The Personal Finance Podcast - How to Build a Small and Mighty Real Estate Portfolio with Chad Carson

Episode Date: October 18, 2023

In this episode of the Personal Finance Podcast, we're going to be talking about how to build a small and mighty rental property portfolio with Chad Carson. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Listen to Planet Money wherever you get your podcasts. Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Connect with Chad Carson Website Linkedin Youtube Facebook Twitter Instagram Books Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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On this episode of the Personal Finance Podcast, how to build a small and mighty real estate portfolio with Chad Carson. Body and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about how to build a small and mighty rental property portfolio with Chad Carson. If you guys have any questions, make sure you hit us up on Instagram, TikTok, Twitter, at Master Money Co.

and follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast on it. And if you want to help out the show, consider leaving a five-star rating and review on your favorite podcast player. Now, today we are going to be talking to Chad about his book, The Small and Mighty Real Estate Investor. And this book is one of my favorite real estate investing books that I have read in the last couple of years. Because Chad takes you through step by step how to invest in real estate. But in addition, what he does is he makes the case that you need to invest in real estate so that you have the end goal in mind and you make sure that you construct that portfolio to serve your life instead of just trying to get vanity metrics like the

most properties that you possibly can get. And in this episode, we're going to be talking through his book. And in addition, we're going to talk about how do you find your financial independence number when it comes to real estate investing. We're going to talk about how he finds properties, how he finances properties, how he thinks about this small and mighty approach. And it is something that I am doing as we build our portfolio. We're also going to talk about. finding deals and Chad does some amazing sabbaticals with him and his family where he takes long stretches of time and goes and travels the world. We're going to talk about how he does that and how his investment portfolio has allowed him to do that. So I am really pumped, really excited about

this episode. So without further ado, let's welcome Chad to the Personal Finance Podcast. So Chad, welcome to the Personal Finance Podcast. Thank you, Andrew. It's great to be here. I am so incredibly excited to have you on because you wrote this incredible book called The Small and Mighty real estate investor. And this is one of my favorite real estate books that I have read in a while. So I'm excited to dive into this and some of the topics that you talk about there. But before we do that, can you talk about your real estate journey and how you got started investing in real estate? Yeah, sure. I started right after I got out of college, actually. And it was almost an accident that I got into real estate because I was, I played football

at Clemson. You and I were talking about that offline. Florida States, your team and Clemson universities where I went. And I thought I was going to play in the NFL. That was like a dream that got crush really quickly. And then I was like, okay, I'm just going to take a break. I'm going to get my dad had been in rental property investing. So I was very fortunate in that respect to kind of observe that from a distance. And I said, I'm just going to take a break for a year or to learn how to invest in real estate. I thought I would go back to medical school. I was a biology major. But I started that and I started learning how to flip houses. And it just kind of captured me. It was just so much fun to be in this business where you're an entrepreneur, you control your schedule.

There's nothing guaranteed, but it was just exciting. Like I found entrepreneurship in general and investing in real estate in particular, which is really fun and exciting. So I never looked back. I kept going from there. I started just in a business partner and I got started in Clemson, South Carolina, flipping houses. We would go out and find deals, find good fixer-upper deals, foreclosures. We didn't have the money to buy the deals. So we had to go partner with other people who had the money. But we just found a way to scrape by and do it. And long story short, I could go in a lot of details, but we started off flipping houses just to make a living, eventually started buying rental properties. And we've kind of flipped around. Now we just

do rental properties. We could go back and flip houses, but we mainly just have a portfolio of rental properties, some single family houses, a few mobile homes, some small multifamilies. And we're in a college town. So over half of the rentals we have cater to sort of your grad students and your older college students who, my favorite are the ones who have paid their own way. Like they're not, you know, using money from mom and dad. They're just like, hey, I've got a scholarship. I've got a certain amount of money. They're very responsible. So I really love college students. And I think they're a great market and that's who most of my tenants are and we've kind of built this portfolio over the last 21 years. I love that that you've kind of taken this approach where you've just built this portfolio

one step at a time and you've done a bunch of different avenues in real estate investing from flipping to rental properties. And long time listeners know that I absolutely love real estate investing and I think it's one of the best ways to kind of accelerate your path to financial independence. But one big question that I have is kind of do you think real estate investing is for everyone? And also along those same lines, what kind of things with your personal finances should you have an order before you start investing in real estate? I don't think it's for everybody. Like, I try not to convince people because I find the people who are interested in real estate

sort of naturally gravitate towards it. But I will describe the profile of people I think are pretty interested in it. Most of them are either a little bit or a lot control freaks. They like to have control over their investments. And I love passive index investing. I do that as well. Just low-cost index funds, let it ride. I think that's great.

But there's a sort of discipline you have to have there where you are completely hands off. It sounds nice to be a passive investment until you have to ride out a recession and everything goes down by 50 percent and you have to just hold on. That's not an easy thing to have to do. And so I think real estate investors like to affect their returns. They like to affect their wealth building. And in the beginning, real estate investing, I tell people, it's kind of like a startup company. Like you have to invest some time and learning and finding deals and building a network. That's the sort of cost of entry. That's the down payment of your time you have to make.

But what I found in the end, like where I am in my career, I spend less than two hours per week with a business partner. We spend an hour or two a week managing kind of the bookkeeping and managing the managers. So it ends up as a very passive, relatively passive enough kind of business. But it starts off as this thing where you have to put a lot of time into it. So I think that's not for everybody. If somebody's super busy or they just don't like the idea of having to spend that much time on it up front. But to me, the cost benefit analysis, the benefits of that, the income, the wealth building, the fact, that you're contributing to your community of people, like you know the people who are paying your rent.

You know, I just think there's something tangible and really interesting and fun about having that, affecting the community that way. And it's kind of led me to get involved in my community. I'm trying to have a nonprofit where I'm trying to build trails and walking trails just because I'm so connected and love my community so much. And it started with rental investing. I think that's so powerful to kind of think through that on the type of investor that would be interested in this. Because like you said, it's not for everyone, but there's so much wealth building potential there that it can become one of the best things that you do. Now, when someone is looking at this, maybe they decide they want to start investing in real estate. Should there be certain parameters

in terms of their personal finances? Should they have like a specific amount of emergency fund in place? Because real estate investing is expensive in some areas, especially when you only have one or two properties. Yes. And you asked me that question earlier. I think having a good financial foundation, like real estate is built on top of personal finance. So that's like your show, the fact that you go through the fundamentals and you build it all as, you know, on top of each other is perfect because rental investing in particular, like you could probably get into flipping houses like I did and wholesaling. That's sort of a business, but it's not really investing. It's getting into like a side hustle or a business where you try to flip houses that make money. But rental investing, you don't make any money up front. Like you're putting money into the property. You know, you put a down payment. You pay closing costs. The first two or three years, you're sort of trying to stabilize the property. Often you're having to pay, you know, capital expenses like replacing heating and airs, replacing a roof. So you're feeding this beast for the first two to three.

to four or five years, but then that beast starts feeding you after a while. And so I think that's the financial reality of it. I like to have cash reserves. I'd like to encourage people to be very conservative. I tell people like a minimum $5,000 in a savings account for every property you have in the first five properties or so. You can sort of switch to a different kind of cash reserve, kind of like you do with your personal finances, have three to six months of all of your real estate expenses, your hard expenses, put aside in a cash account. That's kind of a minimum. I know people who have a year set aside or a year to half. So it's depending how much you need to feel sleep at night, does you do that? But it's personal finance. You have to apply the same principles of cash reserves,

being disciplined, saving money, like that's sort of a prerequisite. And that's why I love about this approach is that it's a disciplined approach to real estate investing, which some people may start out and they don't actually think that way. So it's really, really powerful to be able to do that. And your book is obviously called The Small and Mighty Approach to Real Estate Investing. And this is one thing that I really, really love about this. Can you explain the philosophy behind this and why it's so powerful? Yeah, I've kind of gotten frustrated looking online and maybe other people can resonate with this. You look on Instagram or you look on YouTube and it's like the most successful people, supposedly, are the ones who have the private jets, who have thousands of rental units.

They're kind of rah-rah on YouTube or Instagram and say, look at this. This is, you know, they have the big car and the fancy car. I have no problem with them having a fancy car or a private jet. The problem I have is like telling all of us as real estate. investors, that that is like the pinnacle of the mountain. And it's not. Like, you don't need thousands of units. You don't need a bunch of that to have a complete freedom in your life. Like, to me, like, most people get into investing because they want freedom. Like, they want options, plain and simple. They want to spend more time with their kids. Or if they have older parents, they want to be able to contribute to them. They want to be able to contribute to their community. They want to travel.

Like, my family and I, we love traveling with our kids. We've spent a year abroad in Spain last year, who lived in Ecuador. So there's these things in people's life. I call it doing what matters. That is the point in this business we have, this real estate investing, it's just a vehicle to get us to those things. And the reason small and mighty sort of is something I had to learn by touching the fire and getting burnt, I tried the go big thing for a few years. And I realized how risky it was. I realized how complex it was. And I realized I didn't have to do it. Like you can have a very simple business model. And so small and mighty, the definition of that is to have the simplest investment portfolio possible. that still accomplishes your financial goals. I love that. I think that is the way. And I've done the same thing where I tried the big approach to try to scale up a big portfolio. And it stressed me out so

much. I just remember like the feeling that I had there. And so I changed my approach and shifted it to a slower, but finding, you know, better properties over that time frame. And so now we just focus on buying one to two every single year, somewhere in that range. And we just want to grow that wealth slowly. So that is why I love so much about this approach, because it's the safer approach. You reduce your stress, you reduce your anxiety. At the same time, you're thinking about your lifestyle first. And that is the big key to this and why it is so powerful, I think, for so many different people. Now, when people are looking at this and they look at the different strategies out there to invest in real estate, how do they actually choose which strategy to pursue? Yeah, yeah, I want to

give everybody a frame of mind that'll help answer the strategy question. So think about yourself, like you're on a big journey. So like you and I work out of the guides helping people who are going on this journey. But, you know, the person listening to this, you're the hero of this thing. and if you're just starting, you're in the beginning, like you're in the very beginning, the starter baby phase like that. So you're going to have different strategies there. When you go up the mountain a little bit,

you're climbing up the mountain, you get into this wealth building phase, and that's where like growth is the number one thing. That's where all the techniques you probably heard about, leverage and birth strategy and borrowing money. Like it's just turning a small amount of money into a large amount of money. That's wealth building.

That's like the steep part of the mountain. And then you get to this final phase of financial independence, not the final phase of life, but where you're in a harvesting phase where you're taking money out, you're trying to live off of it, you're trying to reduce risk. And so I say all that because depending on where you are, if you know you're in the starter phase, the best strategies are usually just the ones that are the simplest, the least risk. I'll give you a couple examples. Like, I love house hacking. House hacking, for those who

haven't heard of it, is turning your residence into like a hybrid investment. It's just the classic one. I lived in a fourplex when I first, when I was 24 years old, I found this old fixer-upper fourplex in my town. It had Merry Christmas spray painted across the front. It was vacant. There was a chalkout line of a body in unit number three, literally. I was, I was like, this is scary, man. But I believed in the location. I thought it was turning around. And so I fixed it up. I had to borrow money from, I was borrowed 100% to the hilt. You know, I didn't have any money at that point. But I figured out a way to get it done. I moved into unit number two. And I lived for free, basically. I had rent from all three units coming in to pay for my living expenses. And that's like a best case scenario.

house hack. It's a way to get your foot in the door. You can use owner-occupant financing, which has smaller down payments. There's like some rehab loans out there. Like FHA has a rehab loan program. So does Fannie Mae. So there's a ton of good financing options. And then you're sort of taking a baby step into the real estate investing world because you have to have a place to live. You're there on site. You can learn how to be a landlord. We all make mistakes. That's okay. But then once you, let's say like three or four years from now, you're ready to be done with the house hack, you can move into the house of your dreams and then keep that house hack as a rental property. And I've known people who just did that and they just did that like two or three times.

And then they had, maybe it was a single family house. They didn't have a duplex, but they just moved out of a house two or three times. And now they have three or four rental properties. And maybe that's what they need. Like that could be their portfolio right there. And they did it just with one simple little strategy of moving into a house, getting a loan and then moving out of it one of these days. And that is why I love house hacking for a long time listeners who have talked about this. We talk about this all the time is I think house hacking is one of the best ways to kind of get into a property. You can either reduce or get paid for living in your house and reduce those expenses. And there's just so many powerful things to make that your first step when it comes to real estate investing.

Now, as people start to think about investing and they want to begin with the end in mind, how do they kind of calculate their financial independence number when it comes to real estate investing? Yeah, I try to keep the math really simple. Like addition and subtraction, maybe a little bit of algebra. But addition of subtraction is all we need to figure. this out. And I'll give a simple example. The first step is figuring out your financial independence number. And this is just the number. Like, so everybody listening, you probably know roughly how much you spend in a year. And if you don't, this is a great personal finance step. It's like when you go on a diet, you got to start counting calories, right? So when you go into

financial independence mode, you want to focus, how much my spending? Like, how much does my family, my lifestyle cost? And let's just, I'm just going to give a number. Everybody should try to do that. But you probably have like a lean financial independence number, which is just like the bare bones, no going out to eat, no vacations, just paying your insurance, your mortgage, you know, whatever you got to pay to go to the doctor, just the basics. That's your lien financial independence. And then you have like a regular financial independence number, which is what you spend just in your normal life. You know, you go out to eat a little bit. Maybe you take a vacation here and there, but it's not like luxury living, but it's comfortable. And then you

have this number that you're like, you know, what I'd really like to spend is this. Like, this is my luxury. We call it like fat financial independence. And so my recommendation is to figure out those numbers for yourself and just get a rough number. number because then we can work it backwards. And we can say, how many rental properties in the end? And the end of my vision here will it take to pay for my financial independence number? And I'll give you a real quick example. A lot of people I've talked to $10,000 per month would be like kind of a number for them.

That'd be a nice number. Depends on where you live. Manhattan, New York is going to be different than North Dakota, right? So different numbers. But let's say it was $10,000 per month. And let's say you could get every rental property you had rented for, let's say, $1,800, maybe $2,000 per month. And when it's all set and done, when you pay all your taxes, your insurance, your maintenance, you pay a manager to manage it for you, let's say you have a thousand dollars per month left over. Just real rough numbers. Well, the math is pretty easy there. If you needed $10,000 per month and you had $2,000 in rent coming in, but you had expenses of $1,000. And I want to give one other wrinkle here, let's say one of these days you paid all your properties off. Like you paid the debt off on them. And we could talk about how you do that. But let's just say that's the end goal. If you had 10 properties that each made $1,000,

You just need 10 properties. Like 1,000 times 10 is 10,000. And I find that so refreshing to know that 10 properties paid off could pay for $120,000 per year. Like, think about that. Most people get a retirement age and they don't even have, you know, a couple hundred thousand bucks saved up. Like to be able to buy one property per year, like you said, two properties per year and then get them paid off. Like this is a 10 to 15 year plan where you can actually have $10,000 per month coming in for the rest of your life. and you spend, like I said earlier, two hours per week managing that.

Like, that's the ticket. Like, that's the mechanism to have these options, to have this freedom, to have this flexibility. And the cool part after that is like, what do you want to do with your life? Like, if you start this when you're 30 and you can finish by the time you're 45, 50, if you start it when you're 50, now you're 60, like, what do you want to do the rest of your life? That's the fun question that you get to start asking yourself. And that is the power behind this and why we talk about it so much because it really is a simple mathematical formula, it's just making sure the other side of it that you figure all these other pieces

out is going to be really, really important to go through that. So I love this idea. And in addition to the cash flow, you're getting also benefits of appreciation, tax benefits, all these other things that we can talk about here today. And then one thing I love that your book lays out is the phases of the rental investors journey. Can you kind of talk about that and why that's so powerful? Yeah, I kind of dabble it in a little bit earlier, but it's so important because, like we said earlier, your strategy is going to be different. So you might be house hacking when you're a starter. And your whole goal is just to get in the game and learn the game and get that first property or two under your belt. That's the starter. But then when you move into the wealth building phase, it might be a little

different. Like you might start buying pure rental properties. You might start using a little bit more leverage. You might start using techniques like I mentioned the Burr strategy earlier. That means you buy a property that's a fixer-upper. Maybe you bought the turnkey easy rental earlier. Maybe you kind of venture into some fixer-uppers that maybe you could buy it for 20% less than the full value. Like that's possible in real estate because it's an ill-liquid market. You know, it's not like the stock market where there's just millions of millions of people trying to buy every stock. It's every single property is unique. And you can learn to negotiate with sellers.

You can learn to offer, give them multiple offers. This is a big thing I talk about in the book, too, is how do you build your skill set? Like, you not only need to save money, but you need to, like, build your own skill set of negotiating and marketing. And so this is a business. But the cool thing is if you invest in yourself and you learn some of those skills, it can pay you back. Like, think about if you could buy a $300,000 property, 20% of it. percent less than the full value, you know, that's $60,000 that you could build going into a property. That's not counting the income and the appreciation and the tax benefits. And so this is a business that

really pays you to study and to learn and to improve your skills. And that's that wealth building phase is really where you compound that, where your down payments grow, where your knowledge grows. But cash is usually the restraint. Like you run out of cash at some point. You buy a property. You're like, oh, used all my cash. What am I going to do now? And so you have to learn to be creative. You've got to learn to think outside the box. That's the wealth building phase. And then the, I think most people, if they get into real estate and listen to podcasts about real estate, they focus on the wealth buildings phase.

And that's great because most people are there. What I try to do in the book, though, is complete the journey because I don't think many people talk about how you finish the journey. Like, they just assume like, oh, just ride off into the sunset and have a thousand units and get my jet and then it'll be okay, right? Like, no, like what's the mechanism to do that? And what I suggest is it's sort of like playing football. I give this metaphor.

Like if you ever watch a football game, you get to the fourth quarter. and if you're at the very end of the game and your team is winning, like Florida State was against Clemson last week when we were playing, the coach completely changes the strategy. Like if you're winning and there's like 30 seconds on the clock, the quarterback does something weird.

They just take a knee. Like they say, I'm not going to try to throw the pass. I'm not going to try to run the ball. They completely change their strategy. Well, in real estate investing, you can do that too. Like if you're in your 70s

and you've got plenty of money, you got enough, like why would you go out and take extra risk? Like, you should just take a knee. Like get into something super conservative, and just go ahead and like, you know, change your strategy. But you can also do that in a less extreme way. So, like, instead of taking a knee in football, you can start just being more conservative with your running plays. You could not do the aggressive thing because you're winning.

Like, why would you try to make a mistake? And that's what the harvester phase to me is about. It's like, okay, you've won the game. You've got a million dollars or two million dollars in net worth. Like, you've done really well here. Let's not go backwards. Let's listen to Warren Buffett when he says, like, once you've won the game, like, it doesn't mean. make sense to take these huge risk that could make you lose everything you've already built. And so that's where you kind of, it's like a fork in the road. And some of the simple things you could start doing is instead of investing every extra dollar into more properties, you can start investing some of your dollars into paying some of your debt off. And so that could just

be like a debt snowball. Like people do that with their credit cards all the time. You can do that with your rental properties too, where you start saving your extra cash flow, don't spend it, start using that to pay off one property at a time. And then instead of a 30-year loan, you can pay that property off in two years. And then you pay off the next property in another year and a half. And then the next one's a year. And you could even accelerate that, but maybe instead of 10 properties,

you buy 15 properties and you sell off five of them in order to make some profits and pay off the rest of them. And so that's the kind of thing I went off in the end of phase. There's some more kind of nuance to that. But the point is change the game you're playing a little bit, try to reduce your risk, increase your income, and focus on peace of mind, focus on the reason we got into this business in the first place,

which is to live your life and have lifestyle and enjoy it and spend your money and you don't have to be frugal all the time. And that's the thing I've been had a lot of fun the last five or six years in my own journey because my family and I've been able to live that Ender, that I called Ender in the book or a harvester lifestyle where we've been traveling. I've been, I've spent very little my time on real estate. I've spent it on other passion projects like this, you know, being a podcaster, like writing a book, like trying to build biking and walking trails in my community, which I made zero money for. and I don't want to make money. I don't have to make money.

I'm doing that because that's what I want to do. And that's what I want to encourage people to do. There's so many things in life that don't make money that are super meaningful. Let's add that to our job description. And that's the reason it's so much fun to make money is that you can then not have to worry about money. And the harvesting phase is just so important to think about. That's why I love about that portion of the book is that you're thinking through, hey, I've already achieved my goal. It's just adding different properties that just doesn't make sense.

It's just vanity metrics at this point in time. I need to figure out what to do. with this cash flow, how I want it to fit my lifestyle, and spending those dollars on the things that you actually value in life, which I think is one of the most important principles that we can have when it comes to spending our money and learning how to spend our money, which is obviously a skill as well. Now, one big piece is if people start to want to invest in properties, a big, big deal here is making sure that we buy right, we understand how to buy properties, we understand how to find properties. And you talk about something called the buy box in the book. Can you kind of talk through

what that is and what it means. Yeah, I think people would understand the buybox if you think about, like if you buy a new car. Like my family just bought our old Toyota Avalon, which is a 2003, finally is going, we have to send it to the car cemetery. We're not going to be able to drive this car anymore. So we had to buy a new car. We bought a Toyota, I love Toyotas, a RAV-4. And, you know, on the road, I never knew there was so many RAV-4s until I started looking for RAV-4s. And now they're everywhere. Like, every corner there's a Toyota RAV-4. Now, what is that? That's the part of our brain called the reticular activating system. It trains us. It helps us. It helps us focus on what we're looking for because there's so many stimuli in life. It's so overwhelming.

And so it's just kind of a benefit our brain gives us. Well, you can use that in real estate investing by creating what's called a buy box, which is basically focusing on a very small segment of the real estate market and excluding and ignoring everything else. And by doing that, you're basically defining what's a good deal? Like, what does it mean to have a good deal? And you can get very specific with this. You can say, for example, in my town, when I'm buying long-term rentals, I like a single family house. There's three bedrooms, two baths, 1,400 to 1,800 square feet. I like it to be a one-story property with a garage, with a crawl space.

Like I'm getting very specific here. There's reasons for all that. There's reasons a lot of it's low maintenance. A lot of it is just my market likes that. Some of it is that you only have a garage and storage space. People put all their stuff in there and they tend to stay longer when they have all their stuff in your house. If you're brand new, you're going to have to borrow these ideas.

Like you can listen to me. You can listen to Andrew, other people who are more experienced investors. sort of borrow some of the criteria they have. But the point is you need to describe what a good deal looks like for a property. You need to describe what location a good deal looks like. So you don't want to be like if you're investing in Atlanta, Georgia, Atlanta is a town of like six to seven or eight million people. That's way too big. You got to get down to what I call like little satellites within Atlanta. So Atlanta's the sun. You want to get out to where I grew up, noon in Georgia. Noon is a city of 30,000, 50,000 people. It has his own little town center. It's got its own

neighborhoods. And so you go to a Noonan or some other neighborhood within Atlanta. And then within noon and you even go even smaller. You might go to a certain zip code or a certain school district. And so you kind of keep slicing the market until your buy box says, this is where I buy. I buy these types of houses in this location. And then you can add some numbers to that. You know, what does it mean to have a good numbers? And it might be like a certain price range that you evaluate the rent to price ratio is a little bit better. So if you buy a $600,000 house in noon in Georgia, it's not going to be that good of a deal because it just rents for $2,000. You know, that's a very low rent to price ratio, whereas you might look in a different price

range. And if you buy a $200,000 property, it rents for $1,700. And there's a rule called the 1% rule, which people want to look that up. And it's not like a hard and fast rule, but it's just, it shows that there's a relationship between the rent and the price. And if it's closer to 1%, the monthly rent is closer to 1% of the purchase price you're paying for the property. It's going to tend to have a better cash flow. And so that's the only reason you want to even use that. But all of that goes into creating this buy box. And so then it's just a piece of paper. It's just a document. Like I encourage people to like do a one page Google Doc. But once you have that, now you can do marketing. Now you can go to a real estate agent. And your real estate agent is going to love you when you come with a buy box.

They're like, oh, wow, you've actually done your homework. You've actually asked the right questions. Your real estate agent will actually be able to help you because you've started to think about what it means to have a good deal. They can actually help you formulate that. They might say this neighborhood's a little bit better for that than this neighborhood. And so it's such an important concept because once you have that in your mind, then good deals start showing up. Because people always tell me, oh, there's no good deals. There's no good deals. It's like, well, number one, do you have a buy box? No, I just want a good deal. Like, no, no, you got to have a buy box. And the number two, you got to start making offers. Like, if you haven't made any offers, they can't say yes until you

start making offers. And so people don't realize how many offers. I've had new people make 15, 20, 30 offers before they get their first deal. And that's not atypical. Like that's this sort of a game you have to play to learn the market and figure out where you might get a good deal. That's not a typical whatsoever. I think my first deal took me 100 and 150 off or somewhere in that range or before we even got one. So I think that is one for sure that a lot of people do you understand. It's going to take you running the numbers a number of different times, which is actually a good thing because you're starting to practice this concept of learning how to identify good properties. And then you can go through run those numbers and figure out if this is a good deal.

When it comes to running the numbers, you mentioned a couple of numbers for a second there. But when it comes to running the numbers, what is your favorite way to run the numbers? And how important is this before we buy that property? Yeah, when I run the numbers, I look at two kind of core metrics. And I almost think about it like a rocket ship. Like if you had Elon Musk rocket ship, right, you have a couple engines. You don't just have one engine. You have the income engine, which is like the cash flow of the property.

So just the simple way to think about it, you collect rent, you pay your expenses. And what's left over is your cash flow. That's like the, to me, the core engine of real estate. It's not the only way you make money. And sometimes it's not the main way you make money. But if you ignore cash flow, you're ignoring the fundamental way that you get into orbit with your deal. So cash flow number one and the number two, equity growth. You can think about it also as like you own a little piece of this real estate.

If you make a down payment, you put $50,000 down. That's your equity in the property up front. Well, the game, the way in real estate, the game is to increase that equity to something a lot bigger. You want to turn that $50,000 into $500,000. And the way that happens in multiple ways, but it happens with the price appreciation of the property, just a passive appreciation over time. We've all seen inflation over the last couple of years. Real estate is a good inflation hedge.

It tends to keep up with inflation, at least in most markets. But then you can also force appreciation. You can do some cosmetic work to the house. You can add a bedroom. I love properties that are like 1,400 square feet, two-bedroom properties that have a bunch of wasted space, and you can turn that wasted space into an extra bedroom. And maybe it add an extra bathroom. So now you've gone from like a two-bedroom one bath to a three-bedroom two-bath,

which in many markets could add a lot of value to the property. Maybe you spent 20,000 to do that, but maybe it added $50,000 in value to the property. And so those are just specific examples of the second engine, which is equity growth. And it's a little harder to quantify equity growth, but over the long run, it sends you out in outer space. It's like a major engine. But the problem is you never know when it's going to come. You don't know, like appreciation can happen really fast. It can go flat for a while.

It can go down for a couple years. And so over the long run, it's going to be a great engine, but you want to depend on really reliable things like cash flow, like the principal paydown on your property, on your loan. Those are kind of the steady eddies of investment analysis. So going back to how do you analyze deals, I like to analyze the cash flow in a couple different ways. First of all, I like to use what's called an unleveraged yield or similar to a cap rate. And the way you think about this is like think about buying a CD in the bank.

You put $100,000 in a CD. They tell you, we're going to pay you 3%, or we're going to pay you. you 5% on your money. So it's like every year, if you have 100,000 bucks, they're going to pay $3,000 or $5,000 in interest. You can look at a real estate property the same way. You can say, if I had enough cash, maybe I don't have enough cash, but if I had enough cash to pay cash for this property, what would this, quote, CD rate be for this property? How much income would this property pay me? That's what's called the unleveraged yield or the cap rate. In general, like there's a range there, but like in commercial real estate, a lot of investors, the best markets like San

Diego, Manhattan, you know, you'll get all the way down like 3% cap rates. So essentially, they're saying, I'll accept a 3% CD rate to own a single family house in San Diego. But in general, like small and mighty investors like us, we typically, I like to see like on the minimum, five and a half, six percent up to maybe nine or 10 percent, like the more risky a property gets, the more small town you're in. If the economics are really good in your town and the growth's really good, you might have to accept a smaller cap rate, a smaller unleverage yield. But if you're having to buy a fixer-upper, if you're buying in a small town, you want to get up in that 8, 9, 10-percent range. And so that's just a way to evaluate the cash flow of a property at front and understand

that. A cousin of that is the cash-on-cash return because most of us don't pay cash for a property. We put a down payment. And so you can also look at the cash-on-cash return where you say, I put $50,000 bucks in this property, I got $5,000 cash flow back this year. I made a 10% cash-on-cash-and-so those are two kind of core metrics I look at in addition to the growth of the property. Like I would want to see that, all right, this property has a potential to grow at 3% per year, 5% per year. It's a little harder to quantify that. I could get into like internal rates of returns and all that. But that's, I think if you start with the cash flow and then focus on your buy box and buy in a good location, those other numbers kind of take care of themselves over time.

Exactly. And if people are hearing this, what chat is basically saying is you're focusing on the things that you can control first. And those are the biggest pieces that you actually know and can predict going forward is focusing on those pieces first and then appreciation, all those other parts, of this engine will be coming into play, you know, as time goes on. And so I think this is really, really, really powerful stuff that we can talk about here. Because obviously, you make all your money when you buy this deal. So this is a really, really important factor as we go through this stuff. So what are some of your favorite ways to find properties out there? Are there ways that you like to do it off market or what are your favorite ways? Yeah, this is one of my favorite parts

of the business because finding good deals is like a treasure hunt. It really is. Like when I first started when I was 23 years old, it was like me just riding around in a car, walking around neighborhoods, looking for deals. And so that's still one of my favorite. favorite ways. There's a technique called driving for dollars or walking for dollars. Is that something you've used as well? Have you done that? It is. Yes. So that's one that I've done for years and years and years. It's one of my favorite ways. Yeah. So just to explain people how it works. It's real simple. But it's one of the direct ways. If you're listening to this, you can do this tonight. Like you can just go out and do it. Is you go out to a neighborhood. Remember, we have our buy box. That's kind of a prerequisite here.

I have a certain zip code, certain neighborhood I'm looking for. And then you just go out in the neighborhood and drive around. And so what are you looking for that? You're driving around. There's a list of things you want to look for. You want to look for vacant properties. So vacant houses, if you start looking for them, you'll be amazed how many there are.

I don't know if you have a radar, Andrew. I have like a radar. If I go to a new town, I'm like, oh, there's a vacant house. There's a vacant house. It is so easy to find him now once you start to do this. You start looking for like, all right, there's no window shades there or maybe there's some trash in the yard or maybe there's no, you can just tell there's no furniture in the house.

And so you're looking, number one, for vacant houses because you don't know that that's a good deal, but there's a person who owns that house who's either not getting rent or they've moved to another town. But basically that property is sitting vacant and no good things happen when a property says vacant because it goes down in value, there's maintenance that happens. And so the idea is we're going to collect a list of vacant houses and I'll tell you a few other things to look for. And then the next step is you're going to try to find their contact information and contact them, either by phone, by mail, by talking to the neighbors and just knocking on doors. Like, this is kind of where the time and the effort comes in. But if you're

someone with zero money and a lot of time. Like, this is the best way to do it. Like, you've got to pay for gas. Maybe you can get a bike. Like, I like bicycling and walking. Like, if you have a motivation here, driving for dollars is the number one way you should do it. But the point is, you're looking for these vacant houses. You're looking for fixer uppers. So even if it's occupied, if you go down the street and like all of the houses have good roofs and there's one that looks like it's a 40-year-old roof and the shingles are kind of sliding off the roof, put that on your list. Just there's apps out there that you can use. Like I use an app called deal machine that I like a lot. But you can also use a spreadsheet or a piece of paper, you know, depending on what your budget is. And you're just

going to make a note. And so if you drive around for two or three hours, you're going to find vacant houses, you're going to find fixed reppers. You're going to find houses that have for sale by owners signs, houses that have for rent by owner signs. And so all of those are what you're going to put on your list. And let's say after two or three hours, you have a list of 10 to 20 properties. That's like gold. This is your panning for gold, right? And so you're going to go either in your car at the moment or you're going to go back home. You're going to find their contact information. and you're going to start trying to reach out to them. And what do you say when you reach out?

You say, hey, my name is Chad. I know this is kind of coming out of the blue, but I really love the neighborhood over such and such neighborhood. And I noticed your house at 1, 2, 3, Maple Street. And I'm interested in buying it if you're interested in selling. Is that something you like to talk about? There you go. Like, it's kind of bold, right?

It's kind of forward. Some people might say, no, I'm not interested in selling. Hang up on you. Like, that's the worst case scenario. But the best case scenario is you went directly to an owner of a property. and they're like, yeah, actually, like, we just cleaned it out. I inherited this house. We've got to sell it. I love to talk to you. We're thinking about listing it next month. So you're finding somebody who's thinking about selling their house, but nobody else knows about it yet. And you can talk directly to them about buying their house. And if you do that enough, I promise you, if you build a list of 200, 300, 300, 300 properties like that, and that's going to take some work, right? How many hours you have to do to do that? But if you're willing to put in the effort to get 200, 300, 400, 400 houses or properties that you put on a list like that, and then you work the list, you contact them, you follow up. Don't just send them one letter. Don't just call, you know, you got to keep following up. And the harder they are to find,

the better the deal is because other people can't find them as well. And if you do that, I'm pretty sure if you have 200 to 400 properties, you're going to buy a property. It's almost inevitable that you do if you're willing to be persistent with it. And I did this early on where I had more time than I had money. So one thing I would do is I would schedule every single week to at least start to drive for dollars one to two hours every single week. And I would go to the neighborhoods that I was interested in. And as I would do this process, I would go and write down all the names. This was before some of the apps out there were around. And then I would take these addresses home, and I would literally go and write individual letters to the owners of those locations. So I'd go look

them up on property searches and then handwrite letters to each of these folks. And it is a really, really great way to find deals. And sometimes it may be an investor, for example, and they might say, hey, I don't have this property for sale, but I have some other ones for sale and things like that always start to happen. Things happen when you start to talk to people when it comes to real estate. So that is one thing I absolutely love. So if you're brand new, this is kind of how to get the ball rolling here is to do something like this. And driving for dollars is still one of my favorite things to do. And now the apps make it so much easier.

But it is definitely one of my favorite things to do as well. Now, if someone has more time or more money than they have time, what are some things that they could consider doing in order to find properties? Yeah. So there's others. It's kind of like a cafeteria menu. You can say, all right, driving for dollars is one. That's my favorite. The MLS, the multiple listing service is.

sort of one that everybody should do as well. And so if you have a lot of money but no time, you should hire a real estate agent. Like, you should talk to wholesalers. Like, wholesalers are investors essentially like I was when I first started that rookie investor me who had a ton of time. I was out there finding deals every day. Like, I was looking, looking, looking. Let's say you're a nurse and you work 60 hours per week and you got enough money, but you're like, man, I don't have any time to do driving for dollars. I got to take my kids to activities afterwards. Like you have like five hours per week and it's all at home, right? If you met a young Chad, like you met an Andrews out there driving for dollars and they would be willing to get a property

and a contract and then sell it to you and maybe they make a $5,000 markup, maybe they make a $10,000 markup, but you still bought it like 90 cents on the dollar or $0.85 cents on the dollar. Like would that not be a good deal for you as well to buy it from this wholesaler? Yeah, it would be. Not every deal from a wholesaler. In fact, most deals from wholesalers aren't that good. They try to shop, you know, sell stuff. This is kind of, you just overpriced.

But that's okay. Like it's just a, the point of this is if you have not been. If you don't have much time, you've got to leverage the services of other people. Number one, a real estate agent. I'm a big fan of finding a good real estate agent, an investor-friendly agent who understands what you're trying to do. And that's not everybody. Like, a lot of agents, they're fine for what they do, helping a homeowner find their

dream home. But they're not good at helping you find an investment that meets your buybox. Like, if you have a conversation about a buy box with an agent and they don't really get all of that, then that's the wrong person. Like, they either need to have rentals themselves or they really need to really understand the discounted, the investment. side of real estate. And there are some out there. So just keep hunting for them. And if you have that agent, they can send you MLS listings. They should also, this is a kind of a little secret that I used

to use. They should also tell you when listings are expired, especially now that the market's changing a little bit when 10 people bidding on a property, they didn't expire that much, right? But what happens is they list the property. It goes 90 days and nothing's happened. Nobody's bought it. Well, that's public information if you're a realtor. And so they could say, Andrew, here's this week's expired listings and you could send out letters to them or you could pay somebody to send out letters to them. And then if you buy one of those properties, they call you and they say, hey, I'd like to buy, yeah, I'd like to sell a property to you. What can you offer me?

You negotiate it. You buy it. Then you could pay them a referral fee, your agent, for sending you that list. And I did that early on as well. And there's a bunch of lists like that from expired listings to eviction landlords to pre-foreclosures, to people who live out of town who own a property. if you search for direct mail to real estate investor, for real estate investors, there's a bunch of different opportunities. You don't want to do all of those. You want to pick like one or two,

add that to your MLS campaign, add that to your wholesaler campaign. But the point is you have like three or four different ways to find deals. And if you consistently apply those, even if you don't have enough time, you can put a little bit of money into that, paying for marketing, paying for commissions the real estate agents. That's the way you find deals at that point. Exactly. And I have one right now under contract with my first deal I've done with a wholesaler. And I've looked at probably 100 or 200 of their deals. And then none of them were deals for my criteria, at least specifically. And then finally one came up. I just kept looking and looking. And finally one came up that actually fit my criteria. And so immediately we started working on that deal. So you just kind of have to be

consistent with some of this stuff too. Make sure you're continuously looking over that time frame. And you'll find stuff eventually. And it could be a really great way to just find some extra properties, especially if you're looking to grow over a long period of time. If you have a long term mindset, this is a great way to look at that as well. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in.

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That's PolicyGenius.com. Amazon presents Jeff versus Taco Truck Salsa, whether it's Verde, Roja, or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff saved with Amazon and stocked up on antacids, ginger tea, and milk. Haboniero, more like Habinier, yes. Save the everyday with Amazon. Welcome aboard Via Rail. Please sit and enjoy. Please sit and stretch. Steep. Flip. Or that, and enjoy. Via Rail, love the way. Now, team is obviously a huge factor when it comes to real estate investing. I remember early on trying to build the right team was a difficult. piece for me. So how did you learn to build a team and why is team so important? A lot of my experience

with teams came to sports. I played football and I'm a big fan of studying sports. Not necessarily, it's entertaining to watch sports, but I like to study sports as a lesson for life. And one of my favorite teachers in sports is a guy named John Wooden. Wooden was a basketball coach. He was a Hall of Fame basketball coach at UCLA. He's just one of those old school coaches, just like a most kind person you've ever met when you watch interviews with him. But he was super intense and super disciplined. And he, one of his main maxims that he would teach his team is like, look, Kreme Abdul-Jabbar, you're an all-star. Like, you're amazing. And Bill Walton, you're going to be a Hall of Famer one of these days. They knew how good they were, but he would tell them,

look, you're not going to be good. Like, your number one ingredient of being an all-star is the rest of your team. Like, without the rest of your team, I don't care how good you are. You're still going to not win. And you see this in the NBA. You see this in the NFL a lot. You'll see this star player who's got to get the ego. But the rest of their team's like, I'm not going to block for him, you know, or whatever, you know. So you've got to have this team around you. And real estate's a team sport. And so if you want to be the star, you're the hero of this journey, you got to have a good team.

That's the main point. But how do you build that? Well, some of it is just going out and recruiting, like looking for people and not settling for the just the average teammate. I've done that myself. Like, this is one of the biggest mistakes I've made in my career is just, you know, not necessarily bad people, right? But like not shooting for the all-star teammate, the real estate agent who really understands

the market who, there might be somebody who sells a lot of properties, but they're just not an investor-friendly agent. They're not your agent. You don't resonate with them. So interviewing people, talking to them, finding out, you know, are they aligned with you? Do they, are they going to be able to help you? And it takes some time. Like, that's the negative part of building a team is that you have to talk to people. You've got to interview. I like getting referrals from other investors. That's the main way I find. Like, I have a property manager. I have a good real estate agents on my team. I have a good CPA. It took me a while to find, like, the right attorney that I really like to my real estate investing. But all of that comes from networking.

It comes from talking to other agents. And so here, just a very practical application of what people can do is go to anywhere where other investors are hanging out and networking with each other and learning together. So this could be like the bigger pockets, local forums. I think that's a great place to start. You can do that online. I also am a big fan of like local real estate meetups. So I'm a member of a real estate investing association in the upstate of South Carolina. I've been a member for 21 years. I pay my dues two or 300 bucks per year. There's networking events.

There's learning events. There's trainings. There's just hanging out. And you will be surprised how much you learn from people. I found private lenders who've loaned me money at those events. I've made private loans to other people at those events. So that relationship with other investors is a big deal. And it helps you build your team.

You can borrow, you know, this one investor who you're friends with, they might have a really good contractor who you both can use together. and that can help you out. Exactly. And that's the way I found my team as well, was going to real estate meetups locally and asking everybody, hey, who do you use for these types of things? And that's how I found the investor-friendly folks who were out there. And it really, really was very, very helpful. Now, another big factor of this is obviously financing deals and learning how to finance

some of these deals because this is a skill very much so. And the more knowledge that you gain when it comes to financing, the more deals you can actually find that work. So there's some cool stuff that you can do with financing. But before we dive into that, why should people even consider financing? deals? And why is debt a tool when it comes to real estate investing? Yeah. So real estate has a lot of benefits, but one of the biggest benefits is that you don't have to have 100% of the money up front to buy a deal. So leverage. Leverage is this concept like I think Archimedes or somebody old Greek

scientist was like, you can lift the world if you had a lever that was long enough. So it's powerful. It's a way to have a little bit. And most of us don't start with a bunch of money. We didn't have a bunch of money land in our lap. And that's a good part about real estate is that you can control, you can use leverage to control a $300,000 asset. with a much smaller amount of money. Now, that's the good news. That's the good part of leverage. The bad news is I want to tell you, like, the dark side of that is that it's risky.

There's some risks to debt. This is the reason, if you've listened to Dave Ramsey, like, he was a real estate investor. He still is a real estate investor. He went out of business because he had a bunch of debt that kind of blew up in his face. And during the 1987, one of the crises in the late 80s, his banks called all his loans due because he had a commercial debt, which is a certain type of debt. And they called his loans due. and it led him to having to go bankrupt.

That got the whole day Ramsey Empire started was using bad real estate investing debt. So you got to take it seriously. You got to be respectful of it. And you also have to use it. And so that's like the backstory that the reason is powerful is this going to help you get to your goals faster. It's going to help you use leverage. But you got to do it carefully. I treat them like power tools.

Like if you're a carpenter, you have these amazing saws and these amazing drills. But those can hurt you if you don't use them well. And I think debt is the same way. And so we can talk about like what, which. power tools to use and how to use them safely. Maybe that's another part of the conversation. Absolutely. I would love to talk more about those pieces as well, because I think this is one big factor for a lot of people they need to understand is that you can utilize debt in a safe way, which is why I love this system so much, because obviously the more debt that you take on,

the higher the risk level is when it comes to your finances. You've got to make sure that you are doing this in a safe way. So what are some of your favorite power tools, as you say, to utilize when it comes to financing some of these deals? Yeah, so let's continue our metaphor here, that you have a toolbox. Like financing is just a toolbox full of different types of financing. So I mentioned a couple of names here, but let me start with, like, if you're house hacking, if you, if you're just starting your journey, one of the benefits you have is you probably have a W-2 job, like you have an income coming in from a job.

That's that personal finance that we talked about earlier. If you have a good personal finance foundation, you have good credit, those are going to help you go to get a traditional loan on an investment property. So there are loans for owner-occupied properties. So if you move into a house hack, you can get an owner-occupied. which is the best interest rates. You can usually get a 30-year fixed financing, which is what I recommend. Get the longest-term loan you can. Even if you want to pay it off in 15 years, don't get the 15-year loan. Get the 30-year loan. This is an argument some real estate investors have between themselves,

but my recommendation is to get a 30-year loan as long as possible because that fixes your payment as low as possible. And you can always pay it off faster. There's no prepayment penalty for paying it off in five years or 10 years. But the biggest risk you have, and the only way I've seen people go out of business and real estate is not being able to make their mortgage payment. It's having negative cash flow, getting in a big recession, their tenants move out, and now they're having to make payments on these properties, on 10 properties at one time. That's the big risk. So you want to keep your payments as low as possible. And then you can do that through owner-owner-occupant loans. If you move into a property, you can get the best interest rate, the longest terms, the lowest-down

payment. But then remember, you're living there for a while. You've got to live there. You can't just buy it as an investment property. But if you choose to move out and move to a bigger house, then keep that property as a rental property. And so that's one whole category of loans. That's kind of a starter strategy. But even when you go to like pure rental properties, there are conventional loans, which means that's the main part of the mortgage market where you have 30 year fixed financing as well, little higher interest rates, but they make loans to rental property investors. But instead of putting 5% down or 3% down, you have to put 20% down or 25% down. That's the difference between an investment loan and a owner-occupant loan. But you can still get 30-year fixed financing at the

best interest rates, which today in 2023 are now like 7.5, 8%, which is not great. In the historical context, it was 3% a few years ago, that's a challenge, right? That's a difficult part of it. But you still, the risk side of debt is that if you can fix it for a long period of time, that's going to be the least risky debt. So those two kind of categories of debt, owner occupant loans, conventional investor loans, those are sort of your low risk type debt. But then there's a whole category of other types of debt that you can start kind of growing into,

including hard money loans, which if you start buying fixer upper properties, that hard money loans essentially mean these are other investors. These are businesses who make loans to investors to buy fixer upper properties and to buy properties at low prices. The good side is they can move really quickly. They don't have all the applications. And they have application, but it's a lot simpler to get a loan. But they charge higher interest rates anywhere from like if the market interest rate

7 or 8 percent, they're going to charge you 10 to 14 percent somewhere in there. And so you don't want to have those loans forever. that's a short-term loan to buy the property, and then you refinance it with another type of loan, like traditional loan or there's another category loans called DSCR, stands for debt service coverage ratio loans. And those are kind of special type of investment loan, which are also 30-year fixed financing, or they also have some adjustable rates that are pretty cool. But the point is, instead of using your job income as the qualifier, DSCR loans use the property itself as the qualifier, or the income on the property.

And you don't get cut off after like three or four or five loans. They can keep giving you more loans. So I'm kind of giving people a spotlight. There's a ton of other options, including private money, which has been my number one, way I've bought properties, seller financing, lease options. Like, I've become a nerd on just like the toolbox of financing. And the more tools you have, the point is, if you're just starting, just get one or two tools.

But if you eventually have five tools, 10 tools that you can use, that's going to give you more options to buy more real estate. That's part of your negotiation strategy is having all these financing tools available to you. Exactly. And the more options you have, the more creative you can get an example for hard money. I remember when I first started investing, I told myself, those interest rates are crazy. I will never get a hard money loan ever. And then this deal that I was just talking about with the wholesaler that we're doing right now, we had to get a hard money loan because it's a really quick deal that we have to make really quick and then we're going to refinance it back out with the bank. But this is my first time doing it. I told myself I'd never do it. And now I'm

doing it anyway. Those interest rates are going to drive me crazy, but we'll see how fast I can get it refinance. It's motivating that, right? Because you get that 14% interest rate or 12% interest rate. Like, I got to pay this thing off fast, you know. Exactly. Exactly. So, but it was the only creative way that I could get this done quick enough to make this whole

thing work for us. So that was the thing where as you start to progress, you can see that you can utilize some these tools and they will still work out as long as you know how you're running your numbers and all those other big pieces there. So that is a huge piece there. So does it ever make sense for somebody to buy a property in cash and or, you know, how should they think about it if they want to pay off these properties over time? Yeah, I think there's a whole spectrum of possible ways to be successful in real estate.

Like, I'm not a fan of saying, oh, you've got to use leverage all the time. Like, I have known people, and I've actually done it myself in a part of my business where I paid cash all the time for all my properties. So, like, I'll just give us real quick example. We had a partnership that I started where we own this LLC with a few other people. We all put a bunch of cash into there. And this cash sat in the LLC. And then we used it to buy a property for $350,000. That was the number that it took us.

We started collecting rent on this. property. It was a good deal, but we built up cash until we had like 150,000 bucks, and then we bought another rental property. It took like three or four years. But then we have that other rental property paid off for cash, and now we saved up money for another two, three. We've owned this LLC, this partnership for now, I think it's about 10 years, and it's done really well. And we now have this cash machine with no debt, nothing. So it works. It's a little slower to start. You might have to partner with other people to come up with the cash. But the point is, like, that's a very conservative approach that can work. And then there's a, you know, the aggressive side is using 100% leverage,

which I did early in my career, but then I realized, okay, I got to like start paying some of this debt off. And so I think the happy medium is, like during the starter phase and the wealth builder phase that we talked about, use debt. Use debt very carefully. In the book, I've got seven safe debt rules that I like to use, including some of the stuff I talked about fixed rate if you can, talk about balloon notes. I give kind of some of the criteria that I've seen that have knock people out of the game using bad debt. But if you follow those safe debt rules, use leverage. Use it as well as you can. But then once you get to later in your wealth building phase, or even halfway through your wealth building phase, you might want to start playing

a little different game and start looking at your numbers and saying, oh, maybe I should pay a property or two off. Maybe I should sell that property, use that money to pay this one off, and just start playing with the numbers. I'm not saying you have to do that. I'm not saying you have to pay off all your properties. But I have found there's a ton of peace of mind when you start taking that approach and allowing yourself the approach to take some chips off the table, to use a poker metaphor. If you take some of your winnings, you plow it back, you're getting off that treadmill, that like always moving treadmill, and you're like putting some money down and saying, this property is super conservatively financed, I own it free and clear, take a deep breath,

and then move on. And so that's what we've done over the last six, seven years. And we still have some debt on some properties, but we've gone from like a 70% loan to value of our whole portfolio down to like 15 or 20% instead. So we have some properties finance, some properties have no debt. I love that. I think there's just so much power in having that strategy and using that strategy over time because you can start off like you said, where you take on debt because you're going to need it. Maybe you have less money when you get started. And as that cash flow starts to come in, you can start to take some of that accumulation and start to pay down some of these properties. And if you do what Chad just said, imagine if you had 10 properties that were completely paid off,

I mean, you are almost virtually indestructible when it comes financially in terms of having that paid off and having that situation there. There's not many things that could happen that could, you know, really just ruin you in any way, shape, or form. You really kind of built a fortitude around your financial situation. So I think that is a really, really cool strategy in ways that something that people really should think about as they start to invest is what is my end goal here? What is the final plan that I have when it comes to safeguarding these properties and making sure my financial situation is safeguarded as well? And speaking of the end goal in mind, one big thing that I want to talk to you about was that you and your family do sabbaticals and you travel

the world. We just had Joel and Matt from How to Money on the podcast recently. And one big thing they talked about was we got talking about sabbaticals. And they said, hey, you got to talk to Chad about this as well. And I said, he's already coming on. So it was a perfect segue into talking through this process. And I think this is one big thing that we definitely want to hit on with you because you've done some really, really, really cool stuff. So you used real estate as a means, basically, to create freedom. And that's what I absolutely love. So can you kind of talk about how this started when you started to take sabbaticals? Yeah, I was in the middle of the grind. It was four or five years into my business and I read the book called The Four-Hour Work Week, which some people might have heard of. It's

kind of a classic in the personal development world by Tim Ferriss, another podcaster. And he had these ideas of taking many retirements. And it hit me over the head when he was like, you know, most people wait at best, like 20 years, 40 years and like, then I'm going to enjoy my life. Then I'm going to take some retirement time and travel and do all these things. He was like, no, no, no, no, like that's completely backwards. I don't know if he used this metaphor, if I kind of just took his idea and used it. But the way I look at it now is that, you you're climbing this mountain that we talked about earlier, and you're trying to get to get to the top of financial independence, but it's not a straight climb. It would be ridiculous to try to

climb for 20 years and never take a break. You have to take a break. And so these many retirements, the idea is that you have the seasonality of your wealth building. So you grow for two, three, four, five years, and then you take a built-in break. And for me and my wife, like we took our first one in 2009, we were not financially independent. We couldn't live off our rental income yet, but we had to, it was the middle of the great recession. But we said, I got to take a break. Like, this is going to kill me if I don't take a break. And my wife is a Spanish teacher.

And when we first met, we talked about going abroad and we loved the Latin American culture. And so in 2009, we went to Spain for six weeks. And I learned to speak Spanish. I took Spanish classes there. We toured around. And then we flew again back to South America. And we spent a month in Peru. And we lived with a family.

I took Spanish classes every day. My Spanish got a lot better. We went to Machu Picchu. We went to Lake Titicaca. We just did some amazing experiences. And I can remember this one specific experience, though, was actually back in Spain, and it really told me the power of many retirements.

I was sitting on a bench overlooking this little bay on the coast of Mediterranean coast of Spain. And it took me like five or six weeks to finally relax. Like literally, like we were sitting on this bench, watched the sunset, watched a big shooting star. We've been reading books, just relaxing. And I felt like this knot in my chest, like physically untie, like at that moment.

It just really hit me. I was like, if I'd not taking this break, if I'd not taken this trip, like, what would that not have done? Like, what would that have, what would that stress? That if you're ambitious enough to take on real estate investing and personal finance and climbing, you're kind of a little bit more of an apersonality like I am. I'm pointing at myself. You're probably a little tight strung. And so you need to build in some breaks as well. And that balance of a seasonality of grow, go, go, grow, grow, sprint, sprint, take a break. For me, is travel, go abroad. Like, I need to physically go to another location. We went to South America.

We've also been to Ecuador once we had kids. We lived there for 17 months. We went to Spain last year. And it does two things. It gives you that break. But it also forces you to start building systems and building cash flow that are almost retirement-like. My real estate business was not systematized.

It wasn't running itself at all until I had to force myself to take these trips. And I'm like, all right, if I'm going to be in South America doing this, like, how can our tenants pay their rent? How can we do maintenance if I'm not there? How can we, you know, lease the property, even though I'm not. physically there. We had to start asking ourselves these questions, and we started building systems and building our team. And it forced me to build this like retirement style real estate business well before I actually got to financial independence. And so I think for all those reasons, I can't recommend it

enough. It's a whether you want to travel like we do or whether you just want to stay at home and build a garden for two months or whether you want to spend more time with your kids and just take a break or whatever it is for you. Like that's cool. But just build those breaks in because you don't just live at the end of the journey. You live every year throughout your life and you need to enjoy it. You need to capitalize on it. And none of us are guaranteed to live a certain number of days on the earth. So you just got to enjoy life while you still climb. I love that. And I just think this is why building wealth is so valuable is because there are so many cool things like this that you can do that benefit not just you in your financial life, but your health, your well-being, time with your

family, all these cool things, building out some of these memories. You're going to remember these memories for the rest of your life. So I just think that's such an amazing way to think. about this in financial independence and how you should actually operate when it comes to your money. So do you have a favorite location that you've gone to so far? I love so many. Like I'm a little biased through Spanish-speaking countries, although like Asia is calling my name. Like I want to go to Vietnam. I want to go to Japan. So I'm a travel junkie. I love it in meeting other people. But I have a special place in my heart for Ecuador where we live for 17 months. It's just, it's really cool. It's a small country relatively. But they have the Amazon jungle there in one part. They have

the high plains, they're really interesting culture and music and food, really good food and fruit and fresh fruits. And then you go to the coast, they have the Galapagos Islands. So, yeah, I mean, there's so many amazing places. But Ecuador, Peru, that part of South America is pretty special to me. If someone heard you talk about this, they're like, this is the one thing that I want to do. I want to go out and try this. And someone wants to take a sabbatical for the first time. Do you have any tips for them? Stay small. Start small. You know, like we didn't start off going for a year. Like we started off going for two weeks of Mexico, for example. That was how we did it with our kids. Just try to take an extra long vacation. This is a little different mentality than a vacation. Like, I like vacations,

but most vacations, we all know this. Like, you were just trying to, like, recover from the sprint you've been doing, and you're just detaching yourself from life. And that's, we all need that. Like, go sit at the beach, do your vacation. That's cool. This is a little different, though. This is a little, you're going somewhere with a purpose. I recommend going to learn something or to do something because this is practicing, you know, what you ultimately are going to do. Like we sitting and doing nothing on the beach for the rest of your life, even if you like sitting on the beach is not going to be fulfilling. It's not going to be the thing that's going to really drive you, especially if you're ambitious enough to build enough wealth to retire early,

is never going to satisfy you. So go take trips for a week or two where you're learning a language or if you're into art, where you're learning some kind of new art, or if you're into martial arts, where you go train somewhere. So like I think that learning and that growth, that to me, that's the name of the game in life. Like if I ever stop, like, I want to keep learning and grow into the day I die. Like that's such an integral part of my being that if you build that into your your little breaks, it do something totally impractical. Like if you're an engineer and you're doing real estate investing, do something totally different. For me, that was language learning.

Like it was really cool. Like it was just something different. I learned language for four hours a day. It stimulated my brain. It was very practical. But I think if you find something that you're passionate about, it'll sort of get you out of this funk that we adults sometimes get in where we're like, I'm okay with my job. I don't really love it.

but, you know, it's just, it's okay. I don't know what I would do if I didn't have my job anyway. Well, this is a way to practice that. Like, what would you do? Like, if you're 15 years old again, like, what are you going to be when you grow up? What are you going to do? Like, what are you passionate about in these little mini retirements, whether it's a week, two weeks, a year, or a way to test that out and to grow and to be that and to do that. And it makes your life so much richer. It makes us so much more fun. And it's what, for me, at least, this is why I was investing in building a business in the first place was to have these kinds of experiences. And I love that. I think that is just such a powerful way to think about how to build wealth and reasons why you are actually building wealth. Well, Chad, this has been amazing. One question I want to ask you that we ask all of our guests here is what does wealth mean to you?

Wealth means options. Money is a tool. Money is a vehicle. It's a fun. Like I look at it like a game. It's a pretty fun game to play. So like if you like playing games, wealth building is a game as well. But ultimately from a practical standpoint, it just gives you life options. And so I think this is why like this is a great place to kind of wrap it back up because like why are you doing this. like what matters to you in the first place. If you're really passionate about that, if you're very clear on that, and it takes some internal work sometimes to think about it. But if you're very clear on it, then real estate's going to be a great tool. And personal finance is going to be a great tool.

But just keep it in this place. Like in my book, I had a little cartoon that we drew where like the go big business had this dog that was like pulling the owner. It was like the owner was getting drug along because the dog was the main thing. Like the dog was controlling this whole deal.

Whereas the small and mighty owner had this nice, yeah, good dog. He was sitting there, it was well-behaved, it was benefiting the owner as opposed to dragging it around. That's what real estate and personal finance should be. It's not the main thing. Money's not the most important thing in life. But, man, wealth sure does give you a lot of options, a lot of flexibility. And if you know what you want from that optionality, then it can be an amazing blessing to your life as opposed to something that drags you around.

And it takes over your whole life. Absolutely. And, Chad, this has been so incredible. I think there's going to be so much value that people can get out of this. episode. Where can people find out more about your book? Where can they buy your book and then find out more about you as well? Yeah, so the book is on all the platforms. If you listen to Audible, if you watch Amazon, it's on there, Barnes & Noble. It's also my publisher's bigger pockets. If you go to their website, to their bookstore, there's some cool bonuses. Like I made a two-hour

work week exercise where I show my calendar, would I spend my two hours of real estate work per week? But then what I do at the rest of my time, I also have a bonus chapter called How to Be a small and mighty investor in a changing economy. So with high interest rates and economy changing. I know that's a question on a lot of people's mind. So if you go there and get it bigger pockets, you get that bonus. But whatever you prefer, I would be honored if you bought the book and read it and send me an email afterwards. Let me know what you think about it. And I, every week I publish a podcast as well. I'm a podcaster and I put it on YouTube. So if you just search for Coach Carson on YouTube, if you search for Coach Carson on any podcast platform

or on the web on Google, you'll find me there and just let me know what you think. I would love to hear from you and appreciate everybody listening. This has been absolutely amazing. We will link all that down below in the show notes. Everybody can check that out. Chad, thank you again for coming on. It's been a pleasure, Andrew. Thanks for having me.

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