because you'll PCS, I mean, eventually you'll come back to the States and then you'll have opportunities. And that way, if you stack up all your money, you can be a cash buyer. And cash buyers, to me, have much better negotiating leverage than the finance buyers. I mean, there's nothing more powerful than going up to it. distressed seller and saying, hey, I can offer you X, and I can close this week because I got the money. Yeah, that's very true.

I haven't been in those shoes yet. You'll get there. You'll get there. Nice. That's what you're aiming for, really. You want to be at that point because then, you know, I can, I can undercut a finance buyer by 15% because of the uncertainty. You know, will the loan close?

Will it get funded? How long will it take? Well, I get foreclosed on before then. I can say, hey, I can solve your problems. this week. Yeah. Yeah. Yeah.

You know, the other interesting thing about the question, you know, we've got, we've got some active military guys who started their careers while they were overseas and, you know, they encourage it.

And I think there's a good argument to both sides. But, you know, it reminds me of the house that's actually behind mine. This house has been for sale now. I don't even know how many months. I mean, it's,

you know, nine months, 10 months. Who knows? well, everything else is turning quickly. This thing's been on the market. The owners are overseas. They're Germans.

They live in Germany, and they've relied on this property manager slash real estate agent to kind of take care of it and handle it. And she's an absolute and utter disaster. Every decision that she's made has been a bad decision. And it breaks my heart because I've reached out to them and said, hey, guys, this is what's happening and it's wrong. And you need to do this. And they're like, well, you know, we try.

trust her, supposed to be an expert. She's a licensed real estate agent, so she knows everything about everything. And you're just watching their money just sink. They've got to pay their note. They've got to take care of all this stuff, and they can't get out from under this property. And it's heartbreaking. And it's all about their inability to manage at a long distance. Yeah.

And if you're going to do long distance management, then you better. know the area that you are trying to manage. So, you know, we have one condo in Charlottesville, Virginia. We have a great property manager. I trust that everything will work itself out in the end when we sell it. But we know that area. We live there for 12 years. I wouldn't want to try and invest in an area just because someone else said, oh, hey, Podong, Washington's a great place to invest in. There's so much more risk. You may get the same numbers, but the downside is so much greater because if it doesn't work out, these people in Germany, they're mentally committed. You know, the switching costs of finding someone else who is arguably better.

I mean, you can probably swing a dead cat and find a better realtor, but for them, they don't know that. Yeah. They think, I've got to fly back to the U.S. I've got to spend a week. I've got to interview everyone. We have to go through all this paperwork, blah, blah, blah. It's this enormous mental hurdle, and they're not comparing it to the thousands of dollars that they're losing as a result of a poor decision. So, yeah, I mean, the flip side applies.

You know, if you are, if you know an area and you've got a couple of properties and then you're going to PCS to Germany and you've got a property manager who's worth a crap, that's fine. But if you're trying to start from Germany or from career or Japan or whatever invest in the U.S., just buy your time. time. There will be deals when you come back. They aren't going away. Hey, really quick. What's PCS? Permanent changes stations. So the military people will know what that means. It's when you go from one post or fort or base to another one. Gotcha. And I do want to point out really quickly that Podunk, Washington is now officially the new Detroit. Thank you. So Brandon will be buying houses for $100. That would be nice. That would be wonderful. go. All right, last question in the fire round. It's running a little long here. But

Roth IRA, regular IRA, Roth 401K, which is better, which is best? I prefer the Ross. In the absence of any other information, I prefer the Ross. And the reason for that is because of the flexibility that affords you when you were in retirement to manage your taxes. Gotcha. Perfect. And also, you know, once you have that five-year seasoning and a Roth, IRA and serves as your emergency fund if you need it. I'm going to go open up a Roth IRA with 100 bucks today. Just because you said it's the contributions

that you can withdraw penalty free. Not the earnings. Yeah, yeah, yeah. So you're thinking about money and I'm thinking about a steak. He's talking about seasoning. I'm thinking about getting some food here. Speaking of that, you ever had Johnny's seasoning? They sell

it out here on the West Coast. The most amazing seasoning in the world. It's incredible. Yeah, try it out. Johnny's. From Produnk, Washington. Yeah. Yeah. Little do we know that Johnny is Brandon's best friend. No, no.

He just got a free commercial on the air. Nice job, Johnny. No, they sell this stuff for like, like $3 at Costco for like a 60 ton jar of it. It's incredible. There will be 25 links to Johnny's seasoning in the show notes. All right. Moving on. It's time for our...

Famous four. All right, these are the famous four. We ask every guest these questions. Number one, what is your favorite real estate book? I don't know that I have a favorite real estate book as much as a class of books, and that would be any book that teaches you how to be handy around the house. So as a beginning real estate investor, I think you do not want to pay other people to do what you could do yourself.

So learn how to paint, learn how to sand, learn how to hang drywall, etc. there's books, there's YouTube videos, wherever it takes to get yourself that baseline knowledge. You know, you don't have to be a carpenter, but if you can rip out drywall, rip out cabinets and replace them and put in flooring and paint, you can add values. So that would be, you know, that baseline of education, whatever it is, wherever you get it, I don't have a personal favor, but I have a personal favor of class. Nice. I learned all my stuff from the Home Improvement One, Two, Three book from Home Depot. It's the big orange one they have on there.

Yeah. Yeah, I learned everything from that book. And go to those free Home Depot classes, and Lowe's offers them too, you know, the Saturday morning classes where you can learn the basics. Great tip. Now, meanwhile, some will argue that that is not a good use of time swinging a hammer. But we've covered that in other podcasts. I mean, I think, yeah, let me. If you don't have money, then you trade time.

Once you have money, you know, I don't do any repairs. But that's because I have a higher value in use of my time. But if I was 25 years old and just starting out, darn Skippy, I will learn that stuff rather about the credit card and dive further into debt and risk to have someone else to it. Good point. Well, well played, well played. All right, sir, favorite business book? Entree Leadership by Dave Ramsey.

Really? And ironically, he wrote in his book, a lot of the stuff that I was trying to implement in my company. So it could just be, you know, again, attribution bias. Like, oh, I did this and then Dave Ramsey says it's good. Therefore, Dave Ramsey is good. I don't agree with his investing advice. I don't agree with all of his personal finance.

But Entree leadership was a good book. The second one is the goal. And I forget who the author is, but it teaches you how to run a business. And I think real estate investors need to think about I am in a business. I run a business and you need to think about profits and P&L statements from the get-go. And so the goal for how to think of it that way and then entree leadership as you start to expand or as you have your team. So you've got your property manager and your handyman and whoever. How do you treat them? How do you make sure that they are aligned with you to make sure that you succeed?

Is that the book by Iliahu Gold Rat? Yes. Yes. That's it. Wow, look at John. She can Google. I'm really good with Google. Yep. There will be a link in the show notes after the 25 Johnny Appleseed Spice. Johnny Seesney.com slash show 53.

There you go. Yep. All right. All right. Let's see. So what about hobbies? What do you do for fun? I'm a huge soccer fan.

We went to the World Cup in 2010 in South Africa. We're not going to Brazil. but I am a huge, huge soccer fan. I like to be active. You know, I'm your typical go to the gym and three or four times a week type of guy. And I like to cook. I suck at cooking, but I'm getting better. I read Tim Ferriss's four-hour chef, so I'm trying to use all of his little slow cooker

and slow-carb recipes. There's a four-hour chef now. I made his steak the other, like, I don't know, a month or two ago. The sexy time steak? Yeah, the sexy time steak. It was incredible. I mean, the best steak I've ever had, hands down. Is it because of the steak or was it because of the sexy time?

I don't know. A combination. Excellent, excellent steak, though. Yeah, people check that out. I make a Faiohado or Fizuata once a week. I don't even know who it is. It's another word he made up. Yeah, it's a Brazilian national dish.

So if you look at the table of contents and you go on recipes and then you go, main courses, it's one of those. It's a slow cooker recipe. I'll check it out. Yeah, I have it in my cupboard. That was a quick tip. I'm glad the Bigger Pockets Real Estate Podcasts has become Brandon and Jason talk cooking. Yes.

You know, so if you're successful in your real estate investing endeavors, the rental income will pay for your lifestyle so that you can cook nice things and don't have to eat ramen cakes. Or you can go out to eat. It's your choice. Nice connection. You know, good connection. Doing well, making smart choices, being wise with your investments and having a good rental portfolio really does buy you a lot of lifestyle choices that you might not otherwise have because you think I've got to have a job or I'm dependent on the stock markets, fluctuations. You know, it does, it does buy you that lifestyle after a while, but you're not going to get there the first day. I've been doing this, I'm 40 now.

we've really been actively investing in real estate for the past seven or eight years. And I had to build and sell a company to get there. It's not an overnight win. But if you do it right, it does buy you a lifestyle that you can enjoy so that you can do these cooking things or whatever. That's cool. By the way, since around the topic, I did get a nice Vitamix for Christmas. and that is a bad machine right there. So you're juiced?

I am, I am juiced. I am soup making. That thing is insane. So, you know, for anybody listening, you know, it's expensive as all hell and well worth every penny that you spend on it because that thing is not a blender. It's like a rocket chip. Nice, nice. All right.

Final question. Let's get away from the food cooking. Final question. What do you believe sets apart the successful investors from those who give up or fail or just quit or never get started? It's different things. So the people that never get started, they never overcome fear. You're always worried that that first investment that you make

is going to go straight to zero. And you have to overcome that because otherwise you're going to stuff your money in the mattress and 20 years from now that money buys you half, avoid it buys you now. So you have to be willing to take risk. And you can't get reward without the risk. I think what separates over the long term, a better investor is,

if you're investing in the stock market, you're not trying to beat the stock market. Over time, you will lose. That is a loser's game if you're trying to beat the stock market. For real estate investors, you're not chasing deals. You set up your process, you set up your numbers, you understand your parameters, and then you only pull the trigger when you find a deal that meets those parameters. And if you have to go six months a year, 18 months without pulling a deal, so be it. That's fine.

There will be other deals. So don't fall victim to the thought of, oh my God, I have to do a deal. You don't have to do a deal. You have to have a process and abide by the process. If you do that, then you expose yourself over time to high probability outcomes and enough of those and you'll wind up winning. Good advice. Good advice. Nice time.

All right, Jason. Well, listen, it's been a pleasure somewhat. Depends on who's listening. You like how I pick a fight. I'm picking a fight with the Army guy who can squash me. Although, you know, I'm shocked that Brandon hasn't yet challenged to see. who can kick if you can kick your butt.

Well, we already know the results of that one. I boxed in college and I floated like a bee and stung like a butterfly. Nice. Nice. That's awesome. That's awesome. All right, man. Listen, it's been a pleasure. Definitely

appreciate you being on the show and want to thank you for participating on Bigger Pockets and just being a part of the community. We really do appreciate the involvement. and so thanks for your time. Thanks for having me and thanks to everyone who's actually stuck out all the way to the end listening to this podcast. Nice.

All right, everybody, that was Jason Hull. Hopefully you picked up a couple interesting tips, both in the real estate and personal finance realm. I thought there was certainly some interesting strategies that Jason undertook. And we absolutely appreciate him coming on board. I know Brandon is walking away not only with new recipes, but also with a new account to open up, right? I'm going to go open that Roth IRA with $100 today. Do it. I will.

Yeah, listen. I mean, I think if people walk away from our shows with just one piece of advice, then I think it's well worth the time they spend listening to them. And I know that I do, so hopefully others do as well. So, again, thanks to Jason for coming on board. Otherwise, this is Show 53 of the Bigger Pockets podcast, and you can find the show notes at biggerpockets.com slash show 53. We want to thank everybody who has been active on Bigger Pockets of late. The site is starting to really blow up, lots of action,

lots of new folks hopping on. We are at over 150,000 members, over 700,000 forum posts, or is it 800,000? I don't know. It's up there. It's up there. And it's just getting busier and busier, which is a whole lot of fun because we're seeing more and more people share their successes. And the quick tip up front about the success story was added because of that.

It's pretty exciting to see people be successful. So thanks to everybody who is engaging. If you're not already doing it, jump on the site, introduce yourself and get involved. otherwise jump on our other social media channels. Facebook, we're starting to share quizzes and some kind of interactive stuff, which has been a lot of fun. Twitter, Facebook, LinkedIn, so on and so forth, get involved, connect with us. And I don't ask this often, but we do hope that you'll spread the word about bigger pockets.

We really do. The more people we can get on board, the more smart folks there will be to help us all be successful. please do help us out and spread the word about BP. Otherwise, lastly, if you have not already, please jump on iTunes and leave us a review and rating about the show, something honest. You can rate us however you want. Just be truthful and let people know what you think.

We appreciate it either way, and we work hard to improve what we're doing and make the show the best show for everybody. So thanks for listening. Thanks for sticking around, and Brandon wants you to take it away. All righty then. This is the Bigger Pockets podcast Show 53. This is Brandon and Josh.

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