The Science of Flipping - Episode 189: From Full Time Employee To Full Time Investor

Episode Date: March 5, 2021

Episode 189: From Full Time Employee To Full Time Investor

Rather than trying to do, you know, everybody says they want to do a hundred deals a year. Like I don't really give a shit how many deals a year I do. I care about, I care about the revenue that I'm going to generate from those deals. Right. And, and at the end of the year, I don't even care about the revenue. I care about the profit. How much money am I actually keeping? So quality over quantity, every time and everything. yo yo what's up everybody welcome back to the science of flipping podcast i am your host

justin colby and for those that are here for the first time ever and found me randomly on iTunes or Spotify, this podcast is all about the right tools, systems, processes, implementation strategies to make you not just a successful real estate investor, but incredibly profitable as well. I have a very special guest on today's episode, a very close friend of mine, a CrossFit buddy of mine, a one-time student of mine, someone who has just crushed it for years and years. And I couldn't be happier to have Mr. J.R. Piper on the line. What's up, dude? What's up, man? Thanks for having me. Man, I'm excited to have you on, dude. It's been a long time, dude. To see the transformation of

what you've done and you've been in the game for a while, it has been awesome, dude. So let's kind of dive in and talk about your business and the systems that you've used to kind of get to where you're at. And I know it's taken, listen, to take a step back, I know you've had transitions within your business model, right? And where you're at, you know, four or five years ago when you and I started working together to where you're at today is way different before you and I started working together and all that kind of stuff. So let's take us through kind of where you got to, you know, be where you're at today. Sure. Well, first of all, congrats on the baby. I know you just recently celebrated the

birth of a little girl. She's adorable. Thank you, brother. But anyway, yeah. So going way back. So I got into real estate in 2000. It's like 2011 or 12. Long story short, I had a couple of buddies that were buying houses out of trustee sale. They were wholesaling a ton of properties, just like five a day out of the trustee sales. And that was back when there was a million foreclosures every day. And these guys, one of them was building a rental portfolio, but he didn't want to manage the whole process. He didn't want to deal with the contractors or the property management. He didn't want to handle the day-to-day. He just wanted to park money in real estate that he was generating from his other business. And so, long story short,

they needed someone that they could trust to manage the day to day. And at the time, I had a full time job, I didn't know the first thing about real estate or, you know, buying rentals or flipping houses or managing construction. But I was friends with these guys. And I was offered this opportunity to get involved because they trusted me, they knew I was intelligent and that I was a this opportunity to get involved because they trusted me. They knew I was intelligent and that I was a hard worker. And I was really intrigued by it. I thought, you know, real estate was always something I wanted to get into. So I agreed to work for these guys. I did it for, you know, next to nothing. And I got paid a very small amount to basically learn how to build a multimillion dollar rental portfolio. What was your, what were you doing full-time?

I was working at a treatment center actually in behavioral health in Mesa. And so I was full-time though, right? Like you, when you say like it was nine to five or, you know, whatever. It was full-time. So it actually was a night shift that I was working at the time. So I was, I was working a night shift. And then during the day I was driving around Maryville, like checking on, you know, uh, uh, rehabs and contractors and going to the, you know, trustee sales and doing all these different things. And then like sleeping for a few hours and going back to work. And, and as I did that, I, I, you know, I, I loved it and I decided that's what I wanted to do full time.

So I actually went to real estate school, got my license. Um, you know, while I was working that job, I actually, you know, would be studying in the back office at night in between busy times. And then, you know, again, during the day, running around, going to class, studying, doing everything to run the business. So I kind of want to stop there because I think you bring up something that like so fundamentally is kind of broken in people's mindsets. Right. And you're a living example of someone who did it the right way. And what I mean by that is like, you know, I coach hundreds and have coached thousands of students across the nation.

And one thing that constantly is a hurdle for most people is they work full-time, but they want to become a full-time real estate investor, right? They have this want and dream to do this, but they work full-time. And as a coach, as someone who mentors people, like for me, it is very difficult. Listen, I'm not Tony Robbins. I mean, I'm good, dude. I'm really good, but I'm not Tony Robbins. So for me to be able to really impress upon people what it actually takes to go from, I'm a full-time employee all the way to this other side where J.R. Piper's at, it takes a lot and it takes commitment and it takes sacrifice and it takes focus. And you transitioned very, very well. But you're talking to me about like, even during your job,

when you're working on down times, like you're studying, you're grinding, you're doing things in the middle of the day, you probably aren't going off of a lot of sleep because you're studying, you're grinding, you're doing things in the middle of the day. You probably aren't going off of a lot of sleep because you're doing, you're helping your friends build a business slash run it. You are studying for your real estate exam and you have a full-time job and you're doing it all simultaneously. So talk a little bit about what you, how your mind was built to say, I can handle all this or I'm willing to do all this. Yeah. So, I mean, the first thing that I'll point out is that nothing good comes easy, right? Like everybody wants to get into

real estate. Everybody wants to build a big business and make millions of dollars and have a rental portfolio. And all of those things take an extreme amount of hard work, dedication, focus, and sacrifice. Right. So that's, that's first and foremost. Second of all, the, you know, the whole idea of like, like working night shifts and studying in the back office and then, you know, working while I'm there and then going out and working during the day and barely sleeping. Like I just knew that there was something bigger for my life in store than what I was doing at that time. And I was willing to make those sacrifices and put in the time and the work to get there because that to me was like a way out, right? Like I saw this great opportunity and I wasn't going to sleep

on it. I will say that, you know, one of the pieces of advice I give a lot of people who ask me how they get into real estate is to get involved with someone who's already doing what they want to be doing and figure out how to add value to their life and their business. And that way, just by having proximity to those individuals who are successfully doing, you know, what you want to be doing and are at where you want to be, as long as you can figure out how to add value, they'll keep you around, right? Because it benefits them to have you around. These guys that I work for, they weren't doing me any favors, right? Because it benefits them to have you around. These guys that I work for, they weren't doing me any favors, right? I was in that position and I had that opportunity because of the value that I brought on a daily basis. And so having that proximity

to them and seeing how they analyze deals and negotiated and sourced funding and did the whole thing, I was able to see over time and time again, and over the years that I worked with them and for them, how to do it. And then as I started to save some money and transition full-time into real estate, I was able to go out and duplicate those results for myself. And this is kind of funny, but that job that I worked at, I actually was fired from that job. So I'll bring up another interesting point. At the time, I don't know that I would have transitioned full time into real estate as quickly as I did. Okay. I was planning on doing real estate as a side gig until I was able to build that income stream to match my steady paycheck. And at that time, I would have felt comfortable leaving the security of a steady paycheck and quitting my job to pursue real estate full-time. And you can call it God, you can call it luck, you can call it whatever you want.

But there was something else in store for me because long story, I won't even get into, but a silly situation at work ended up getting me fired. And I was forced into real estate full-time. It was like, okay, it's sink or swim time. I'm just going to, I'm already on this path. I'm going to pursue it full-time now. And I, man, I blew it up, you know? You did. And so what did, so this takes me to another thing that you've done so well and so happy you're here, dude, is like people get, I know students right now that I'm currently working with who are in a very similar situation. Like they're kind of burning

their boats. Like they either quit their job, they got furloughed from their job. Something happened because of this COVID thing that they no longer, they're like, you know what? I'm not going back. Right. And so when you said sink or swing, or when you committed to walk us through like what you did when you made that decision to go all in, what were the actions you took? How did you start building your own business, right? Obviously you probably continued to get some, I would guess you were still involved with your friends, but this also was now your business that you wanted to go create. So walk us through that level of commitment, the actions you started taking. Sure. So I, like I said, I got fired from that job. So that forced me to just pursue real estate full-time. I was in real estate school at

the time. And at that point it was like, okay, now I'm all into this. Right. And the lesson from that, of course, is that sometimes if you're in a sticky situation in life, it might seem like a curse at the time, but it can actually be a blessing. I'm really grateful I got fired from that job because had I not gotten fired, who knows how long I would have stayed there pursuing that steady income from real estate. It might've taken years. I have no idea, right? I might've never left that job. I don't know. But because I was forced to do something different, I went all into real estate. Okay. That was a blessing because I think if I had waited and continue to work a full-time job, it would have been harder for me to leave the comfort and the security of that steady paycheck,

you know, business and entrepreneurship at real estate investing. It, it, it requires a lot of risk, you know? And, um, one of my mentors told me a long time ago to exercise your risk tolerance, like a muscle, right. And I identify that because I lift weights and we did, we've done CrossFit together. And so I know from experience that if I do too much too fast, I'm going to get hurt. But as long as I, you know, continue to stay outside of my comfort zone and push the limits, I'm going to continue to grow. Well, when you're starting a business, it's, that's a tough balance because how do you, you know, you want to be conservative and safe and make money and have security, but you also want to go all in, right? It's like, where's that balance?

I would say that in the beginning, depending on the situation, you might just have to do both, right? You might have to work the night shift and do real estate during the day. If you see an opportunity to push all in and go for it, then go for it, right? You can always have a fallback plan if it doesn't work out and go get another job, you know, but, but I would say in order to really accelerate the growth process as an entrepreneur, you got to be fully committed to the business and, and the real estate. So I, once I got my real estate license, I worked with my buddies. I brokered deals for them as a realtor and with other clients. And I basically worked as a realtor for a few years, right?

And I enjoyed that and the money was good, but I didn't like totally love being a realtor, right? At the end of the day, I was always working for someone else and I wasn't generating the kind of income that I really wanted to. And since I started out in real estate, watching these guys build a rental portfolio that just paid them passively while they weren't even involved in the business. That always was my mindset that I want to create a business that would generate passive income through cashflow and owning assets. Right. And so, you know, I remember I went to an event several years back where, you know, you and I were actually talking

at this event and, you know, you, I was in that, I was in this limbo in my business where I was making good money at the time. I think I was making like 200 grand a year, you know, just selling real estate as a realtor. Right. And at that point I had invested a little bit of money. I had, I had one or two rental properties that I had bought. I had flipped a few houses. I had done a few wholesale deals here and there, but the majority of my income and my consistent revenue was coming from real estate commissions working as a realtor. And I really wanted to transition full-time into being an investor and either flipping properties and building a rental portfolio and wholesaling and all that stuff. But again, I was afraid to

leave the steady, consistent income from real estate commissions, right? Which is what I had worked so hard to achieve. And I wasn't sure if the other one was going to work out. And I remember you and I had a conversation that really changed the trajectory of my path and my vision. What you said to me was, dude, you should be marketing and you should be sending out mail and you should be doing more deals.

You know what to do with the leads. It's not gonna be an issue for you. You should go all in and start sending mail and really crank up the investing side of your business. And I was like, oh, maybe I'll send out a couple thousand letters. And you're like, no, send out 10,000, just go for it. And man, I can't thank you enough for that advice

because that push gave me the inspiration to the next month. I sent out 10,000 letters and I immediately started getting leads that were converting to deals. And I mean, that first year, I drew this line in the sand when I started doing that and said, I'm no longer working as a realtor for anyone except for myself. I don't care if it's a million dollar listing, I'm referring it out. I'm not taking a commission unless I'm the one paying it. Right. And, uh, and I started full-time

wholesaling and flipping and my, my income went up, uh, you know, five X that year. And so I, yeah, so, so I ended up creating a lot of, uh, revenue from wholesaling and flipping properties. And then I've continued to invest in assets along the way. Yeah. I think it's funny. There's really five pillars. Most people focus on the four pillars of our business, right? Is essentially like the first one is go get money in, right? Create revenue fast, hurry, be at an all time speed to go get deals done, create revenue. Even if it's just your $2,000 bird dog fee, I don't care. Go do it. I call it an inverse profit method where as you and I well

know, there's kind of this, I have a great buyers list. There's plenty of investors that don't have the buyers list I have. I'm able to move them. I can go collect small little fees on these, but I can do it almost 20 times a month. That is a lot of free money. So I call it that. Then you have marketing, which is what you and I had that heart almost 20 times a month, right? That is a lot of free money. So I call it that. Then you have marketing, which is what you and I had that heart to heart about is like, dude, get out there and get deals directly from the homeowners, get some marketing going because someone talented like yourself,

you could wholesale, you could flip it, you could list it, right? You had all these options. Then you got to make sure, you know, you're hiring and growing effectively because one of the things that most people don't understand how to do is actually remain profitable as you expand and as you grow. And then you also need to make sure that you are understanding sales, salesmanship, right? Like

one thing that you do really well is you take your time, right? And you talk to the owners, you understand what they're about, what they need, what are they valuing in selling their home, right? And then you align that with however you can be of most value. And then lastly, the fifth pillar is this, what you've done so, so well amongst everything else is choose your exit strategy.

Are you gonna wholesale this? Are you gonna flip this? Or am I gonna keep it in my portfolio? And when you master all five, which you have now done, and I've watched that progression, right? You went in making quarter million years a realtor and then started marketing on my advice. And then that brought you to this place now where you're making seven figures wholesaling and flipping and doing all that. You've built this multimillion dollar portfolio and we'll get into that. But that is what I consider to be an expert investor is where you now have all the options,

right? And now it's taking you doing deals nationally and doing all these really cool things that is really exciting for yourself. But if people can focus on the first four, right, which is getting profitable very fast, focusing on marketing, getting good at sales and negotiating, and then figuring out how to grow and scale that. The last one comes naturally because then it's just pick your poison. Am I going to wholesale this? Am I going to flip it? Or do I actually get to build wealth? Like what we're all in it for, which is the exit strategy.

And so let's kind of dive into that last part for you because you did really, really well once you started to figure out how marketing worked. And I remember we'd have conversation on conversation about direct mail and the results and the closing percentages. And so we really took our time to do that and you just knocked it out of the park. But you also, to your own credit, were picking off onesies, twosies and building this really incredible rental portfolio that for the most part, you still have intact today and it continues to grow. So let's talk about that transition on how individuals can not just get, you know, one of the things I've built and I haven't launched it yet.

So this will be the first time anyone's heard about it is like flipping to wealth. And what I mean by that is essentially what you've done, right? Is flip in wholesale to get money, but build wealth along the way, right? Because they're not mutually exclusive. They're just not. You're making a choice to wholesale or flip versus keeping it in your own portfolio, right? And so let's talk about that for you. How has that transpired? What was your thought process? Why would you make the decision to keep it versus not? Let's walk through that. Sure. So first of all, when I, when I first started marketing and, you know, getting all these leads and, and doing a lot more on the wholesale side, I joined, you know, your mastermind

and had, you know, the guidance of you and Kent Clothier and Sean Terry, the rest of the group. There's some badasses in that group. And that helped me, I think, really just short circuit the learning curve for myself in this essentially like new business that I was in, right. Where I went from being a realtor and like doing a wholesale deal, like here and there to

consistently marketing and try and track KPIs and grow that, you know, the investment side of the business. So that was invaluable. And I learned a ton from the group and from you guys on how to become a business owner, as opposed to just someone that like does random deals here and there and makes a bunch of money. Right. And so I had a very structured approach to the marketing and, you know, consistently sending direct mail and tracking the KPIs and understanding the numbers inside of my business so that I always know where I'm at. And I have my finger on the pulse and I know when to scale up and when to scale back and what's working and what's not.

Because sometimes, you know, I'll have a month where I think things are going really well, but on paper, it's clear that they're not, right? And other times I think I'm having a slow month, but on paper, it's really weird how that works. You know, you look at the numbers, they don't lie, right? So it's so important to understand the numbers in the business and know what's actually happening, right?

But I would say originally, you know, like before I was involved in all that, I, you know, just like everyone else, I wanted to flip properties. I had done a few flips. And to this day, I love the experience and the process of transforming a space from this junky, ugly, hideous house that's falling apart to this beautiful, you know, new space that somebody is going to create a life in, right? What I don't like is managing the construction. And so I try to avoid doing a lot of flips. And when I realized that wholesaling could be so incredibly lucrative, that immediately became my full-time focus, you know, but I've, again, going back to the way I got into real estate and watching these guys build passive income through a rental portfolio. I always from day

one was telling myself, I want to own as much real estate as I can. Okay. If you look at the wealthiest individuals in the world, they all own real estate, right? And it's the wealthiest real estate guys. Like they, people, you know, flipping houses may make you rich, but, but passive income is what generates wealth, right? Long-term generational wealth. And so that's always been kind of my number one priority, but you kind of, it's hard to have one without the other, because in order to buy assets, you got to have a ton of capital, right? And so,. And so the wholesaling and flipping and rentals all kind of go hand in hand. And so my checklist in order of priorities is like anything that I'm

looking at, can I own it? I want to own it if I can. If it fits my buy box and it's going to generate passive income and the numbers work, I want to own it if it's possible. If I can't own it, I don't have enough capital for whatever reason, the project is too big. I don't want to deal with the rehab or the numbers don't quite work as a rental. Well, then I'm going to wholesale it. Even if the flip would make me a significantly larger profit, I'm going to wholesale it strictly because I am all about the minimal output for maximum outcome, right? And what I mean by that is if I can make half on a wholesale deal, what I would have made on the flip, I wholesale it without even thinking twice about it.

And the reason I do that is because one flip is going to take me months and a shitload of capital. One wholesale deal I can do like in a day, right? So I could do 20 wholesale deals in the amount of time that I'm doing one flip with none of the capital, far less capital, none of the risk, far less risk, and like a tiny fraction of the time invested, right? So if you can, even if you're making a smaller profit margin on a wholesale deal, if you can do it a whole bunch of times in the end of the year, you're going to have a much higher amount of revenue than if you just like flipped a few houses in that same amount of time.

Right. So it's all about prioritizing my time and energy capital and resources to maximize the profit in the end. Right. So I wholesale 50 to 60 deals a year. I probably do five or six, you know, flips a year, big rehabs, um, average wholesale fee. You know, the numbers have changed over the last year or two, but, um, you know, I was doing 23 to $27,000, uh, average wholesale feels fee. So, uh, you know, around a million dollars a year in revenue on the wholesale side. Right. And I was doing that with me and one assistant. Uh, and, and, you know, one of the reasons I was able to do that with, you know, a small team, as opposed to building a big team and having sales guys and dispositions and, you know, everyone to manage was one, I like the simplicity of just having a smaller operation. I didn't mind doing a lot of work. Right. But two, I, I focus on quality over quantity and everything that I do. So rather than trying to do, you know, everybody says they want to do a hundred deals a year. Like I don't really give a shit how many deals a year I do. I care about the, I care about the revenue that I'm going to generate from those deals. Right. And, and at the end of the year, I don't even care about the revenue. I care about the profit. How much money am I actually keeping? So quality over quantity every time and everything. Right. And so like, rather than trying to do a hundred deals and make five grand a pop, which will get, which will give me 500,000 revenue.

Like, is there a way to do 10 deals and make 50 grand a pop? Cause that's the same outcome, but it's way less to manage 10 transactions than a hundred. So I've just, I set a standard for myself as a business owner and as an investor and as a company that my average wholesale fee needs to be 20 grand. If it's less than that, I'm not even going to go after it. And that's not to say if I can make less on a deal, I walk away from it. If I can make 10 grand, I make 10 grand, of course. But the standard, my baseline for the profit margin that I'm seeking on any deal that I'm pursuing is 20,000, right? And because of that, I've been able to be very efficient and very profitable. And because I have a small operation with not a big team, I have low overhead. So my net margins

are 60 to 80% as opposed to maybe 30 or 40%, which would be more standard for someone with a bigger operation. Right. And then, and then, like you said, as I've gone through all these deals, everything I'm looking at, I'm trying to put it in my portfolio if it makes sense. And so the things that I'm keeping, I'm, I'm very, I'm very calculated on the numbers. So I like to be at 65% loan to value all in, right? Oh, I like that. Cost, yeah, loan to value, basically. Not just cost, which is your acquisition,

but all in loan to value 65%. So you're buying maybe at 50% plus your remodel all in 65%. And then you can refi out with the bank. That's another thing, man. I, you know, we talk about, I talk about like minimal output for maximum outcome, right? If I can buy a house that's really clean, I'm not half the time. I'm not even rehabbing it. I'm painting it and renting it out, you know, and then maybe five years, 10 years down the road,

I rehab it because it becomes a little bit, you know, beat up and has some, some maintenance issues and just easier to start over at that point. But I've just gradually picked off cherry pick deals because I'm coming across so many good deals. I'm gradually picking off deals that I want to put in my portfolio and I'm keeping them as a rental. If I can't rent something or it doesn't make sense as a rental, then I wholesale it. If I can't wholesale it, then I'll flip it or the margin's too small, then I'll rehab it and I'll flip it. If I can't sell it as a flip, I'm sorry, I'll wholesale it first. I'll try and wholesale it if I can't wholesale it. If it doesn't wholesale, which

is just taking it down and listing it on the MLS, then I'll rehab it and flip it. If I can't flip it, then it goes right back into the rental portfolio, which all these years, I've only had one that I couldn't sell. And I, I still have that house today. It's actually turned out to be a pretty good deal because I did a lease option on it. But, um, you know, I, I would say that one of the biggest mistakes I see investors making who come across a lot of these deals is they don't keep enough properties for themselves to be able to generate rental income. Bro, you know this about me. I've done this 14 years. You know how many rentals I have? How many?

Zero. Well, zero today. It's Tuesday. Friday, I closed on my first rental that I'm keeping. Nice. And I'm a statistic to my own device, if you want to say that, right. And it is a big, like, if there is a negative that you can chalk up about me in my business is I haven't kept anything. And it's partly like kind of greed, right? Like, God, this, the amount of money I can make every year is really nice. Right. Versus like a $200 a month rental. But yeah. The other part of that is being single and my personality and the flashiness and living that lifestyle. Like I liked the cash now married, as you just mentioned,

new kid, my, my psychology of how I'm looking at business has changed. Right. And so the reason why you've done so well with the rentals, you've had that psychology from the beginning because your mentors, the people that you worked with initially kind of created that within you already. So the two things that I wanted to mention really quick before we wrap up is how many a year, like, do you have a number of rentals that you want to try to acquire a year?

Okay. Or is it just circumstantial when the lead comes in, you analyze it from buy and hold wholesale, dah, dah, dah, and it fits, it fits. And then secondly, let's talk to all the investors that may not have any capital. So it's the kind of, you know, two questions within one. How did you start buying your first rentals? Where did you find the capital? Because if you're making 200 grand a year, that's good money for sure, but you're not going to be able to go out and buy 10 rentals on that income. And then where would you suggest, how would you suggest someone who is either wholesaling

currently or is looking to start buying rentals for themselves, where do you suggest they start to find the capital? Yeah. Good question. So the first fundamental rule, okay, of building wealth for me, it's always been this way from day one, is to live below your means. What I see a lot of people do is as soon as they start making a lot of money in real estate, they go out, they buy the fancy car, you know, they buy a Rolex. People, it's like human nature. People will adjust their lifestyle, they'll enhance their lifestyle to match their income. So if you're making 30 grand a year, you know, you're probably driving like a modest car and you're renting a modest apartment and you don't like having really flashy, right? When you start making 50K a year, well, then it's a new car, right? A new, you move into a house and then it's an 80K a year,

new car, Rolex, you know, bigger house. It's like, and then there's never anything left over, right? So for me, from day one, I always knew that in order to get ahead, I've got to think of that bigger picture constantly and live below my means so that I can save money with the intention of investing it later on. So when I was brand new in real estate, I started to just like stockpile money to the side and it wasn't much, man. I wasn't making much when I first started all this. And so my first rental property I bought in 2013 and I got a hard money loan. And I think I put down 20%, it was $10,000. And I remember the day I signed the paper, I told the guy who sold me the house,

I said, now I'm broke. Because it was all the money I had. I had 10 grand in the bank for this down payment. And I had a few grand to fix the house up. And that was all my liquidity. It's all my cash. It was pretty much my whole net worth at the time. And I said, well, now I'm broke. And this guy said to me, I'll never forget this. He said, actually, you're richer than you've ever been. And that changed that. I remember that really like hit me and my, my, my thought process. Cause that's the difference between someone who thinks of spending money versus investing money. You know, I, I gave up the liquidity I had in my bank account, but I invested in an asset that was worth more than what I paid for it. So on paper, my net worth had actually gone up, even though I now had no money in the bank. Right. And so live below my means, live modestly. I mean, I was living in a two bedroom, one bath house and driving a Toyota Camry for years,

still when I was making a million dollars a year. Right. And since then I've, I've, you know, I've, I've enhanced my lifestyle a little bit. I bought a nicer car last year for the first time, bought a Tesla. I have a nice house that I live in now, you know, and I'm starting to unwind a little bit and enjoy it. But my general rule of thumb is like, if it, I don't buy something unless it's going to not impact my, my liquidity and my net worth at all, really, you know? So if I go out and buy a hundred thousand dollar car, when I'm making, you know, a hundred grand a year, that's going to have a major impact on my net worth. My whole net worth is in that, in that car at that point. Like it's just doesn't make any sense. Right. So live

modestly below your means so that you can save money to invest, right? That's rule number one. And then the second thing is that I just continued. So I never took money out of my rental properties as far as the income, right? So I have a separate LLC holding company for my properties. Now I have several that I have all my properties spread out across for liability purposes. But as the income comes in from that, let's talk about the first one. Income comes in, right? I was cash flowing, you know, after the payment, I was maybe cash flowing 500 bucks a month, right? Never touched the money. I didn't think of it as, oh, JR is now making an extra 500 bucks a month. I just pretend like that money doesn't belong to me. It belongs to that entity and it stays there and it slowly grows. And after a few months or a year, well, now there's a few grand in that account, right? And so I come across

another opportunity to buy a property and I've made some money and saved some money up. Well, now I'm going to combine those funds and I'm going to go buy this other property. Now I have no cash again, right? And I did that. I literally did that over and over again. So it's a slow build. Like it takes time to build that portfolio, but I reinvested any of the rental income I was making as well as any of the money that I was stockpiling by living below my means and starting to generate more and more income for myself, right. Without enhancing my lifestyle so that I'm like stretching myself too thin. And then I just continue to invest in new assets as I come across deals that work and I have the money to do so. And it's the rule of compounding interest.

The more passive income I have, the more buying power I have to buy new assets. And so as I've added assets to my portfolio, those assets generate more cash, that account grows quicker. I can buy more assets quicker than I was able to before. And then they create more income. It grows even quicker. I can buy more. And it's just like this cycle that has continued to accelerate over time. And I don't have a whole lot of debt on these properties. I know, I've, I've got, you know, a handful of mortgages and a couple of hard money loans and a bunch of properties that are free and clear. And what's really cool is that over time, as I've started to acquire properties free and clear by reinvesting the capital that's being generated, I've begun to go to the banks and get

commercial lines of credit on packages of homes, which is, you know, called cross-collateralization. And so what I can do from that is then I have all this buying power from the bank's money at a very low interest rate, which I can use to go out and buy properties, which will be unencumbered, which means they have no lien on them because I'm not getting a mortgage. And I can then take those and package them and buy more. And it's just a snowball effect that's, it's been slow. Right. But I can tell you that like, I don't have, so to go back to your question, I don't have like a set number of rentals that I buy each year. I just buy as many as I can. In the beginning, that was like one or two a year. And then it was like, I could buy a couple more than I did the year before the next year. Right. And now it's like, I'll buy, I'll buy five, I'll buy a 10 if I can't like I just, whatever I can. And what it's, it only depends on how much capital I

have and how much, how many deals I'm coming across that genuinely makes sense. But another thing that I'll say about building the rental portfolio is that the biggest mistake I see people make with rental properties when they're acquiring as a new buy and hold investor is they are buying properties that don't have enough equity or don't have enough cashflow. And so I'm very calculated and I'm very conservative. So my focus has always been on having both. I don't focus too much on the equity. I focus more on the cashflow than the equity, but I want to buy houses that have the big spread for a few reasons. One, I want to be able to go and cross collateralize those with the bank and pull my cash out if I have my money tied up in it. But that's why I like to be at 65% loan to value. But if I add a property that has a ton of equity on my balance sheet, I'm effectively adding, let's say it has $60,000 in equity. I'm adding $60,000 of net worth to my balance sheet.

My general rule of thumb is that I want minimum $500 cashflow per rental, right? And what that's going to do is it's going to not only be significant enough for the effort that I'm putting into that deal and the risk that I'm taking, but just like the home values can shift in a shifting market, the rental market can change too. That's something that I feel like nobody talks about. People go out and they buy a rental with no equity and a hundred bucks of cashflow a month. And they think it's going to be great because they're going to pay it off over 30 years. Here's the reality. You get expenses on that house. If a faucet breaks, you make no money for the month. If you're only netting a hundred bucks in cashflow. If an AC goes out, you're negative for the year, no matter what else happens for the rest of the months. So that's no good. I'm going to have enough cashflow that issues are going to come up and I'm going to be able to afford to fix them, right? But if the rental market were to shift and rent prices were to go down a little bit, if you're only making a hundred bucks a month, you're screwed, right? Whereas at 500 bucks,

I've got a little bit of a cushion. I have lots of properties with a thousand bucks a month cashflow, I'm good. And with my loan to value and being so low, so I have so much properties with a thousand bucks a month cashflow. Like I'm good, you know? And with my, my loan to value and being so low, so I have so much equity in the property. If the market shifts, I still have equity. I'm not underwater on any of them. My cashflow is going to be good. I'm going to be safe, you know, moving forward in the future. Amen, dude. Amen. Well, I mean, kind of lay this out for people on a much deeper, longer level. Maybe we do, maybe we almost do several of these or whatnot, but, um, I appreciate you coming on. Um, I thank you for giving back to, to all my loyal listeners. Is there any,

anything else you'd like to leave them with, or if they want to follow you, or if you want them to go, you know, follow what you're doing, let me know, or, you know, last word from you. Yeah, sure. My, um, my, uh, my Instagram handle is pipe dog eight, four. It's in dog is spelled D a W G P I P E D a W G eight, four. Um, feel free to give me a follow, shoot me a message, say hello. Um, and I guess the last, last thing I'll say is just, you know, one of the, one of the more important lessons that I've learned over the years is just to do good business. You know, everybody's, everybody's in this to make money. Right. And I would say that like relationships and integrity are two of the most important things in business. If you, you know, don't have integrity, you screw

people over, you do unethical things like it will affect your reputation. People will get wind of that and they won't want to work with you, you know? So do good business, do right by other people and, um, you know, do things that aren't going to cost you any sleep at night. And, uh, and people will build relationships with you and you'll do business long-term. Agreed. A hundred percent. If you guys are listening to this on iTunes or Spotify, head over to youtube.com forward slash Justin Colby. You'll actually be able to watch the video of Jared or JR and myself have this conversation. So go over to youtube.com forward slash Justin Colby subscribe. So you can check out this podcast and the video and get to know

Mr. JR himself and make sure to follow him on Instagram. I appreciate you dude. And let's do it again. Thanks bro.. Thanks for having me. Later, dude. Later.