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Hey Winston here I'm with my good friend Scott Sanders and um Scott tell the people who you are.

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Scott Sanders I'm from Colorado I'm an expert on 1031 exchanges and I also do real estate investing

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and I'm growing and scaling a portfolio. So we are we are here on the Powered Investor cruise

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with Jason Hartman on board the Epic Apex the Apex. Apex. The Apex is an X class ship which has these

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cool windows in the back got a blind that comes down shuts it off that window comes down and gives

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you a full balcony so it's kind of cool kind of cool. So we were talking earlier about a lot of

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different things with um with some 1031s and and maybe maybe doing a cost segregation. Before we

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get into that I just want to tell the people so what is what does your portfolio look like right

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now? Right now it's single family rentals almost all single family. I've got 77 assets in total

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and I'm in about 11 different states so diversified probably overly diversified actually

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if I had to be honest and I'm just continuing to kind of grow and scale that portfolio.

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I love single family as an asset class I know some people like to progress to other things.

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I think single families are just a great investment great return under supplied and they just

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provide a lot of opportunity for investors and it's kind of easy if you really focus to build a

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portfolio you pick up one asset you pick up another and you kind of build it together slowly over time

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and if you do it enough it becomes something fairly significant. So all of the people or a lot of the

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people that that watch my videos are fairly new they're they're trying to get involved with it.

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The conferences that we put on are really at a at a level to help people that don't own any properties

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get in on people to have maybe five properties and want to scale up to 10 it'll it'll teach them how

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to do that pretty easy and stuff like that. So you have 77 assets across more than 20 states.

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Ten more than 10 states. Or more than 10 states. How did you find them? How did you buy them? Do

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you manage them yourself? You know I do a lot of mine or what are called turnkey investments so I'll

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work with the company that will buy an undervalued asset they will fix it up and update it so they'll

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do a renovation on it put in new mechanicals freshen up the bathrooms the kitchens freshen

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up the landscaping so now there's a nicer quality asset I'll purchase it from them at retail so

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they're making a little money on doing that that's part of their business but I'm getting an asset

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that's in really good shape so it's easier to get a better quality tenant somebody wants to move into

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a little nicer house hopefully they'll stay there for a while and take good care of the property.

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So that's the type that I'm going with and then most of those companies will offer

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property management locally. So I'm in Colorado but I only have one property in Colorado that

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I manage all the other assets are out of state so I like working with out of state companies that

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really take care of that hassle for me. So are those people providing the houses that you're

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buying from them kind of like Jason Hartman's network does where they're selling houses?

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Very very similar to that exactly so they're just in different markets. So I like that concept

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but I'm a little bit confused on the return okay so when you walk into the door to buy a property

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from a company like that how do you what is the numbers you're looking for how do you decide

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what's a good deal what's not another deal what's the goal? Yeah the goal for me if I were to make

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it really simple is that whole concept that you're familiar with of the one percent rule right so if

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you buy an asset for a hundred thousand you like it to rent for about a thousand that's kind of a

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benchmark and it doesn't apply to everything but that's just kind of what I look for. I'll tell you

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we're sitting here today beginning of May 2024 it's harder in this market with financing to hit the

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one percent rule it's just harder to do that when you're looking at assets. You and I talked about

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when I just purchased a recent one paid a hundred and forty one thousand for it in Memphis Tennessee

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and the rent on it's 1350 so it's a little less than the one percent rule but here's the beauty of

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it that 1350 rent this year next year that'll go up to 14 or 14 and a quarter so I'll be at the

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one percent rule I just got to wait a year. It takes you a year 12 to 24 months to get there. Yeah

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yeah that's what it is so I'll be there so what I'm doing is I'm buying an asset today. So can you

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go a little bit more in detail for that because I'm sure several people that are watching did not

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understand what you just said. Yeah. So maybe break it down how did you get to the one percent rule

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after that and yeah so that particular asset let's just say it was a hundred and forty thousand the

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one percent rule for that asset would have been rent coming in at fourteen hundred dollars a month

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so if I had fourteen hundred a month I'd be right at the one percent rule and that's going to be a

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good investment it's not a home run it's not a bad investment it's just a good solid base investment

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that particular one I'm now getting 1350 so I'm just under that in 2024. Most rents will keep up

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with inflation roughly in most markets so you could assume if I'm getting at 1350 I can renew

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with that tenant it may be a 50 maybe a 75 dollar rent bump next year so it'll release next year

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they call it fourteen hundred then I'm getting the one percent rule in 2025 even though I didn't

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get it today but here's the one thing I did pick up with that right now with interest rates higher

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in the market a lot of investors are kind of sitting on the sidelines they're not doing a lot

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so I've got the pick of properties I'm in a great position to be a buyer and to pick up that asset

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today right and so I'm willing to be patient and I can wait a year even if it takes two years I can

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wait to get that ideal return because there's the beauty of it you know this Winston it's 50 bucks

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the next year but it'll go up another 50 75 and the next year and in real estate we tend to see

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that happen year after year and there might be a season where maybe rents are flat for a yearish

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but real estate will just pick back up and you can kind of count on the rate of inflation pushing

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rents up at about that rate consistently over a 10-year time window so that's what I'm looking for

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is the long-term investment not what it's going to do you know just in year one but what it's going

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to do over the long term so are you putting big down payments down are you paying for it 100% or

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now I'm getting bank finance they get a loan that particular one I put down 25% so I'll put down

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20 to maybe 30 or 40 percent on a property you know so sometimes I'll do the bare minimum so if

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you're putting 25% down you know when I'm coming across right now with the 1% rule if if you're

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doing a commercial on at 8% you're you're barely cash flowing and and probably very fortunate to

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make just a few hundred dollars a year with that but if you're putting 25% down that's gonna that's

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gonna fix that problem and give you a little bit more cash for maybe a little more room to maneuver

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and that was something that was discussed during the class today that any property of cash flow

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just put more money down with it right that's yeah which was funny to listen to them say that

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but that's true totally true and you know sometimes people think I gotta put down the

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bare minimum it's a lever that you can pull right so why not use that lever to your advantage you

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still take advantage of leverage leverage if I put a leverage if I put down 25 or 30%

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I'm still getting some of the bank's money that I'm leveraging you don't always have to have maximum

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leverage to get the benefit of leverage I think sometimes people think I've always got to be as

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fully leveraged I can well maybe make sense on one deal maybe it doesn't and I agree with you in

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today's environment I am I like that boost the cash flow get that pushed up but maximum leverage

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right now I mean I think there's too many variables in the market and our country right now they could

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go south and turn that barely making it house into a you losing your losing your ass in it yeah and

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you can't get ahead and you can't catch up and too many people go in that are strapped with money

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and they really can't take that hit right they start taking big hits and the next thing you know

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they are they're in a lot of trouble yeah well just didn't do their due diligence probably yeah

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you do your due diligence or you're not savvy enough to plan ahead and have sufficient reserves

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so like a first-time investor I would say and I don't know what your feeling is but I'd say

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minimum three to six months in reserves to help carry you through maybe a tenant turn that costs

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a little bit more or it's vacant so I think the key for especially for first-time investors

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it's not fully leveraged it's the opposite it's have adequate reserves behind you so when you buy

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that asset you can hold on to it because as you probably know in real estate over time you make

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a lot of money you build wealth the key is not getting bumped out of the game because you made

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some bad investments and you don't have adequate reserves getting bumped out wipes out more real

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estate investors and anything else time will fix any problem with real estate if you can just hang

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on to it I agree and so many people just have one bad experience and they never they never pick it

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up again and never do real estate again or so like we even know they went into it with great

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intentions they didn't put enough money down they didn't they didn't do their numbers right they

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missed some mark of it and then they figured well you can't ever make money in real estate

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it's just not possible but they just didn't do something right they didn't get you know

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education isn't free and you will pay for it through a class like what we're attending right

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now right or you're going to pay for it through experience but you're going to pay for it is

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coming there will be a fee yeah and that's what so many people look at and they think well you know

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I just go I'm just gonna go do it when you screw up in real estate and you're dealing with a couple

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hundred thousand dollar project or 150 thousand dollar project and you screw up that's a big deal

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if you're only making 60,000 a year right you know if you're making 250,000 you're okay you can wing

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it I mean I've won that's how I started out I was making enough money I could wing it I failed and

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failed and failed and I said okay I can still cash flow I'm good and I was just moving with it but

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you know if I had it all over again it would have been the education first. Well do you think that's

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what you do on your channel you're educating people with how to buy properly and how to do

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renovations I mean that's the value you add as you're bringing real life experience in and you're

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showing people what it looks like in real life right you're walking properties you're like this

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is what it looks like to do a renovation and you're walking through that you're showing a piece of

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dirt and you're showing maybe here's the potential here's how I optimize that so how do you how do

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you do that when you're looking at real estate how do you decide for you what's what's your

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optimal investment or is it going to change depending on the asset? So I'm very concerned

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about appreciation okay I like a market that appreciates now do I want a market that appreciates

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at 10 percent a year absolutely do I get it no what I do is I find a market that's and and I want

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a linear market so I want a market that's going to steadily move up it ain't got to move up fast

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but it's got to steadily move up all the time and there's not a whole lot of craziness in it where

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one day one year it does great and the next year it loses twice what it just gained I don't want

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that kind of market but I also want you know if you I can pull up Nashville in that area and over

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the last 50 years the average appreciation for 50 years is five percent so if I if it's if it's

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and this is my philosophy you can tell me whether you disagree and I but my attitude is if it is

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appreciated 55 percent a year for the last 50 years I think I can pretty much count on five

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percent and that's my attitude so when I run my numbers and I'm trying to dissect that deal down

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and decide what I want to do it I'm going to throw that five percent appreciation there now I won't

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throw more I won't throw more I'll only throw five percent even though I think because of the

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mass printing of currency and the dollar keeps devaluing the more we print and the government

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keeps giving money to other countries and it just keeps going down the dollar does so our

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appreciation is going up faster if I google and and pull up the appreciation in Nashville for the

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last 10 years it's about nine percent okay so almost double yeah historically and I'm very

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comfortable personally to to look at it and say this is what I'm expecting I'm if the numbers

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make sense at the five percent I'm okay but but I'm expecting nine percent I'm not expecting five

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percent and and we'll I know you know when you talk with Ken and listen to Ken's podcast Ken

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McElroy he'll say I never consider appreciation I don't know how you can't consider appreciation

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I mean it is a real thing and it is very consistent I mean it goes as the as the dollar devalues I

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mean it has to keep up with that number right right absolutely has to I think every real estate

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investor they consider appreciation yeah you have put you have to put in the equation you got four

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levels levers to pull you got appreciation you got cash flow probably the most important in the

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beginning it gets the cash flow you got appreciation you got tax advantages you got leverage you

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probably have that fifth one I guess of what I call debt debasement right you got inflation

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making your property go up in value but it's actually reducing the cost of your debt oh yeah

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because that dollar if you get a fixed rate mortgage you'll be writing a check 20 years

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from now but it's not going to hurt as much I need an algorithm for that what's an algorithm

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like what do you mean so I need I need so so a lot of times I used to I used to go in and I would

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say okay my break even number whenever I buy a house is 0.006 okay if I if I can hit 0.006 whatever

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the cost of that house was if it was in decent shape I can cash for that house and I could cash

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for a house about five hundred dollars a month positive okay so that was my algorithm so I would

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find out what the cost of the house is going to be I would look at it running at 0.006 if the numbers

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worked out okay now I'm going to dissect it down and we're going to work with the numbers if the

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numbers didn't work out I would walk away from that deal and I would go somewhere else but it was a

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very simple math thing I could do in just a few seconds not a one percent rule a lot of people

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use that's what I need to do to make money I think I think once you get the one percent now you

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dissect it down and make sure okay what am I buying because a lot of people go with the one percent

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rule and they got all these maintenance costs and okay now you make 0.05 you know you didn't

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right you made half a percent not one because you didn't take into consideration everything

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but so so my on that right there Jason was talking about inflation induced debt destruction

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and and that's what I told him this morning I said I need an algorithm for that what's the algorithm

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and he said I don't know I said I need a multiplier I don't multiply and get that number

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yeah you know why it's hard to multiply you know we can't give you the number because inflation

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inflation is not consistent and we also have the other thing when we look at the inflation number

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everybody looks at the CPI right that's the government index that index was created in the

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early 1980s they manipulated I don't know exactly how many eight or nine different times so they

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adjust that index so what we call the official inflation number isn't really the rate of

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inflation and we all know that we all go to get groceries and gas and we know what stuff you I

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got a thing of deodorant we know it's not 950 950 for a little stick of deodorant I used to buy it

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for three bucks and that's in the last few years so we all know that's that's bogus that's not a

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real number so I don't know how you take a number where it's bogus and then it changes right so if

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inflation by the government is nine percent I'm going to say the real inflation is double it's

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probably 18 so how do you put that in an algorithm I agree I agree with that number I mean you know

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I don't know I'm gonna work on that I if you get if you get one if you get one let me if you get one

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let me know or let Jason know because we could all use actually if you can come up with one

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maybe you figure one out that's a good number for the algorithm that would be something we could all

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use maybe we come in at seven eight percent on what it looks like at seven eight percent

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right inflation and say okay this is we can and I don't think I don't think we're going to get

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less than that as long as the government's going to keep printing money I mean the more they print

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money I mean and we've got to print more money next year than we print this year because our

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debt keeps going up right and now we can't even service our debt so we're printing money to service

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the debt right and it's it's just a very rhetorical I mean you'll keep on happening it's going to

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happen and accelerate so here you know for the people that are watching your channel I think

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one thing they can benefit from we're all getting pummeled with inflation right whether it's

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groceries or other costs to service inflation the beauty of real estate is that it gives everybody

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a chance to use inflation to our advantage it's one of the few mechanisms where we can do that

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we buy an asset right we buy that asset and now if we do it we can buy it all cash we can buy it with

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some bank money with financing now we've got a tangible asset and that asset is going to track

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with inflation but if we use some financing with it now we're using good business debt which means

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inflation instead of hurting us coming at us as a headwind it's a tailwind that's going to help us

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build wealth and so to me that's a real big advantage of using inflation and using it as a

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tool so rather than bitching and screaming about it because it sucks we all hate it go ahead and

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turn that around and say hey how can I take advantage of what's going to be what the fed's

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going to be doing and how can I turn that into a positive for me and my family and I invest in so

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I think that's important so when you're buying the houses from these companies how do you what kind

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of performer do they give you what are they giving you as numbers you know you got to be really

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careful look at a performer from the companies they all vary and a lot of them are a little bogus in

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my opinion they're going to throw in overly aggressive rates of appreciation they're going

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to put a number there for their expense ratio that I think is a little bit too low so I think every

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investor has to do their own due diligence you can't just trust it the company is selling product

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and what they're going to do is they're going to sprinkle the performer with a little fairy dust

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to make it look good and glowing and come out with a really nice number at the bottom what kind of

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number do they typically come out with you know for example a lot of my suit put a vacancy they'll

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put three or four percent vacancy in there I don't do anything with less than seven and seven you

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know seven percent tells me it's going to go vacant one time every 14 months and so that that is a

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real consistent number I use and I can hedge that because we've got enough properties that we can

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probably go with a little bit lower number but I still don't I mean it has to meet the seven

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percent in order to buy the deal yeah if it doesn't it doesn't I know on Jason's performers

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they're typically in between 30 and 33 percent of a throw off and what he's including on that is

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he's including he does not he does not include the depreciation number so he doesn't give you a

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depreciation number but he but he is including principal reduction okay and he is including

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the appreciation I think he uses like four percent on appreciation and that's reasonable that's a

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conservative number and then your cash flow okay and so those are the three three that he uses but

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his numbers on his on his houses always seem to come in right in there at between 30 33 percent

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and and I and I and I don't notice I haven't had an opportunity to ask him but I don't know maybe

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he's basing the price on the house off of whether it yields that 30 return you know 30 return is

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what I'm wanting to offer my clients as a throw off number that might might be yielding you're

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very minimal on cash flow yeah that could be it's because appreciation is a huge thing whenever you

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start looking at I mean you're getting five percent appreciation that's a big number if you're putting

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twenty thousand dollars down on it yeah you know 25 000 down it's a big number yeah absolutely I

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know some turnkey providers do use that formula to back into the pricing for the asset so some do that

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I don't know what Jason does with this so is that something you would suggest because

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on on my channel I do push every aspect of that of how to how to buy and and I try to encourage

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people when I said that today during the class I said just go build one house right just try it

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just try one house for the experience if you you won't lose any money but if you make just a little

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bit that's good if but you might make a lot right but the experience is worth his weight in gold

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right really is and I'm so so I'm always pushing people for that and I do have people that have

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done it and and I haven't had anybody that's done it that hasn't been successful with it

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well that's that speaks for itself so it's kind of it's kind of cool I think it depends on what

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you invest in they depend upon what you do for job how much capacity do you have so if you're

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working full time you may not have the hours in the day it might be tough to try and build a property

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so something like a turnkey even though it's not going to get you necessarily the best return

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right it's a good solid return when you're building a place you get a control what goes into it and

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now you're going to get the markup on that finished product you'll get a better ROI by building it

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you know paying for the dirt and controlling the cost you're going to get a much you're going to

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praise here you can pull a lot of cash out of it with the turnkey you're going to get a good return

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you know it's what I call a base hit it's not going to be a home run yeah but add up four base hits

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it's better around the bases it's better than a foul ball right yeah exactly well we all have a

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few of those too so so that's kind of my philosophy investing stack up a base hit buy an asset stack

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up another one another base a lot of base hits moves the needle you know so it's one way to get

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there I think doing the new construction you probably get there you probably learn a whole

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hell of a lot more you got to do one we got the partner on one one day I I should give it a shot

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it ain't a ton of money talking about a ton of money would do something you know I'm not I'm

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not talking about apartment complex now I do have one if you want to partner on apartment complex

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we'll see I'm the I'm the single family guy I love so so we're gonna we're gonna talk we

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will kill this video a couple of times and and talk about stuff but one of the segments we're

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going to talk about is an apartment complex the apartment complex I got to build okay and how

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before you and I talked earlier day before yesterday I didn't see an avenue that I could

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build it myself but now I do what changed well that's a different segment okay talk about

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all right different that's the hook so so for a beginner investor you have any specific advice

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you think just to just to be able to get a property and how they how they can progress forward and

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and have a positive experience yeah a few a few things I think first of all you got to set a goal

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you got to decide what it is you're going after you want to be in real estate you got to set a

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goal and you got to put a time deadline on that whatever that is I like 90 day goals that's how

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I measure mine but let's say you're beginning investor you say this year I'm going to buy

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investment property fair time what does it take number one takes capital you're going to come up

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with a down payment so let's say you're going to need 25 to 30 grand to buy a starter single family

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home in a lot of you know what I call linear markets kind of a midwest market similar to Texas

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you know I buy in Memphis 25 to 30 grand so I need capital a do I have that b can I get it easily do

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I have a 401k that I can borrow against maybe pull out that cash can I generate that cash quickly

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do I have stuff around that I can sell can I ditch a ski boat can I get rid of some motorcycles if

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I'm a gun guy can I unload I got 10 guns can I load nine of them keep one so if you really

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motivate you want to get after it you got to get the cash so you can generate your own cash the

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other way do it as your partner with somebody do you have a family member that's got some money to

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invest you say hey I'll bring the deal into you you bring the cash right because there are different

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components to a deal and you bring out a lot of value by bringing a good deal a lot of people

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can't find a good deal people that are beginning investors they at least know what to start looking

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for they know how to start to run a performer and how to do that so get the capital and then the

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first thing to do which is probably the most important is to go buy your first deal if there's

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anything where people screw up it's that analysis paralysis thing they're always looking for the

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perfect deal they want to home they want to kill it right Winston they want to knock the ball out

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of the park and kill it just go out and buy a good solid deal solid b it's going to get your return

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going to make you some money and just do that get the deal I was part of rich dad education for about

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eight years okay so my contract with them was a three-year contract and I made I made their hall

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of fame in three years so if you're a hall of fame recipient with them then you can come forever to

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any of their classes that they do for free okay so I continued to go to the classes for another four

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years and I went to the classes and I would sit there in the afternoons and evenings and I would

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talk to people about how they could do it because there's a lot of there's a lot of doom and gloom

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out there I just can't do it I can't make the numbers work this doesn't do this but the biggest

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problem I had was the amount of people that would go there and they were nice hotels so you're paying

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400 a night at a hotel to attend a class right you're paying for your food you're paying for

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your travel because it was never where you lived you know you're paying for all this other crazy

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stuff and the same people year after not month at the month I mean every single month they're there

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year after year after year saying I just need to learn a little bit more I just need to learn a

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little bit no you need to drop that freaking hammer is what you need to do and get on with it

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but but they never would and they would they would they would finish up their three-year contract and

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never bought a property never done anything and say they're still trying to get education and they

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wasted all that money so much money going and spending on hotels you could have got your down

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payment just right there yeah absolutely if I didn't you know and I'll tell you someone I'm

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seeing now would be the first one to do it I bought some bad properties I've done some bad deals

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but I'd rather make 10 purchases and have one of them be a crappy deal that I need to unload and

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I can always fix that later I can always do a 1031 roll out of that deal whatever I need to do

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but just go out and buy solid deals because nobody you hit a home run every single time

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I don't either nobody nobody does we know we know Ken McElroy and others nobody kills it

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on every single deal but if you if you have enough deals that you do you're going to get ahead and

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now you're harnessing all those economic forces you got to get into the game so if I say the one

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thing two words take action make something happen get it done get after it and do it and then all

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of a sudden you're going to learn so much more by having that deal that you're not going to you're

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not going to learn that on a spreadsheet by reading a book but when you have an actual deal because

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guess what if something's going wrong I'm going to call a guy like Winston go I bought this what's

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going wrong and you're like oh you need to fix this this and that so investors like to help other

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investors out they but they want to do when you got something moving you can't do it unless you're

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in the game with some momentum and then they can kind of take that momentum it's like this boat

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we're on right now this boat's cruising along it's really easy to move the boat a little bit a few

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degrees but it's really hard to take this boat right and create the momentum and get it going

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the propellers crank sitting still you got to and then it finally gets on a plane now now we're

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cruising along because we got momentum it's the exact same thing with real estate you got to have

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some momentum I agree well um we're going to stop this now and then we're going to come back we're

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going to talk about some some cost segregations and 1031 for a few minutes and and we'll go from

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there sounds good so we're back and we're going to talk to Scott about a 1031 exchange and what

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that is and before it we go there his future soon-to-be wife has a question for the for the

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group and we were just doing something else talking about some land development stuff so

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what was your question Nicole so my question is on your architectural and engineering what do those

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costs look like do you use the same floor plan so you're not incurring that expense over and over

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again what does that look like okay so she so she's asking about engineering are we using the same

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floor plan are we using the same architectural drawings what are we doing so when when i'm doing

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a land development deal so the first thing we'll do is we'll start off with a civil engineer okay

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so we're going to hire a civil engineer he's going to come in and he's going to do the topography in

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the area he's going to find out what the dirt looks like he is going to i hire an engineer that

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does everything turnkey so he will meet with the city he will get it rezoned he will get it platted

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he will get everything done and the cost is usually probably so i got a 10 unit development

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that we're doing right now and i think i have about 20 000 in engineering fees with him

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okay and that's for 10 units it'll be about 20 000 so on a typical unit i just had him do something

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for me for one duplex and i think he charged me about three thousand dollars i mean that wasn't

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much more than just a survey but he did that so so that's the civil engineer so then from there

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most of what i build i don't use an architectural engineer what i will do is i will grab a set of

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blueprints i used i do build the same footprint often you know i got a great footprint that's a

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that's a very inexpensive build it's it's using you know basically just stock lumber where i

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ain't got a lot of waste in it you know if i buy a 16 foot board i'm using all 16 feet of it i may

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lose a couple inches but that's all i'm losing and and we pay attention to stuff like that but

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but like the town homes i'm building i had an i had an architect come in and draw the townhomes

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because i wanted a very specific townhome and it needed to fit i had topography issues where

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i'm building i wanted a certain size i wanted it to look a certain way i changed it and i was

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going to go with two-bedroom two and a half baths and i wanted two master suites on it so that i

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could rent it to two adults that may not be together that are living separately but they

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can split the rent because rents keep going up and more and more people need to get roommates so i

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wondered if they're going to get roommates then i wanted to be able to bring a roommate in both

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the people in the home have the same quality of bedroom bathroom walk-in closets and so it's a

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little bit bigger than i would like to build a two-bedroom home but i think the way it's going to

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win i think it'll be better so i'm very very confident i think my price on that was about

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fifteen thousand dollars so what he will do is he draws it all out actually so so my price on that

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was seventy five hundred dollars and he was charging me fifteen thousand but i backed him off on not

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doing the sprinkler systems and i told him i didn't want to lay down the sprinkler systems the

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mechanical or the electrical for me and the reason i didn't want that because my planning zoning

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department doesn't require that um when i get ready to do the sprinkler system the sprinkler

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company that i'm going to use i will have the sprinkler company come out and lay it out the way

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he wants to lay it out and then i will give that to the city to approve they will approve it at

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that time and as far as electrical mechanical drawings go our city doesn't require that so i

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use the same electrician every time and he lays my houses out anyway and even if the architect gave

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me something i would probably still have him lay them out because he knows how i like them

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and then um the air conditioning is the same thing a lot of times i will do air conditioning

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different than what they want to lay it out because i i don't want anything in my attic

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i don't i want to i want to air handle it downstairs a lot of them will put it in the

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attic and then you have water issues whenever your your drain stops up and i just don't want

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to deal with that kind of stuff yes yes so i didn't have so he didn't have to do the drawing

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on the other one and he don't do the mechanical drawings or the or the sprinkler drawings he

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subbed that out to somebody else so he's got to pay another engineer to do that that's why i was

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15 000 but if you know your area that you're building in what did it really require and get

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what they need and and don't go do a bunch of stuff that they don't need because

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your tradesman can probably lay that stuff out for you okay and so if you use the same template

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you're not incurring those costs no on future no i don't nothing i don't i don't the plans i got

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them on i own them and i and i can build them as many times i want to build investors that are

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first-time investors maybe they got three four five units still within w2 job can they do a cost

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segregation and what is what is a cost segregation yeah let's talk about what cost segregation is

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it's a fancy term all the cost segregation means is you're going to look at a piece of real estate

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which on a residential property you depreciated over 27 and a half years so every year you get a

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little depreciation in a cost segregation study you look at that property but you begin to

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reclassify parts of that real estate as personal property and the shorter depreciable lives which

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basically and it sounds like technical mumbo jumbo it just means you get more tax benefits now

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rather than spread over time so something like a ceiling fan is not going to last 27 years so that

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is a shorter life because it's going to wear out other parts of the property going to wear out so

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things like a wooden fence you're probably going to have to replace it somewhere along the way so

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there's a whole list of those components in a cost segregation study you go in and it used to be

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really complex used to go in to have somebody fly out on site look at your specific property

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and it would cost a lot of money so it was done on commercial properties that's called an engineering

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based study what i do and what a lot of investors do that buy smaller properties is they do a

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software based study so there's now software where you can plug in the square footage of the property

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what type of you know what do you have on the side is it brick is it you know whatever it is

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all the different components and that software will then break out based upon the information

380
00:34:08,720 --> 00:34:15,440
you put in the software it will then break out a study that will show you on your specific property

381
00:34:15,440 --> 00:34:22,240
how much of it you can get more depreciation on up front today so that's what a cost segregation

382
00:34:22,240 --> 00:34:28,160
study does now why do you do it because you can get a tax benefit if i can take more depreciation

383
00:34:28,160 --> 00:34:34,320
today based upon the time value of money i'm going to get a better benefit than stretching that out

384
00:34:34,320 --> 00:34:40,640
out over 27 and a half years we know with inflation that benefit in 27 years is going to be worth what

385
00:34:40,640 --> 00:34:46,960
it is right now today so that's what a study is and what it does it gets a little more complex

386
00:34:46,960 --> 00:34:51,120
there's certain people that benefit a little bit more people that are considered a real estate

387
00:34:51,120 --> 00:34:57,360
professional can get some other benefits but a lot of people can benefit from doing this because

388
00:34:57,360 --> 00:35:02,000
when we analyze our property right what are we looking at we're looking at cash flow we're

389
00:35:02,000 --> 00:35:06,800
looking at the rents that it kicks off but we're also going to look at our after-tax return so if

390
00:35:06,800 --> 00:35:13,920
i get more depreciation right now today that's going to boost my return on investment gets

391
00:35:13,920 --> 00:35:20,960
complex because the way the tax law is today this benefit of a cost segregation study there's

392
00:35:20,960 --> 00:35:25,440
something called bonus depreciation which just means you get to take a little more depreciation

393
00:35:25,440 --> 00:35:32,160
now a few years ago you could take what was called 100 bonus depreciation last year it was 80 percent

394
00:35:32,160 --> 00:35:39,360
this year it's 60 percent and it's going to down to 40 and then 20 and then it may drop off under

395
00:35:39,360 --> 00:35:45,120
current law but there's some good news they're redoing the tax code next year and they're going

396
00:35:45,120 --> 00:35:49,760
to look at all the different tax cuts that were going on and say what are the things that help

397
00:35:49,760 --> 00:35:54,640
small businesses what are the things that help real estate hopefully we're going to get something

398
00:35:54,640 --> 00:36:00,640
like 100 bonus depreciation back in the code a lot of people think there's a pretty good chance

399
00:36:00,640 --> 00:36:08,000
we'll get that cool what um so any investor can can use depreciation or do you have to be a real

400
00:36:08,000 --> 00:36:15,360
estate professional a real estate professional gets the benefit of using this loss against ordinary

401
00:36:15,360 --> 00:36:20,080
income so there are different buckets of income that are out there so only somebody that's

402
00:36:20,080 --> 00:36:25,600
considered a real estate professional can use a loss here on an investment property and use it to

403
00:36:25,600 --> 00:36:33,040
offset ordinary or earned income but you still get a loss that that's a benefit to everybody so if i

404
00:36:33,040 --> 00:36:40,640
get a tax when we talk about a tax loss it doesn't mean you're losing money it's just on paper with

405
00:36:40,640 --> 00:36:45,200
depreciation so that's the beauty of it sometimes people will call that you know a phantom benefit

406
00:36:45,200 --> 00:36:49,680
right it's really on paper because i'm still getting cash flow on my investment but that

407
00:36:49,680 --> 00:36:53,680
cash flow you're not paying taxes on because you can't use it on your ordinary income but you can

408
00:36:53,680 --> 00:36:58,000
use it against that cash flow of that property correct correct that's tax free basically yeah

409
00:36:58,000 --> 00:37:03,200
or you can use it later on if you sell a property and you don't do a 1031 exchange which i think

410
00:37:03,200 --> 00:37:08,880
everybody should be doing 1031s but if you don't i still have that loss that i've generated that

411
00:37:08,880 --> 00:37:14,480
can offset the capital gain on the property down the road so there are a lot of different ways to

412
00:37:14,480 --> 00:37:20,160
kind of use that i think it's always good to try and get that tax loss harvest it now and you can

413
00:37:20,160 --> 00:37:25,120
use it right now or you carry it forward in the future years so when he said 27 and a half years

414
00:37:25,120 --> 00:37:30,320
so you're just taking the total amount of of the of the home you buy deduct the price of the land

415
00:37:30,320 --> 00:37:35,040
out of it because you can't depreciate land and then you take whatever's left over you divide that

416
00:37:35,040 --> 00:37:40,880
by 27.5 and you get to write that month that number off against your top if you're a real

417
00:37:40,880 --> 00:37:46,960
estate professional against your top tier incomes if you're in a 35 bracket 35 percent bracket you

418
00:37:46,960 --> 00:37:50,960
got a nine thousand dollar number you can take the first nine thousand off at the top of your

419
00:37:50,960 --> 00:37:55,520
bracket and it drops it down and you don't pay any tax on our desk so if you're in a 30 tax bracket

420
00:37:55,520 --> 00:38:01,200
you know you're saving almost three grand yeah and and taxes that you will pay so so it is a

421
00:38:01,200 --> 00:38:04,800
great benefit i mean it's a great benefit to be able to to use if you're a real estate professional

422
00:38:04,800 --> 00:38:09,920
you can do it against your ordinary income at any time right exactly and just to clarify it's

423
00:38:09,920 --> 00:38:16,320
27.5 years on a single-family home if you're doing any commercial property you now got a

424
00:38:16,320 --> 00:38:21,840
39 years so to me that's a benefit of having single-family or residential real estate is to

425
00:38:21,840 --> 00:38:31,360
get in that shorter depreciation yep yep so the 1031 so we do the cost segregation okay to try

426
00:38:31,360 --> 00:38:38,240
and save some money now i have an issue so so let's let's explain the 1031 then we're going

427
00:38:38,240 --> 00:38:43,840
to talk about my issue okay okay so do we need to hit more on cost segregation or now we're good on

428
00:38:43,840 --> 00:38:48,720
that so so the cost segregation if you if you go in and you do regular depreciation that's over

429
00:38:48,720 --> 00:38:55,360
the 27.5 years on a residential 39 on commercial if you do a cost seg then what it's going to do is

430
00:38:55,360 --> 00:38:59,600
it's going to break it down component by component by component so your air condition is worth x

431
00:38:59,600 --> 00:39:04,320
amount of years your your plumbing is worth x amount of years your lighting is worth x amount of

432
00:39:04,320 --> 00:39:09,120
years and they and they allow you to depreciate a lot of it off a lot faster so you can use that

433
00:39:09,120 --> 00:39:13,840
money a lot quicker as to not doing a cost segregation so a cost segregation allows you

434
00:39:13,840 --> 00:39:19,440
to do it all at once yeah and just to kind of piggyback on that cost segregation doesn't

435
00:39:19,440 --> 00:39:25,440
change your depreciation benefit it just pulls it forward to where you can use it now so you're not

436
00:39:25,440 --> 00:39:33,280
getting more depreciation you're just getting the benefit of it sooner yeah just to clarify that

437
00:39:33,280 --> 00:39:38,320
so so that's that's the depreciation and cost segregation now we're going to talk about what a

438
00:39:38,320 --> 00:39:45,920
1031 exchange is a 1031 exchange been in the tax code since 1921 been around a long time in the

439
00:39:45,920 --> 00:39:51,920
most simplistic terms if you look what a 1031 is i take any property that i hold for investment or

440
00:39:51,920 --> 00:39:58,720
i use in my business and i exchange it for another like-kind property that i hold for investment or

441
00:39:58,720 --> 00:40:04,160
use my business it to give you a simple you know contrast that with a sale if i do a sale i take a

442
00:40:04,160 --> 00:40:10,960
property i sell it and i get cash that's a taxable sale 1031 exchange i have a property held for

443
00:40:10,960 --> 00:40:15,760
investment i give it up and i receive back another property that i hold for investment

444
00:40:16,320 --> 00:40:24,080
the benefit is the tax code gives a preferential tax break to real estate i can do this with real

445
00:40:24,080 --> 00:40:29,840
estate where i can defer paying my capital gain taxes and i could do it right now and then i could

446
00:40:29,840 --> 00:40:35,360
do it in five years when i sell the asset and then i can exchange it again so we have this provision

447
00:40:35,360 --> 00:40:42,560
in the code that allows a real estate investor to defer paying those capital gain taxes over and

448
00:40:42,560 --> 00:40:48,320
over and over and over again and at the end of their lifetime they've now built up a larger

449
00:40:48,320 --> 00:40:54,320
portfolio when they pass away their heirs get it with what's called a full step up and basis

450
00:40:54,320 --> 00:40:59,440
meaning you're not paying capital gain taxes throughout your entire lifetime your heirs are

451
00:40:59,440 --> 00:41:05,760
not going to pay capital gain taxes either it is the tax is forgiven is that correct at that point

452
00:41:05,760 --> 00:41:11,120
the government forgives that tax the the tax you don't have it because the basis what your cost

453
00:41:11,120 --> 00:41:17,120
basis is the cost basis of the value so so basically it washes out your your basis is exactly

454
00:41:17,120 --> 00:41:24,480
the value you inherit the property at so it's it's the best deal for real estate investors so

455
00:41:24,480 --> 00:41:30,080
so many people don't use it but they they give the government 20 25 percent of what they're making

456
00:41:30,080 --> 00:41:35,520
off of the property when they sell it 25 percent or more right you've got four different taxes

457
00:41:35,520 --> 00:41:41,920
you'll pay if you don't do an exchange your depreciations tax to 25 remaining gain is either

458
00:41:41,920 --> 00:41:47,280
15 or 20 percent you got state taxes so you don't have that in tennessee but if you're in california

459
00:41:47,840 --> 00:41:54,240
14.4 percent is the maximum state tax rate it was this pesky little tax that came about to pay k for

460
00:41:54,800 --> 00:42:02,480
health care reform yeah obamacare it's an additional 3.8 percent you pay on any income over

461
00:42:02,480 --> 00:42:09,440
200 000 if you're single and over 250 000 if you're married so you got all four levels of taxes so

462
00:42:09,440 --> 00:42:14,560
people out let's say in the state of california or new york or high state tax areas they're paying

463
00:42:14,560 --> 00:42:21,360
40 to 50 percent of their profit in taxes if they don't do an exchange it's crazy if you want to

464
00:42:21,360 --> 00:42:26,560
build a real estate portfolio the way to do it is to do this thing called the 1031 exchange

465
00:42:27,280 --> 00:42:31,520
redeploy because you get to keep all of your equity that gross equity pre-tax

466
00:42:32,080 --> 00:42:37,680
you get to reinvest it into another property or what savvy investors do is they'll take one

467
00:42:37,680 --> 00:42:43,280
property and they'll go into two and then you go from two into four and four into eight and then

468
00:42:43,280 --> 00:42:48,560
you'll scale up and so you don't have to just sell one property one you take that and now that you've

469
00:42:48,560 --> 00:42:55,200
got that larger equity you leverage it up and now you scale your portfolio using the 1031 exchange

470
00:42:55,200 --> 00:42:59,200
it's the tool it's the way that people they get into commercial real estate they started with a

471
00:42:59,200 --> 00:43:03,600
little piece of land they wanted a little single family home and they got two of those and a duplex

472
00:43:03,600 --> 00:43:09,840
and maybe a small apex and before you know it they're now big players with commercial real estate

473
00:43:09,840 --> 00:43:14,320
and it all started with that first little piece of dirt they got that they just rolled it over

474
00:43:14,320 --> 00:43:20,960
in a 1031 and they kept doing it wow so one thing he said the other day was that if you had a

475
00:43:20,960 --> 00:43:26,000
something that you was going to 1031 let's say it would turn into a million dollar piece of property

476
00:43:26,000 --> 00:43:30,720
when you were selling it was a million dollars that you could break that up into four you could

477
00:43:30,720 --> 00:43:35,360
break it up into numerous things like four different pieces of property recognize four

478
00:43:35,360 --> 00:43:40,400
different pieces of property and put the 20 down maybe 250,000 down on each one of them

479
00:43:40,400 --> 00:43:45,920
and and then run with that and now you got five properties or four properties making your

480
00:43:45,920 --> 00:43:50,560
appreciation depreciation cash flow instead of just one all your eggs aren't in that one basket

481
00:43:50,560 --> 00:43:54,560
of one property yeah i tell you one of the things i did i had a piece of dirt i had two and a half

482
00:43:54,560 --> 00:44:03,520
acre lot i bought it for 90,000 i exchanged out of it 265,000 so that lot was cost to me money in

483
00:44:03,520 --> 00:44:08,640
fact that was right before the downturn i had to pay property taxes on that cost me money it was

484
00:44:08,640 --> 00:44:14,320
negative cash flow i went from that one lot into five single-family homes so three in tennessee

485
00:44:14,880 --> 00:44:20,400
two out in kansas i got brand new single-family homes and now i was able to take depreciation

486
00:44:20,400 --> 00:44:25,200
i got positive cash flow and i diversified instead of having a lot near where i lived

487
00:44:25,200 --> 00:44:31,040
i went into two good markets right so now all of a sudden i got more units more going that put

488
00:44:31,040 --> 00:44:36,720
just those five are worth 1.4 million out of a 90,000 dollar investment right that's what

489
00:44:36,720 --> 00:44:41,440
that's what people do with exchanges over and over so people that sell and pay taxes they're

490
00:44:41,440 --> 00:44:46,160
moving ahead a little bit people that exchange these are the people that 10 20 years down the

491
00:44:46,160 --> 00:44:50,880
road have a massive portfolio and everybody's like how did you get all those assets well because i

492
00:44:50,880 --> 00:44:57,120
didn't pay my taxes when i sold i just reinvested the money into more property a lot of times you'll

493
00:44:57,120 --> 00:45:01,680
add a little bit of leverage right so you add the bank's financing to scale it up a little bit

494
00:45:01,680 --> 00:45:07,200
and you can massively grow a real estate portfolio by doing the 10 31 exchange so if you was going

495
00:45:07,200 --> 00:45:14,880
to do a 10 31 you could even roll it into it buy the whole property with it and then afterwards you

496
00:45:14,880 --> 00:45:19,200
could pull the money back out and a loan and now you got all that money back in your pocket but

497
00:45:19,200 --> 00:45:24,800
you own an asset keep it where it can't where it cash flows you you basically pull the rest of the

498
00:45:24,800 --> 00:45:30,080
money out and do go do another deal with it go make more money with it produce more houses

499
00:45:31,360 --> 00:45:36,000
so another thing he was talking about was so i got this piece of property was talking about a

500
00:45:36,000 --> 00:45:40,720
minute ago where i got a piece of property where i can put 10 townhomes on but i already own it

501
00:45:40,720 --> 00:45:46,560
i only own one of my llcs so i already own that property right and you know i got some property i

502
00:45:46,560 --> 00:45:53,120
can sell but if i sell a property i'm gonna pay 30% tax on or whatever right and i'm like i don't

503
00:45:53,120 --> 00:45:57,200
want to sell that property lose 30% of the value of that property and go put it over here right and

504
00:45:57,200 --> 00:46:03,520
you made a comment that there's ways that i could do that and possibly be able to 10 31 exchange that

505
00:46:03,520 --> 00:46:10,160
into my new construction project that i already have yeah so when you look at exchanges 97 percent

506
00:46:10,160 --> 00:46:15,600
of all exchanges are something called a delayed exchange sell a property when they close on it

507
00:46:15,600 --> 00:46:22,240
i have 45 days to identify a new property and then a maximum of 180 days to actually close on what i

508
00:46:22,240 --> 00:46:28,560
identified call that a delayed or deferred exchange but we've got these more creative

509
00:46:28,560 --> 00:46:33,520
variations they're called parking arrangements we got guidance from the government on this back in

510
00:46:33,520 --> 00:46:39,920
a year 2000 so a revenue procedure came out that provided guidance to you can do things called a

511
00:46:39,920 --> 00:46:45,120
reverse exchange buy something before you the new property before you sell it what you're talking

512
00:46:45,120 --> 00:46:51,600
about is what we call a leasehold improvement exchange so the irs says you cannot exchange

513
00:46:51,600 --> 00:46:59,760
into property that winston owns can't do it that's just the tax law but due to some creative people

514
00:46:59,760 --> 00:47:06,960
doing some planning you can create a new interest on your property your dirt create a new leasehold

515
00:47:06,960 --> 00:47:13,840
interest that's 30 years or greater sell a property over here take that money and then we make

516
00:47:13,840 --> 00:47:19,120
improvements on your leasehold interest and then within 180 days so we still have that same time

517
00:47:19,120 --> 00:47:24,960
parameter we transfer the leasehold with the improvements that we put on it back to you to

518
00:47:24,960 --> 00:47:30,640
complete your exchange so your piece of dirt we can do what's called a leasehold improvement exchange

519
00:47:30,640 --> 00:47:36,480
that meets those requirements completely valid under the code and it's a creative way for you

520
00:47:36,480 --> 00:47:41,200
to build on dirt that you already want to build on anyway that the tax code said previously well you

521
00:47:41,200 --> 00:47:46,640
can't build on your own dirt but we're going to create this new leasehold interest on your dirt

522
00:47:46,640 --> 00:47:52,240
put the improvements there and get it done so does that change the way i do my bookkeeping does it

523
00:47:52,240 --> 00:47:55,440
change the way i manage your property does it change anything like that nothing like that at

524
00:47:55,440 --> 00:48:00,160
all but i got to pay a certain amount of money to for the lease every year or you you do for a period

525
00:48:00,160 --> 00:48:04,560
of time so you have to do the leasehold normally keep in place for a couple years and then it kind

526
00:48:04,560 --> 00:48:09,600
of gets extinguished down the road and we've got and just so we've got guidance for that so in five

527
00:48:09,600 --> 00:48:12,960
years from now if i wanted to sell it i can still sell the property sell the property with all the

528
00:48:12,960 --> 00:48:17,840
improvements on it it's just one sale to somebody so the cool thing about the tax code is you know

529
00:48:17,840 --> 00:48:23,280
those that came out of some commercial investors wanted to do something a little bit creative

530
00:48:23,920 --> 00:48:28,320
and they went to the irs and approached them and said hey these we'd like to accomplish this can we

531
00:48:28,320 --> 00:48:33,360
do it and the irc yeah we you could do that that'll qualify and then another investor did it

532
00:48:33,360 --> 00:48:37,280
so we got some tax guidance so one of the cool things about the tax code is

533
00:48:38,080 --> 00:48:44,160
the tax code evolves over time but it provides all these tools and mechanisms for real estate

534
00:48:44,160 --> 00:48:50,080
investors particularly right it opens up some planning opportunities the tax code encourages

535
00:48:50,080 --> 00:48:56,720
investment into real estate right the government wants you to buy real estate and develop good

536
00:48:56,720 --> 00:49:02,240
quality housing and to provide quality housing to people in tennessee so there's certain activities

537
00:49:02,240 --> 00:49:08,160
that just on the big picture the tax codes encourage reinvesting into real estate i just

538
00:49:08,160 --> 00:49:13,840
got back from dc a couple weeks ago meeting with people and explaining to them the economic

539
00:49:13,840 --> 00:49:21,120
benefits you know with the 1031 exchange it contributes annually 97 billion dollars to the

540
00:49:21,120 --> 00:49:28,480
economy just by annual basis of doing exchange and something like 980 000 jobs are created just

541
00:49:28,480 --> 00:49:34,240
from 1031 exchanges well the government wants to encourage more of that right that creates jobs

542
00:49:34,800 --> 00:49:40,240
redevelop things improves housing a lot of the stuff that you see going on in a lot of cities

543
00:49:40,240 --> 00:49:44,720
where people are doing redevelopment those are exchanges happening where people come in

544
00:49:44,720 --> 00:49:49,680
and they'll buy a saggy area they redevelop it with a good anchor tenant and all of a sudden

545
00:49:49,680 --> 00:49:54,560
you got a neighborhood that was on the downhill slide being completely turned around because

546
00:49:54,560 --> 00:49:59,680
somebody didn't exchange in put a good anchor tenant in started developing some pad sites around

547
00:49:59,680 --> 00:50:05,680
there and now you got a hub what was kind of dumpy and undesirable becomes the exact opposite

548
00:50:05,680 --> 00:50:10,240
and what does that do it improves the value of the community more people want to move there more

549
00:50:10,240 --> 00:50:15,680
people want to live there so at the basic level you know exchanges are a tool but on the more

550
00:50:15,680 --> 00:50:20,560
macro picture it helps with redevelopment and really turning around neighborhoods and improving

551
00:50:20,560 --> 00:50:26,960
communities and i'm seeing the same thing happening happening now on on opportunity zones and stuff

552
00:50:26,960 --> 00:50:32,160
like that because i bought an opportunity zones where we come in and we we tear tear down a piece

553
00:50:32,160 --> 00:50:37,920
of crap man and put in a beautiful apartment complex or something like that and it improves

554
00:50:37,920 --> 00:50:42,640
the whole entire area so so can you explain what you explain to people they're watching what is an

555
00:50:42,640 --> 00:50:47,600
op i mean i know what an opportunity is but what is it fundamentally so so i don't know the the

556
00:50:47,600 --> 00:50:52,880
salary i know whenever i think it was like 35 000 needed to be the median income it's it's in the

557
00:50:52,880 --> 00:50:57,680
30 000 range it might change year to year i'm not sure but when i bought an app that opportunity

558
00:50:57,680 --> 00:51:02,000
zone what the government did they came in and they said we need to entice people to invest in

559
00:51:02,000 --> 00:51:08,320
this particular area so it's not an area that's trashy it's just an area where the people don't

560
00:51:08,320 --> 00:51:12,800
make a lot of money the people can't afford a lot of stuff and everybody overlooks that area because

561
00:51:13,520 --> 00:51:17,440
investors don't come in because there's not enough money there so what the government says is if you

562
00:51:17,440 --> 00:51:22,960
sell this and i sold a company and they said i could invest into an opportunity zone with the

563
00:51:22,960 --> 00:51:28,080
money that i had and i would have to pay my taxes with a 15 discount after seven years

564
00:51:28,960 --> 00:51:34,400
so then seven years from then i got paid taxes and then if i hold that property for 10 years i

565
00:51:34,400 --> 00:51:38,560
don't pay any capital gains that i want to sell it right so that was the incentive with the

566
00:51:38,560 --> 00:51:43,600
opportunity zone just that you go and invest there so the government created this cool tax incentive

567
00:51:43,600 --> 00:51:50,880
to bring capital in and if you hold on to it after 10 years any gain beyond that is completely tax

568
00:51:50,880 --> 00:51:55,760
free and that'll be about a nine million dollar project by that time by the time we hit that thing

569
00:51:55,760 --> 00:52:00,320
it'll be worth about nine million so we're talking nine million dollars that you don't pay a penny of

570
00:52:00,320 --> 00:52:05,200
taxes on yourself right and what incentive do i have to sell that right now none zero and i'm stupid

571
00:52:05,200 --> 00:52:09,680
if i do so think about it you got you made a great investment but think about the community you took

572
00:52:09,680 --> 00:52:14,480
a community that people were overlooking that really wasn't getting capital you infused capital

573
00:52:14,480 --> 00:52:20,400
in you put it created a better building right so you added value to that community which when other

574
00:52:20,400 --> 00:52:24,800
people are doing that now you have this whole segment that was a little underserved let's get

575
00:52:24,800 --> 00:52:29,040
the benefit of all the capital and what's going to happen it's going to become more desirable

576
00:52:29,040 --> 00:52:33,520
it's going to add a lot of economic benefits so nationally i can tell you that opportunity zone

577
00:52:33,520 --> 00:52:39,040
legislation has helped revitalize lots and lots of communities around the country so it's been a

578
00:52:39,040 --> 00:52:44,080
powerful economic incentive for an investor like you to come in and do it get a tax benefit but

579
00:52:44,080 --> 00:52:49,280
then it helps the whole community so i that's what i love about the tax code tax code helps transform

580
00:52:49,600 --> 00:52:54,640
communities create jobs and it does a lot of positive things so their apartment complex was

581
00:52:54,640 --> 00:53:01,920
an extremely rough apartment complex it was the absolute worst property in the whole entire city

582
00:53:01,920 --> 00:53:09,200
it was horrible okay when i did what i did to it they were able to they lost as they lost cops they

583
00:53:09,200 --> 00:53:13,840
didn't replace four the cops they had in the city and they didn't do that because of the area i had

584
00:53:14,320 --> 00:53:21,280
they had people at that 50 unit apartment complex two and three four times a day they had cops there

585
00:53:21,280 --> 00:53:28,240
working it was that bad then i bought the neighborhood behind it which cleaned up everything

586
00:53:28,240 --> 00:53:32,560
within about a five mile radius of that when i did that because those were two bad properties in the

587
00:53:32,560 --> 00:53:36,000
whole entire area so i bought the neighborhood behind it i did the same exact thing on the

588
00:53:36,000 --> 00:53:41,120
neighborhood behind it in a five mile radius yeah everything else is everything else is just a city

589
00:53:41,120 --> 00:53:46,720
and it's a beautiful it's an old city it is a beautiful city got tons of character to it got a

590
00:53:46,720 --> 00:53:51,920
lot of history with it that's so cool and um and but it is a really really thing and the you know

591
00:53:52,160 --> 00:53:56,000
the people were mad when we evicted the people in the apartment complex they were mad i mean

592
00:53:56,000 --> 00:54:02,720
i mean when they kill you man but i can tell you a year later afterwards we had people coming up to

593
00:54:02,720 --> 00:54:07,520
us and thanking us for for evicting them out of department companies said we we had no idea how

594
00:54:07,520 --> 00:54:11,920
bad our living conditions really were you know the rents were so cheap when and and the reason

595
00:54:11,920 --> 00:54:16,160
everybody got evicted is because it was such a crap hole of a piece of property i needed to do

596
00:54:16,160 --> 00:54:20,800
millions of dollars worth of repairs to it and i couldn't do it with people living there and i just

597
00:54:20,800 --> 00:54:26,880
could not let them stay in a property like that it was just for me ethically i could not allow myself

598
00:54:26,880 --> 00:54:32,720
to rent a piece of property like that to people because i think it it destroys people but you know

599
00:54:32,720 --> 00:54:38,640
so we we did we changed the whole dynamics of the city and that is a really really cool thing see and

600
00:54:38,640 --> 00:54:42,400
people look at real estate development and they they look at kind of you know how people develop

601
00:54:42,400 --> 00:54:48,080
and look all the money they made they forget that whole other social benefit that goes on that is a

602
00:54:48,080 --> 00:54:54,080
big aspect of it you transform the community there that's spread out right think about the multiplier

603
00:54:54,080 --> 00:54:58,160
impact of that and people have little coffee shops and all the stuff around just because you have

604
00:54:58,160 --> 00:55:02,880
all that crime going on you can change entire communities that's what development does that's

605
00:55:02,880 --> 00:55:09,760
what the tax code incentivizes cool job and we got 99 doors right there so that's 99 different

606
00:55:09,760 --> 00:55:12,800
families that we're helping because we're helping these people with housing they wouldn't have

607
00:55:12,800 --> 00:55:16,320
housing if it wasn't for us to get my house to go buy one right you have to go live somewhere

608
00:55:16,320 --> 00:55:22,080
else and we got good quality housing and and i can tell you man we we'll buy these areas up

609
00:55:22,080 --> 00:55:26,400
and you can go talk to the people six months after we're there and i said we've never had

610
00:55:26,400 --> 00:55:29,840
landlords that come in there and do the kind of work these people do and you know you call them

611
00:55:29,840 --> 00:55:33,200
this afternoon about a work order they're there to fix it this afternoon they don't tell me wait

612
00:55:33,200 --> 00:55:37,680
three days to come over there and fix it we go fix it yeah and and it's just it's for me that's

613
00:55:37,680 --> 00:55:44,000
a pride thing i've i'll pride myself on on providing extremely good housing that's awesome so any any

614
00:55:44,000 --> 00:55:50,240
other so do you have the yours your company or do you or do you have know of anybody that does

615
00:55:50,880 --> 00:55:55,520
just really in-depth classes so we you and i are talking about this and i can comprehend

616
00:55:55,520 --> 00:56:00,080
but i've listened to you talk from a stage and i didn't comprehend everything you're saying

617
00:56:00,080 --> 00:56:03,200
because you're going fast you got you got your scripture going through and talking about it in

618
00:56:03,200 --> 00:56:08,000
your slides and i don't get it like that i get it better on this little small one-to-one conversation

619
00:56:08,000 --> 00:56:12,640
how do people that that learn like i learn how are they how are they able to go out there and

620
00:56:12,640 --> 00:56:16,960
get the education to learn and sometimes you know for me some classes i have to take two three four

621
00:56:16,960 --> 00:56:22,720
times to to understand it and get it yeah you know it's easy with technology i've got all sorts of

622
00:56:22,720 --> 00:56:27,600
videos where i teach classes for an hour two hours they're all recorded i would say because

623
00:56:27,600 --> 00:56:32,880
of a 1031 it's not difficult but there are some technical aspects there's some buzzwords there's

624
00:56:32,880 --> 00:56:37,920
some terminology there's some rules you got to understand i think the best way to get up to speed

625
00:56:37,920 --> 00:56:44,400
on it is go and watch a couple of these classes that i do can you give them your information yeah

626
00:56:44,400 --> 00:56:50,880
yeah i'm scott saunders with asset preservation and you can google and find me you can find i've

627
00:56:50,880 --> 00:56:57,440
got all sorts of videos and classes that are out there on that we've got a website api exchange

628
00:56:57,440 --> 00:57:02,800
dot com where i've got a whole bunch of recorded videos the main thing i would do would be a couple

629
00:57:02,800 --> 00:57:09,520
things one get some information watch some classes and then number two talk to your cpa your tax

630
00:57:09,520 --> 00:57:14,640
professional and then number three talk to what is called a qualified intermediary we haven't talked

631
00:57:14,640 --> 00:57:20,000
about that term but in the middle of an exchange is this company and that company is going to

632
00:57:20,000 --> 00:57:25,280
prepare some legal documents and they're going to physically hold the money from the sale because

633
00:57:25,280 --> 00:57:29,920
it's they've got to hold it you can't sell it receive the money they have to hold it call a

634
00:57:29,920 --> 00:57:34,720
reputable qualified intermediary tell them what you're looking to accomplish you know i'm selling

635
00:57:34,720 --> 00:57:40,640
a property for this value here's how i hold title a good qualified intermediary and there are dozens

636
00:57:40,640 --> 00:57:45,760
of them out there your company that's what we do yeah and that's what i do we we do an intake with

637
00:57:45,760 --> 00:57:49,760
people where we kind of go through what are you selling was a help for investment how long did

638
00:57:49,760 --> 00:57:53,840
you hold it how do you have title what's your equity your debt we kind of have a checklist of

639
00:57:53,840 --> 00:57:58,800
things we'll go through do that with a good qualified intermediary and then run it by your

640
00:57:58,800 --> 00:58:03,360
cpa because everybody's got a little bit of different situation doing that will give you

641
00:58:03,360 --> 00:58:08,960
the education and then you've got the two main people your cpa your tax advisor and a good

642
00:58:08,960 --> 00:58:13,600
qualified intermediary to kind of help you navigate through the process and i just say this if you

643
00:58:13,600 --> 00:58:19,040
haven't done an exchange because it sounds daunting and sounds kind of technical mumbo jumbo the

644
00:58:19,040 --> 00:58:24,640
process is really pretty straightforward a qualified intermediary walk you through that

645
00:58:24,640 --> 00:58:29,600
day zero they'll walk you through the identification rules they'll walk you through the whole process

646
00:58:29,600 --> 00:58:35,040
and you'll find once you do an exchange it's really pretty simple it looks to you just like

647
00:58:35,040 --> 00:58:40,880
a normal transaction with a little bit of additional paperwork it's not going to hold up your closing

648
00:58:40,880 --> 00:58:46,080
it's not going to hold up anything it just puts a requirement on you as the investor to go out in

649
00:58:46,080 --> 00:58:50,880
the market and start looking for properties you want to reinvest in right away yeah number one

650
00:58:50,880 --> 00:58:55,520
you can't close on that property and you can that money can never touch your hand so everything else

651
00:58:55,520 --> 00:59:01,680
had not been done before that you once that money touches your hand you're done so yeah absolutely

652
00:59:01,680 --> 00:59:05,440
and you do that all over the country right yeah it's yeah you don't look him up look him up show

653
00:59:05,440 --> 00:59:09,920
him some love give him some business this man need look he can't even afford pants got shorts on

654
00:59:09,920 --> 00:59:14,880
so we got to get him some clothes we got to help him out look kink he had a toupee earlier but it

655
00:59:14,880 --> 00:59:21,040
looked horrible so we took it off of him he's not wearing that now but we got to help out scott i

656
00:59:21,040 --> 00:59:27,840
appreciate you brother that's funny thank you all right well i'm here at a real estate conference

657
00:59:27,840 --> 00:59:32,960
here and um got a few days to hang out with a whole bunch of real estate investors but here's

658
00:59:32,960 --> 00:59:40,720
my good friend uh winston and uh winston is a probably one of the smartest real estate investors

659
00:59:40,720 --> 00:59:47,520
i know somebody that knows how to take action build a portfolio and and build deal after deal

660
00:59:47,520 --> 00:59:51,520
and do it so uh winston great to visit with you and have some time hanging together i probably

661
00:59:51,520 --> 00:59:54,960
wouldn't agree with that one of the smallest guys you know i know you know a lot of small people

662
00:59:56,000 --> 01:00:01,600
i get a participation award i'm happy with that whatever whatever anyway he's practical he's

663
01:00:01,600 --> 01:00:06,080
practical to get stuff done so winston you know you've you're in nashville tennessee

664
01:00:06,080 --> 01:00:10,480
um so you're you're in a part of the market where everybody's fleeing everybody's going to nashville

665
01:00:10,480 --> 01:00:15,920
right everybody's relocating there you work in that if i understand you work in that whole tennessee

666
01:00:15,920 --> 01:00:24,160
market right yeah so my investments are about 15 miles north of nashville okay i got about a third

667
01:00:24,160 --> 01:00:33,360
of my portfolio all right then i have a third of my portfolio about 45 50 miles kind of east of

668
01:00:33,360 --> 01:00:42,960
nashville okay and then i have another third of my portfolio about maybe uh 90 miles past nashville

669
01:00:42,960 --> 01:00:46,880
okay so i'm in three different areas all in tennessee so one of them's outside of chattanooga

670
01:00:46,880 --> 01:00:50,960
okay and the other one is in between chattanooga and nashville and then the one is right where i

671
01:00:50,960 --> 01:00:55,840
live okay cool that gives a good idea a little bit a little bit of diversification but they're

672
01:00:55,840 --> 01:01:00,240
they're all bedroom communities so i'm not i'm not investing in a metropolitan area because i don't

673
01:01:00,240 --> 01:01:04,960
like dealing with the the higher taxes and i like dealing with the garbage that comes with the big

674
01:01:04,960 --> 01:01:11,680
cities and stuff i'd rather i want it simple i want it to i want it to always just be fluid and flow

675
01:01:11,680 --> 01:01:17,360
uh-huh i don't want a bunch of hiccups in it i want to um i want to find tenants that are going

676
01:01:17,360 --> 01:01:21,040
to stay for three years or so hopefully whenever we put them in there is going to be a tenant

677
01:01:21,040 --> 01:01:25,680
that's going to stay a little while and and prevent a little bit of a turnover okay and we're just

678
01:01:25,680 --> 01:01:32,800
looking for the right people and we find that i find that is better in the bedroom communities

679
01:01:32,800 --> 01:01:37,360
and i don't have to charge four thousand dollars a month rent so the people in nashville if i bought

680
01:01:37,360 --> 01:01:40,960
a condo in nashville and rent it out you have to spend at least four thousand dollars a month to

681
01:01:40,960 --> 01:01:48,320
rent it out or you go into kind of a little bit maybe a c-minus area and you pick up something

682
01:01:48,320 --> 01:01:52,320
there and then you just deal with a lot of roof rafts and stuff and i prefer i did that at first

683
01:01:52,320 --> 01:01:55,680
but then i got to a point in life i said i just don't want to deal with that anymore i wanted i

684
01:01:55,680 --> 01:02:02,000
want tenants that they pay their bills so what what type of assets your ideal asset what type

685
01:02:02,000 --> 01:02:09,040
of class what do you look so like you most of my stuff is single family okay okay so i we talked

686
01:02:09,040 --> 01:02:12,640
about i own a couple of neighborhoods so i own every house in the neighborhood in two different

687
01:02:12,640 --> 01:02:18,560
areas but it's still single family houses you know 1300 square foot house with one car garage or two

688
01:02:18,560 --> 01:02:26,800
car garage on it those would they those neighborhoods one of the neighborhoods would be a b-minus

689
01:02:26,800 --> 01:02:34,960
area okay and probably the homes themselves would probably be a b-minus also and the reason i say b

690
01:02:34,960 --> 01:02:39,440
minus is because that that particular area i bought that neighborhood a little bit over 12

691
01:02:39,440 --> 01:02:44,720
months ago tons and tons and tons of deferred maintenance in it and i have been pumping money

692
01:02:44,720 --> 01:02:54,240
into it pumping money into it and i'm expecting probably at least another three months before i

693
01:02:54,240 --> 01:02:59,040
finish everything i need to be done but once i finish it and have everything stabilized exactly

694
01:02:59,040 --> 01:03:04,000
like it needs to be then the next term with rents i'm going to bring the rents up another

695
01:03:04,000 --> 01:03:07,680
two to three hundred dollars a month and i'm probably going to lose a third of the tenants again

696
01:03:08,400 --> 01:03:12,480
okay so when i lose that second third of the tenants i mean we lost almost every single tenant

697
01:03:12,480 --> 01:03:15,840
when i bought it when i because i went up 500 a month when i bought the neighborhood because

698
01:03:15,840 --> 01:03:21,360
the guy was renting a neighborhood at 700 a month i mean you can't cash flow and i'm talking these

699
01:03:21,360 --> 01:03:26,880
particular houses are all built in 2006 all brick homes nice homes okay and he's renting them for

700
01:03:26,880 --> 01:03:35,520
700 a month so i bumped them up to 1250 and you know we had at least a third of them quit i gave

701
01:03:35,520 --> 01:03:40,800
them i said i'm going up on a rent in 90 days right and if you don't want to do it then let's

702
01:03:40,800 --> 01:03:44,160
let me know and let me know you're moving out and you got 90 days to find a place to live it's not

703
01:03:44,160 --> 01:03:47,600
anything you got to get out right now but but that nobody was under a contract so we didn't have any

704
01:03:47,600 --> 01:03:53,920
leases okay and um so we we got them out we upped the rents and now there i don't have a single

705
01:03:53,920 --> 01:03:57,600
house i got some more we still got some we're rehabbing but i don't have a single house in

706
01:03:57,600 --> 01:04:02,320
that neighborhood available for rent right now that i can't fill i mean i don't have anything

707
01:04:02,320 --> 01:04:09,360
and um so my thought is once i get all of them done then whenever it starts coming out now i need

708
01:04:09,360 --> 01:04:13,200
to get the rents on that in that neighborhood should be close to 2000 is where they ought to be

709
01:04:13,200 --> 01:04:18,000
and what are you at right now i'm at 1250 so you're way under the market so let me ask then are you

710
01:04:18,720 --> 01:04:24,560
comfortable in terms of your portfolio bumping somebody out to jack up the rent and get a close

711
01:04:24,560 --> 01:04:30,560
to fair market is that typically the way you approach well so so i've i bought an apartment

712
01:04:30,560 --> 01:04:35,600
complex one time okay and i had to evict everybody in the apartment complex on day one i filed eviction

713
01:04:35,600 --> 01:04:40,720
on everyone apartment complex on day one nobody not one person had a thing but it was such a piece

714
01:04:40,720 --> 01:04:46,640
of crap property that i wasn't willing to put my name on it that i owned it for people to live in

715
01:04:46,640 --> 01:04:55,120
okay and i put about 2.4 2.5 million into a rehab on that apartment complex okay and then we we

716
01:04:55,120 --> 01:05:00,560
brought it back on the market and rented it out okay so i did that and then another neighborhood

717
01:05:00,560 --> 01:05:05,120
i bought that was the same as this this neighborhood was just talking about they were they were just so

718
01:05:05,120 --> 01:05:11,200
far under rents okay and i had to i had to raise the rent because you pay the money for it and they

719
01:05:11,200 --> 01:05:16,880
don't cash well i can't do that i'd rather and we put it in our i put it in my my numbers one of my

720
01:05:16,880 --> 01:05:21,360
numbers i'm gonna lose a third of the people at least and that's what i told my my wife when we

721
01:05:21,360 --> 01:05:25,840
bought that neighborhood i said we're gonna lose a third at least and she said we can't afford that

722
01:05:25,840 --> 01:05:30,480
i said but if we go up on it they're charging 700 a month and we lose one third of the people

723
01:05:30,480 --> 01:05:34,560
i said we're still making more money than we're making if we leave the rents where they are

724
01:05:34,560 --> 01:05:39,760
right we're just two-thirds paying yeah we're two-thirds rent pop yeah so so and we lost about a

725
01:05:39,760 --> 01:05:44,560
third okay and then we rehabbed all those and brought them up to a nicer houses and then

726
01:05:44,560 --> 01:05:49,040
and then throughout the year people were drifting off and about and it was it went about the rate

727
01:05:49,040 --> 01:05:52,640
we would finish rehabbing a house and one of them would become vacant we'd finish rehabbing and one

728
01:05:52,640 --> 01:05:57,920
of them becoming vacant and it was a steady thing so it's been that neighborhood we bought it we've

729
01:05:57,920 --> 01:06:03,360
had it probably bought it in july two years ago so we've had it a little bit over almost a

730
01:06:03,360 --> 01:06:10,080
almost two years okay a couple more months it'd be two years but it's a it's 100 occupied and

731
01:06:11,280 --> 01:06:18,160
it's a it's a great it is a i would put it i would say it's an a-class area it is a beautiful area

732
01:06:18,160 --> 01:06:25,040
sits in a you know between a big bunch of mountains and it's just got a beautiful view it's just a

733
01:06:25,040 --> 01:06:31,680
beautiful property and and the homes those homes on that particular neighborhood is is 2011 it

734
01:06:31,680 --> 01:06:36,480
was built so they're not it's the same homes as the other neighborhood but they were built in 2011

735
01:06:37,040 --> 01:06:42,720
and it's a it's a good asset so we're we're i got a little bit of hud money tied to that right there

736
01:06:42,720 --> 01:06:47,200
okay and i got three more years with a hud contract that i can't jack the rents up anymore

737
01:06:47,200 --> 01:06:54,960
they let me jack them up 167 this year so we did bring them up 167 this year and um that

738
01:06:54,960 --> 01:07:02,400
you know what is that what does that what does 167 mean to you on value i'm me as a investor

739
01:07:02,960 --> 01:07:07,280
well yeah what would it mean to you as an investor now now i would never sell the neighborhood as a

740
01:07:07,280 --> 01:07:10,960
neighborhood i would break it up and sell it as individual houses right for money but if you was

741
01:07:10,960 --> 01:07:17,200
going to sell it as a neighborhood everything's about cash flow right so 167 bucks if it if it

742
01:07:17,200 --> 01:07:22,560
penciled out and when i bought it another 167 just makes the deal that much sweeter for me

743
01:07:22,560 --> 01:07:27,200
so it means everything so i haven't i have no calculator with me but if you if you took the

744
01:07:27,200 --> 01:07:33,760
167 and you multiplied it by 12 yeah and that neighborhood has 41 houses and you multiply it

745
01:07:33,760 --> 01:07:40,320
times 41 then you find out this is the this is the no i i mean our expenses are already factored in

746
01:07:40,320 --> 01:07:44,640
before we even get there so expenses aren't going up anymore right so now you take that number and

747
01:07:44,640 --> 01:07:48,880
divide let's say you bought it at a six cap you would divide whatever that number is about 0.06

748
01:07:48,880 --> 01:07:53,440
and that's how much more that that neighborhood is worth than what it was just because they let

749
01:07:53,440 --> 01:07:58,880
us go up 167 dollars right your value oh it's millions it goes up millions whenever you do that

750
01:07:58,880 --> 01:08:03,120
because you got scaled that with that many units yeah it really functions just like an apartment

751
01:08:03,120 --> 01:08:09,120
complex and single family homes that pencils out like an apartment the numbers are figured the same

752
01:08:09,120 --> 01:08:18,080
and and you know for me i'm still running a huge cost on those so my you know i'm my you know on

753
01:08:18,080 --> 01:08:21,760
an apartment complex out when i rehabbed my apartment complex my bank looked at and they said

754
01:08:21,760 --> 01:08:28,640
it's going to be a pretty inexpensive apartment complex to manage but they said we're still not

755
01:08:28,640 --> 01:08:34,080
going to come under 30 on on expenses so they still figured in 30 so even on a new construction

756
01:08:34,080 --> 01:08:40,080
project we always put at least 30 30 expenses in there if we run our numbers that way we got a good

757
01:08:40,080 --> 01:08:45,840
well good solid number it's not working cool we are all over the board again yeah so hey so so

758
01:08:45,840 --> 01:08:50,720
winston you know what what some of that you've got all these different units and experience with

759
01:08:50,720 --> 01:08:55,760
different types of things you know single family and multi-family and whole neighborhoods when you

760
01:08:55,760 --> 01:09:01,600
look at somebody that is maybe an intermediate level investor they got a few assets let's say

761
01:09:01,600 --> 01:09:08,160
they own five six seven eight homes their goal was to maybe get to 20 or 30 assets right that's a

762
01:09:08,160 --> 01:09:13,040
that's a number i think a lot of people can have a pretty good quality of life if you got 20 30

763
01:09:13,040 --> 01:09:18,480
assets it'll it'll cover a lot of expenses it'll get a lot of things working for you how do you

764
01:09:19,040 --> 01:09:26,240
what do you think are the keys to go from six seven eight to tripling that you know to 20 30 or more

765
01:09:26,240 --> 01:09:30,720
if you um if you if you're counting those assets are you counting per door let's say you had a

766
01:09:30,720 --> 01:09:36,480
duplex or a quad is that i call an asset i don't look at them as much by door i know a lot of

767
01:09:36,480 --> 01:09:41,120
people count it that way because because my my duplex right i'm going to get a duplex that's

768
01:09:41,120 --> 01:09:46,640
probably going to be a lot of times it's going to be maybe a c plus where my single family is

769
01:09:46,640 --> 01:09:51,440
going to be a b so i just consider that an asset so so i'm looking at things right now and i think

770
01:09:51,440 --> 01:09:56,960
with the market prices where they are you you go to many auctions trying to buy something auction

771
01:09:56,960 --> 01:10:02,400
at a door courtroom court step off now oh my goodness they're retail they're paying retail

772
01:10:02,400 --> 01:10:06,160
or more than retail because you're getting this bidding war and everybody's got this hype about

773
01:10:06,160 --> 01:10:10,400
they got to win so they they're trying to outbid the next guy you know i quit i wanted to go to

774
01:10:10,400 --> 01:10:15,360
one i'm like i ain't going to that crap like you can buy cheaper through mls right but but as i'm

775
01:10:15,360 --> 01:10:23,520
looking and trying to find houses that i can buy and and do a quick maybe a a little bit of of a

776
01:10:23,520 --> 01:10:28,400
burr we're gonna fix it up do a cash out refi pull some money out of it they're just not there

777
01:10:28,400 --> 01:10:32,320
they're few and far i'm not saying they're not there but they're they're just few and far between

778
01:10:32,320 --> 01:10:37,520
they're so small and your returns are horrible because the costs went up so much right and i

779
01:10:37,520 --> 01:10:42,160
look at that you know houses are more money the materials are more money the labor's more money

780
01:10:42,160 --> 01:10:47,280
the taxes are more money our taxes just went up 38 percent of our city i mean and that's going on

781
01:10:47,280 --> 01:10:51,280
everywhere i mean everybody's sure this is up everything is right everything insurance was 38

782
01:10:51,280 --> 01:10:56,000
percent too yeah and um so we started looking at that and and and i couldn't make my numbers work

783
01:10:56,640 --> 01:11:07,280
okay so i told my wife and this was in 2017 i told her i said find me

784
01:11:07,280 --> 01:11:12,160
find me a piece of land we'll build a house okay she said we don't build houses i said we

785
01:11:12,160 --> 01:11:19,040
don't build houses yet but we're fixing to so she reluctantly starts looking for a lot okay and she

786
01:11:19,040 --> 01:11:25,120
finds out it's a it's a last lot in a neighborhood that was built 20 years ago and it's seven

787
01:11:25,120 --> 01:11:29,120
thousand dollars so how crappy of a piece of lot do you think i just that i'm going to look at that's

788
01:11:29,120 --> 01:11:34,800
not that's not top of the line no so i don't look at this lot and you can go about eight feet off

789
01:11:34,800 --> 01:11:41,920
the road and it just drops off tennessee is is mountainous okay so i look at the lot and i say

790
01:11:42,800 --> 01:11:47,760
i can do something with that okay so i went and talked to the city and i said would y'all be

791
01:11:47,760 --> 01:11:52,080
willing to give me a variance on that because i can't meet my setbacks the topography is too

792
01:11:52,080 --> 01:11:56,320
bad and the city agreed to that they would do a variance on it okay so i bought the lot

793
01:11:57,040 --> 01:12:02,960
for seven grand for seven grand okay both neighbors on east side was pissed they were both saying no

794
01:12:02,960 --> 01:12:07,040
nobody can build there right i said no i already got a building permit i'm building they said they

795
01:12:07,040 --> 01:12:10,480
told us nobody could build there i said somebody could build it you just got to think outside the

796
01:12:10,480 --> 01:12:16,240
box right so then this is my first house to build okay and um my wife my wife asked me she said

797
01:12:16,240 --> 01:12:21,120
what's the goal i said the goal is experience i said that's what i want to want to experience

798
01:12:21,120 --> 01:12:25,280
i said i don't want to lose any money but i don't really care if i make any money if i don't make a

799
01:12:25,280 --> 01:12:28,640
penny i don't care if i don't want to lose any money and i want the experience to build it i

800
01:12:28,640 --> 01:12:35,360
want to see what i can do okay so we built that house for with the land included about a hundred

801
01:12:35,360 --> 01:12:40,400
and fifteen thousand dollars or so okay with everything included and we built the 14 1400

802
01:12:40,400 --> 01:12:47,120
square foot two-story house okay and um no garage just two-story house and what we did it was it

803
01:12:47,120 --> 01:12:52,640
dropped off so much the front of the house we we backfilled and filled up where we were at the front

804
01:12:52,640 --> 01:12:58,800
which we got about 20 feet off the road and the house was like 25 foot wide and at 25 foot it

805
01:12:58,800 --> 01:13:06,880
dropped down 18 blocks wow so it dropped down about 12 feet 13 feet right that we had and

806
01:13:08,080 --> 01:13:13,520
the house was a beautiful building it was a fun build i had a great time doing it yeah and we sold

807
01:13:13,520 --> 01:13:21,040
that house for 225 so almost almost so i almost doubled that you know i had a hundred thousand

808
01:13:21,040 --> 01:13:26,160
thousand dollars profit in it first house i ever built okay so that's good out of the starting

809
01:13:26,160 --> 01:13:31,680
gauge yeah yeah and then i told her find something find another thing and she found two lots that

810
01:13:31,680 --> 01:13:37,360
we bought for 25 000 for both lots okay and then i built two houses next to that i changed the

811
01:13:37,360 --> 01:13:41,040
footprint a little bit something i could build better and i didn't want to sell now i wanted to

812
01:13:41,040 --> 01:13:49,280
hold okay and um so i built little 1170 square foot houses on on slab and we built them for about

813
01:13:49,280 --> 01:13:54,480
90 000 a piece and when we finished they appraised for two and a quarter right now they're paid

814
01:13:54,480 --> 01:14:02,640
they're praised for almost 350 wow and i built those in in um 2019 okay i built them so that's

815
01:14:02,640 --> 01:14:07,280
not that far it's not that no not that far away right and and they have been renter rentals every

816
01:14:07,280 --> 01:14:12,640
since then okay both of those both of those all right and then we started getting into to land

817
01:14:12,640 --> 01:14:17,760
development so i reached that education i did land development classes with rich dad and um so

818
01:14:17,760 --> 01:14:24,560
it started now you can teach them yeah now i do teach them now okay um but with that i like to

819
01:14:24,560 --> 01:14:29,280
go out and find a piece of land i can buy at a reasonable price and i want to be able to put

820
01:14:30,560 --> 01:14:37,040
four or five units on it okay so i bought i went and bought two lots or three lots total and it

821
01:14:37,040 --> 01:14:42,480
had five units on the three last old raggedy trailers okay so i tore all the trailers down

822
01:14:42,480 --> 01:14:49,840
got rid of them i went to the city i subdivided it into five lots and i had four one acre lots

823
01:14:49,840 --> 01:14:54,800
in the front and i had a six acre lot in the back okay and i built four houses in the front

824
01:14:54,800 --> 01:14:58,560
and we did about the same it was the exact same house as the other two we built them for about

825
01:14:58,560 --> 01:15:06,400
90 000 dollars 95 000 and um i took the land cost which i had a hundred thousand in land costs

826
01:15:06,400 --> 01:15:13,360
and i split that land cost between five units okay so now i got now i got roughly 20 000 dollars per

827
01:15:13,360 --> 01:15:20,320
unit in land cost okay my land cost is not bad right and then we went in and built and they appraised

828
01:15:20,320 --> 01:15:26,720
a little bit better than the other ones appraised and i stuck a tenant in it right away and we're

829
01:15:26,720 --> 01:15:32,720
renting those houses now those houses were built in you know 2020 or so what did they rent for when

830
01:15:32,720 --> 01:15:40,320
you first got when i first started they were renting for like 1400 a month okay now they rent for 2000

831
01:15:40,880 --> 01:15:47,440
so we're renting them for two thousand dollars a month right now okay and you know but i i build

832
01:15:47,440 --> 01:15:54,240
with cash but then once i build it those houses i went and i pulled 100 of my money back out so

833
01:15:54,240 --> 01:15:58,480
i don't have a penny invested in the deals you get an infinite return no matter what but i was still

834
01:15:58,480 --> 01:16:03,840
making i kept it where i was getting a minimum of 500 a month cash flow per house okay so i was still

835
01:16:03,840 --> 01:16:09,600
getting two thousand dollars worth of cash flow okay so then when i i sat on it for a year

836
01:16:10,400 --> 01:16:16,720
deciding what i wanted to do in the last six acre lot and it had some topography issues so i decided

837
01:16:16,720 --> 01:16:21,120
i was going to build five duplexes on it and i brought my dirt guy over there and he said i can

838
01:16:21,120 --> 01:16:27,040
fix the top to topography so he actually dug down it cost me about 10 000 dollars and he came in and

839
01:16:27,040 --> 01:16:32,400
dug down and he made it two different tiers where it wasn't a hill and the driveway just went down

840
01:16:32,400 --> 01:16:39,200
a little bit and we built those five duplexes and with the duplexes i was into it for right at a

841
01:16:39,200 --> 01:16:46,880
million dollars and they appraised for like 2.2 so more than double yeah more than double and so we

842
01:16:46,880 --> 01:16:53,280
pulled the million dollars i think i pulled like a million four a million five out of there so i'm

843
01:16:53,280 --> 01:16:56,720
so i put between four and five i don't remember the numbers exactly i put between four and five hundred

844
01:16:56,720 --> 01:17:01,760
thousand in my pocket that's what that's what i call alchemy so you actually ran it for a million

845
01:17:01,760 --> 01:17:05,920
you pulled more out than he actually had ended the deal so you went it wasn't just an infinite

846
01:17:05,920 --> 01:17:09,920
return you actually pulled yeah and that took all the money one invest somewhere else so so i hear

847
01:17:09,920 --> 01:17:13,920
you talking about this from the first one you got there was a challenging one that was the learning

848
01:17:13,920 --> 01:17:19,280
experience yeah which you learned but you actually made 100 grand on it and then you progressed right

849
01:17:19,280 --> 01:17:25,120
you did two more and now you're doing duplexes in different lots if i'm trying to translate that

850
01:17:25,120 --> 01:17:30,720
maybe you could explain it you're finding adding value by doing the development by actually

851
01:17:31,280 --> 01:17:36,080
being the one there that has a vision seeing how you can maximize a piece of dirt and get the most

852
01:17:36,080 --> 01:17:42,400
value out of that is that a secret to really growing and scaling is i think it is i think

853
01:17:42,400 --> 01:17:47,360
i think the secret is you know even in everything else buy right right right we want to buy right

854
01:17:47,360 --> 01:17:52,080
and when we buy right it makes it makes a world of difference so we buy that land right

855
01:17:52,080 --> 01:17:56,000
then we make that land you know could i build one house at a hundred thousand dollars and still make

856
01:17:56,000 --> 01:17:59,520
money yeah you can make a small amount of money you're not going to make tremendous amounts like

857
01:17:59,520 --> 01:18:03,680
we're making but if you can subdivide it and make more lots out of it now we've got a whole

858
01:18:03,680 --> 01:18:07,680
different story you know right you know i bought a fifty thousand dollar lot that i got rezoned for

859
01:18:07,680 --> 01:18:12,640
for um 10 town homes right so now we got permits pulled for 10 town homes that we're building on

860
01:18:12,640 --> 01:18:19,840
a lot right so now you're multiplying a lot you're the multiplier yeah and and and for for those of

861
01:18:19,840 --> 01:18:23,680
you that are watching and say well i don't know how to build you don't have to know how to build

862
01:18:23,680 --> 01:18:30,640
i don't whereas i am a builder i don't build my own houses i use a subcontractor for everything

863
01:18:30,640 --> 01:18:36,160
and i don't even manage all my projects there's very in the last four years there's only been one

864
01:18:36,160 --> 01:18:40,800
project i've managed in the last four years because i got a general contract that it does a lot of

865
01:18:40,800 --> 01:18:46,160
work for me and he says let me manage the project for five percent he said he said i won't charge you

866
01:18:46,160 --> 01:18:49,920
anything on what i do but i'll manage the whole project you just give me five percent so we're

867
01:18:49,920 --> 01:18:54,240
talking i want to give him five thousand dollars on a hundred thousand dollar bill i don't care

868
01:18:54,240 --> 01:19:00,880
about that five thousand dollars go do the do the job right and and contractors are relational so

869
01:19:00,880 --> 01:19:07,680
so build that relationship get to know them they're gonna have you know i can tell you this guy uses

870
01:19:07,680 --> 01:19:11,120
subs that i can't get these subs to work for me like he can get them to work for me he won't work

871
01:19:11,120 --> 01:19:16,880
at the same price so he beats me i give him five grand but it you know he beats my prices and

872
01:19:16,880 --> 01:19:22,000
anything i'm trying to get somebody else to do for me so it's you know so you figured out how to

873
01:19:22,000 --> 01:19:26,880
build a team around you that can get the job done even better so you bring them on board give them

874
01:19:26,880 --> 01:19:32,320
a little incentive and then they go ahead and they're driving the cost down to get the you're into

875
01:19:32,320 --> 01:19:38,240
it for the littlest amount you can be and you're going to get a value up here and then you're going

876
01:19:38,240 --> 01:19:42,560
to pull the cash back out of that and i bet you're going to take that cash and do what go buy another

877
01:19:42,560 --> 01:19:46,400
lot and do it all over again that's my problem i keep myself broke because anything i make i go

878
01:19:46,400 --> 01:19:51,120
reinvest it i don't i don't ever spend on anything other than that i just reinvest all right well the

879
01:19:51,120 --> 01:19:55,440
right isn't that a secret right there you always you're always reinvesting isn't that just a little

880
01:19:55,440 --> 01:20:00,080
tip right there you're always reinvest you keep yourself broke all the time that usually puts a

881
01:20:00,080 --> 01:20:04,240
little stress on your marriage and stuff like that so and not that we're broke i mean we're not even

882
01:20:04,240 --> 01:20:08,960
remotely broke we just spend i just i just spend everything because i don't i'm not going to put a

883
01:20:08,960 --> 01:20:12,880
bunch of money in my checking account and go buy something stupid right and i just don't i don't

884
01:20:12,880 --> 01:20:19,440
trust me enough not to do that right so i'm just protecting myself from myself yeah yeah you might

885
01:20:19,440 --> 01:20:24,400
be but for someone that's for someone that's trying to scale a portfolio i think one of the lessons

886
01:20:24,400 --> 01:20:28,880
you have right there is you always take your profit you redeploy it and you just go back and

887
01:20:28,880 --> 01:20:33,520
you do it over again so hearing your story of starting with one going to two houses and now

888
01:20:33,520 --> 01:20:39,760
you're doing you know five units you know you're taking it and you're scaling it yourself by

889
01:20:39,760 --> 01:20:44,800
reinvesting back in the business everything we're doing is is is five and ten units now we're really

890
01:20:44,800 --> 01:20:49,200
not doing a whole lot of one unit things i i told you i think i told you just said i bought a

891
01:20:49,200 --> 01:20:55,280
another five acre track for fifty thousand dollars right that was that was a little problematic lot

892
01:20:55,280 --> 01:21:00,240
the lot is a good lot but i i got some issues with my city right now so they're not doing a

893
01:21:00,240 --> 01:21:06,160
bunch of favors for me so for me to build one unit on that lot i couldn't go less than five acres he

894
01:21:06,160 --> 01:21:09,920
didn't want to sell but one acre okay and i told him i said you got to get it rezoned i can't get

895
01:21:09,920 --> 01:21:14,240
it rezoned i said i'm going to struggle with that until november so you had him as a seller get a

896
01:21:14,240 --> 01:21:21,200
rezoned before he sold it okay he said he didn't want to do that okay so then they told me i got

897
01:21:21,200 --> 01:21:26,480
to have five acres minimum to build a house with three acres i got to go in front of the bza

898
01:21:27,200 --> 01:21:31,600
and um get there's a building is only appeals i got to go in front of them and i got to get them

899
01:21:31,600 --> 01:21:35,920
to approve it i said i don't want that i want a straight-up deal so we went with five acres he

900
01:21:35,920 --> 01:21:40,640
did not want to go to five to five acres okay and i told him i said look i'm building duplexes

901
01:21:41,280 --> 01:21:49,360
i said i want to be at 12,500 a door on my builds i said so my intention on this five acres is i'm

902
01:21:49,360 --> 01:21:54,480
gonna put five i'm gonna put two units on it and that's gonna cover my 50,000 i'm paying you for

903
01:21:54,480 --> 01:22:00,880
the units i said but i really think that i can put 10 units on it or 10 20 total doors on the on the

904
01:22:00,880 --> 01:22:06,560
unit on the line okay i said i will buy buy it from you for 50 that's that's what you wanted for

905
01:22:06,560 --> 01:22:12,560
the the part anyway i said and if i can put after i put the two units on it anything after that even

906
01:22:12,560 --> 01:22:17,360
though we've closed this deal and everything i will still give you 12,500 for every other door

907
01:22:17,360 --> 01:22:23,600
i pull in that property i said if i can put 20 on it then you're gonna get you know 16 more times

908
01:22:23,600 --> 01:22:29,840
12,500 okay and i think that's fair i'm not trying to and and and i would suggest anybody out there

909
01:22:29,840 --> 01:22:33,840
be fair with whomever you're dealing with don't try and rip people off and you know don't ever

910
01:22:33,840 --> 01:22:38,160
leave he's got a lot more land in that right there and i don't want to leave a bad taste in his mouth

911
01:22:38,160 --> 01:22:42,080
i want to know hey you want to go to relationships this is what he's going to do you want to come

912
01:22:42,080 --> 01:22:46,160
back to him later on if there's another purchase you want to know hey winston was a stand-up guy

913
01:22:46,160 --> 01:22:50,800
did it fair gotcha and that's that's the that's the end goal and i just think business ought to

914
01:22:50,800 --> 01:22:54,400
be done that way anyway we ought to you know absolutely i want to look at myself in the mirror

915
01:22:54,400 --> 01:22:57,920
when i shave and i want to cut my own throat because i feel like i'm a piece of crap that

916
01:22:57,920 --> 01:23:02,720
rips people off i don't want to do that i want to be fair and balanced and yeah and you know what

917
01:23:02,720 --> 01:23:06,560
you're people like i want to be your reputation you're in the market of tennessee people know you

918
01:23:06,560 --> 01:23:10,720
your reputation that's all you got that's all you so people know you and once you're ruining you're

919
01:23:10,720 --> 01:23:16,560
ruining it yeah absolutely you know hey any any final thoughts on um for investors that are part

920
01:23:16,560 --> 01:23:21,760
way through trying to get up where they get some more momentum any other tips suggestions

921
01:23:23,440 --> 01:23:28,560
i think you got to knock on a lot of doors you got to look at a lot of properties you drive around

922
01:23:28,560 --> 01:23:35,120
and look at high grass that maybe the meter is not in the meter based on the house find out who owns

923
01:23:35,120 --> 01:23:40,560
it it's so easy to find out who owns a piece of property nowadays look on uh look on facebook

924
01:23:40,560 --> 01:23:45,440
and see if you can find them if you can just reach out to them on facebook find their phone number

925
01:23:45,440 --> 01:23:49,360
call them up and just say i just wonder if you'd be interested in selling it and you would be

926
01:23:49,360 --> 01:23:55,120
shocked how many times i buy land like that build a build a good relationship with your planning

927
01:23:55,120 --> 01:23:59,840
zoning department with the with the the city manager in your city build a good relationship

928
01:23:59,840 --> 01:24:04,720
with these people and they will come across properties that they have that they just need

929
01:24:04,720 --> 01:24:10,720
somebody to buy and and they'll sell them to you i've also bought properties from my city that they've

930
01:24:10,720 --> 01:24:14,800
been sitting on for 20 years because they had a thought 20 years ago what they were going to do

931
01:24:14,800 --> 01:24:19,280
with it they never did it so i'm looking i'm seeing the city's got all this land so i'm i'm

932
01:24:19,280 --> 01:24:24,320
buying the land you know will you sell it yeah make us an offer tell us what you should give us for us

933
01:24:24,320 --> 01:24:30,880
so it's don't give up look at you know if you read your book rich dad poor dad you'll see

934
01:24:30,880 --> 01:24:35,680
he's with that just about 100 houses before he bought a house right you may have to do it 100

935
01:24:35,680 --> 01:24:40,240
times it's just time and it's practice and you get better and better and better the more people

936
01:24:40,240 --> 01:24:45,920
you talk to about that kind of stuff and you know people will know how sincere you are and you know

937
01:24:46,720 --> 01:24:51,920
and it's amazing how many people will actually work with you yeah that's cool hey so winston

938
01:24:51,920 --> 01:24:56,800
kind of wrapping things up we're on the ship somebody came up to you a stranger and they said

939
01:24:56,800 --> 01:25:01,040
hey are you winston right they've been following you they've been following you i heard the cruise

940
01:25:01,040 --> 01:25:07,280
director i heard that so to find people right so how do people find you so you've got you know

941
01:25:07,280 --> 01:25:12,800
stuff on tiktok and instagram if people want to follow you learn more about your hands-on approach

942
01:25:13,360 --> 01:25:18,720
where they find you how do they how do they follow you so you can find me through real estate template

943
01:25:18,720 --> 01:25:23,520
t m p l e t so that's my last name so we came up jason hartman actually came up with that name

944
01:25:23,520 --> 01:25:30,400
really yeah real estate template and we're on tiktok we're on youtube we're on instagram and

945
01:25:30,400 --> 01:25:36,000
he's on a couple other places and we just we just go out and show what we do for a living and

946
01:25:36,000 --> 01:25:40,960
have fun i'm a little bit out of the box in my character with than most people are i like to have

947
01:25:40,960 --> 01:25:45,360
fun i'm like if i can't have fun what i want to do it i love watching your stuff it's you keep it

948
01:25:45,360 --> 01:25:50,640
real yeah i was watching the one with the the door you brought you brought your the the guy and doing

949
01:25:50,640 --> 01:25:54,640
you're like what's wrong with the doors here i showed that one to nicole and i'm like all right

950
01:25:54,640 --> 01:26:00,880
this is classic so if you want to watch a hands-on approach and see somebody who's in the trenches

951
01:26:00,880 --> 01:26:07,360
doing deals from dirt to build into construction and management a to z you gotta follow winston

952
01:26:07,360 --> 01:26:13,520
he's got just the best stuff out there because he keeps it real and he brings practical common sense

953
01:26:13,520 --> 01:26:22,640
so love hanging out with you thanks so much winston i appreciate that all right appreciate your time