Real Estate Black Belt

Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright. On this show I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories an experiences can help you take your business to the next level. We have three new shows each week, which are available in the iTunes store, or by visiting FlipNerd.com. Without further ado, let’s get started.
Hey it’s Mike Hambright welcome back to the FlipNerd V.I.P. show. Today I have with me Sensei Sean Gilliland, who is the founder of Black Belt Investors. He is also previously one of the top ranked martial artists in America. If you thought real estate investing took focus, try being one of the top marital artists in America.
Before we get started with our interview today, he has some great lessons to share with us, let’s take a moment to recognize our featured sponsors.

Advertisement: RealtyMogul.com is an online market place for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as low as 9%.

We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Sensei, welcome to the show.

Sensei: Hey, Mike, thank you for having me. It’s a pleasure.

Mike: I’m glad you’re on; I’ve been looking forward to talking to you. It’s such a great story that you are obviously a black belt, very highly ranked martial artist. Now you’re basically taking some of that focus and obviously applying it to your real estate investment business and teaching others how to do the same.
For those who aren’t familiar with you, though, introduce yourself. Tell us a little bit about you and kind of how you made that connection or that leap from martial arts to real estate investing.

Sensei: Absolutely. I’ve been in marital art basically my whole life. At a very young age of 13, I was already teaching adult classes. At the age of 16, I was teaching the L. A. sheriff’s hand to hand combat and weapon disarmament. I also made the United States Olympic team for ’92. However, we got cut out of the event. Nonetheless, I focused a lot of energy towards my training and just had an absolute passion for it.
Then I found a new passion. That passion was income streams. I was really after income streams. This was back in 1993, 1994. I was searching around for coin op car washes and what ended up happening is that; I didn’t know anything about real estate. I understood the business model of coin op car washes, 24/7 business, cash business, very low maintenance, and it was appealing to me.
When it came to learning about the real estate with a structure that actually sits, do I rent do I least, do I build a suit, do I buy. How does this work? I found myself in a realm of unfamiliarity that I needed to learn everything I could about real estate. Here’s what I ended up learning, Mike. Real estate controls all businesses. All businesses. With that, that grabbed my attention and I started sinking all of my efforts to learn everything I could about real estate.
1995 was a breakthrough year. I got engaged, I got married, and I moved in with my wife, we had a baby, we bought our first home. We did a cash out re-fi on our home and bought my very first investment property over in Ft. Meyers, Florida while living in southern California. I had a very busy year that year.

Mike: Yeah. I presume in the martial arts business, because there is a business. You have a business associated with that, right? You have training centers?

Sensei: I do. I’ve got several martial arts facilities here in southern California.

Mike: Yeah. I assume in the martial arts business other than having training centers and things like that, it’s probably not a highly lucrative career. It’s probably hard to make that a career, I would assume.

Sensei: I think you’re absolutely right. However, with me, that would be wrong. Let me straighten this out. I’ve just celebrated 25 years of my schools last year. So we’re now hitting our 26th year. Most martial arts facilities pop up and are gone within a year’s time. I’ve got such a great following and a very low turnover rate, we’ve been able to sustain very well. However, my focus is not to make money on the martial arts my focus is on the children to give them a chance to do something in life. I basically donate my time to teach these kids six days a week.

Mike: Okay. That’s fantastic. I’ have a son who is about to turn seven, by the way, he’s actually a senior blue belt right now.

Sensei: Fantastic.

Mike: Yeah, he’s about to turn seven so he’ll probably be entering the initial black belt stages probably before he gets to nine so, yeah.

Sensei: Right on.

Mike: So awesome. The interesting thing about real estate investing, especially for folks who are trying to get started or can’t get started, you know there is unfortunately a high failure rate. A lot of it is the mental side of it and the lack of discipline, which I can’t imagine a better transition out of martial arts into real estate because of the dedication and the focus that it takes.
Talk a little bit about you making that transition and then some of the lessons that you’re able to share with people to help be successful in real estate investing.

Sensei: Right. You know what? I was like anybody else. Back in the early ’90s there were a couple of gurus going around offering their boot camps at the time, and I walked in to a free workshop at a hotel. I decided hey I love what I’m hearing. You can fix up a house, buy it low, fix it up, retail, and make a bunch of money. Everybody in the audience was excited. However, let’s be honest. The success rate with the people in that audience is very low. It’s low because I believe they lack the education, they lack the drive, they lack the passion.
To be successful in any business, not just real estate, you have to want it so bad, as like you want breath of air. If you don’t want it like a breath of air, then you don’t want it bad enough. More than likely you aren’t going to find the success you’re looking for.
An entrepreneur, we work 80 plus hours a week. We’re burning the candle at both ends of the stick to eventually work the 40 hours a week, right?

Mike: Right.

Sensei: I find that most people don’t really want to put out that time. They’re more interesting in doing their job and love the idea of becoming this real estate investor but Dancing with the Stars is on and I think I’m going to watch that instead.

Mike: That’s easier.

Sensei: It’s much easier. For me, that success is hanging right in front of my face. We’re in the land of success. It’s so it’s easy for us to grab it. However, we make it extremely difficult. So for those investors out there, you’ve got to make a decision. Do you really want this as a career or as a portfolio? Or, are you just going to make it as a hobby? Because hobbies are great, but they don’t make any money.

Mike: Right. I was talking about this to someone earlier is that, and this was a specific person who had decided he wanted to go to a real estate training course. The same day that they signed up for it he went back to work and found out that he lost his job. There are so many people that I know that are successful real estate investors and a good portion of them were backed into a corner of some sort where this is it. This is going to work. Failure is not an option.
There’s also, I think, a lot of training boot camps and things like that, kind of that make it sound a little bit easier than it really is.

Sensei: No doubt.

Mike: How do you kind of recondition somebody’s mind to say that, you think this is easy but it’s not and are you really willing to do what it takes you? How do you convince people to get out of their comfort zone and really get after this if it’s what they really want?

Sensei: Yeah, I cannot convince them verbally. Listen, I’m a martial artist. I’ve done martial arts my whole life, I’ve been grappling, I’ve been boxing, you name it I’ve done it. You can talk to me all day long and it will sound really cool and I’ll start picturing in my head that I’m Bruce Lee. Step into the ring and that’s a different challenge.
I’ve always promoted through my educational courses that this is not easy, but I can simplify the process. I will be in your corner to help you. I will hold your hand for a few minutes, tell you exactly what to do and push you right back into the middle of that ring, and yell at you to get it going and continue in that fight. You do well, you don’t do well, you come back in the corner and I re-adjust you back in that ring because failure is not an option.
You can read all the books you want, you can listen to all the 8- tracks you want, you can listen to CDs and DVDs and all that other good stuff. However, what are you doing with that knowledge, because we are all knowledgeable? Wisdom is taking knowledge and putting it into action.
Let’s say, Mike, you come to me and I’m going to train you in martial arts because you want self-defense. So I can give you books and tapes and CDs and all that great stuff and you’re all pumped up. Eventually that sizzle is going to go to fizzle. Or I take someone that is exactly matched to you that as the tail of the tape and I say, Mike you take five years to study this, but I’m going to take this guy over here just like you but clone you, and I’m going to give him five weeks in my gym.
We’re going to be hands on. I’m going to have him hit the bags, I’m going to have him hit the speed bag, I’m going to have him throw some kicks, I’m going to put him inside the ring and let him spar. You tell me who is going to be the better at self-defense? The guy that was training for five weeks, or you that’s doing books and tapes for the last five years?

Mike: Right.

Sensei: There’s going to be a huge difference there. That’s how we approach our education. That it’s very hands on, lots of role- playing. For those investors out there that are deciding or trying to decide if this is for me or not, sitting in a class room style setting is very, very important, just like a doctorate. They go through college; they go through medical sitting in a classroom style. However, then they eventually going to start cutting into a cadaver, they’re going to shadow another doctor as a resident or as an intern and even break off on their own doing their own practice.
That’s the way we must also approach real estate. Classroom education, start getting some coaching, shadowing those that are successful in your niche field, which is very important by the way, and then eventually breaking out on your own and always having someone in your corner to go back to, to ask for advice.

Mike: Yeah. What do you advise folks on in getting started? I think one of the problems that a lot of folks have is there are so many shiny objects out there. There are so many ways to make money in real estate investing.

Sensei: No doubt.

Mike: It’s so true. I’d say a lot of folks look at me and they see some level of success that they would like, that they would like to identify with. Then they ask me questions about stuff that they think I know; multi-disciplinary, multi-family, commercial. I know nothing. I’m like an infant in that area. I could figure it out if I had to, but I’ve just chosen to stay very focused on single-family homes, right or wrong. They’re very different businesses and I think people kind of get paralyzed by thinking, “I’m going to make money doing these 20 ways to start.” What do you advise folks on?

Sensei: Here’s the advice I’m going to throw out. Everybody listening? You decide you need a paycheck or a portfolio? That will start leading them in the right direction. Because if you need a paycheck then you’ve got to start buying and selling real estate whether it’s through wholesaling, assignment of contracts, re- habbing, purchase options.
You’ve got to do something that starts generating immediate income. However, if you’re cash rich but portfolio poor, then you may just want to start looking at building that portfolio. I’m also single-family type of guy, one to four units. I do dabble in multi-units and other things, but my focus is single family. I think a lot of people do break focus because they are presented with many shiny lures, as you said.
Think about it. Who has been to Vegas? Well, probably most of us have been to Vegas, and if you have not raised your hand then you probably are lying and you want to keep it in Vegas, right?
So when we go to Vegas, we’re doing a whole lot of stuff and one of the things that I like to do is, stand in the buffet lines right? Do they give you a small plate or do they give you a big plate? They give you a big plate, right? Then everything looks good. Well, I’m going to take a little bit of this, and take a little bit of that and take a little bit of that, and next thing you know you’ve got this mountain of food on your plate, and you sit down and you start tasting it. But when, a couple minutes into it, when all those flavors start meshing together it just becomes a bunch of junk and you throw it away. That’s what I see with a lot of real estate investors out there.
They’re taking this boot camp, they’re taking the re-habbing, they’re taking the commercial, they’re taking the mobile homes, the creative financing boot camps and they become a jack-of-all- trades and a master of none. To me, that’s where they feel, “oh, I’m just frustrated and I’m not sure where to go and I’m not making money but I just spent $60 million in boot camps.”

Mike: Right.

Sensei: That becomes a waste. Another analogy would be someone like you coming to me, Mike, and saying, hey you know what Sensei, I’d really love to learn boxing, jujitsu, judo, karate, muay Thai, and again, you’re going to be a jack of all trade. Mike, if you’re to get stuck in an elevator with a grappler and you’re in a confrontation, you’re going to lose because that grappler only focuses on wrestling and he’s great in close quarters.
However, if you’re out in the street and you’re going against someone that’s in Taekwondo, he’s great with distance and you’re going to lose. Why? Because you have not mastered a niche. That niche has got to be what’s important to you. Do you need a paycheck or do you need a portfolio? Whatever that niche is, then you master it and you build upon that niche. Once you become a black belt in that niche, then it’s ok to spoke out from your hub and maybe go with a different direction that compliments your original niche.

Mike: Right, right.

Sensei: Does that make sense?

Mike: That’s great, yeah. Talk a little bit more about whether folks want a paycheck or they want a cash flow or can it truly be more passive, if you will. There are a lot of real estate investors that get started and they aspire to keep more rental properties to build wealth, if you will. The challenge is, once they get started in real estate investing, unless they have some other way to feed their family and pay for their marketing. One of the things that a lot of the training classes never teach you is, it costs money to run a real estate business.

Sensei: Yes.

Mike: You have to generate leads, you probably need some administrative help at some point and if you don’t do those things then you’re just creating a job for yourself and not a business. There’s this period where you will like to keep houses as rental, possibly, but you can’t because you can’t afford to. You have to sell them and ring the register now. Talk a little bit about how you advise folks that aspire to keep rental properties but they have to earn that paycheck first and then, maybe, start to tuck some away.

Sensei: Absolutely. Maybe you’ve already got a great cash machine developed and you just need to park some money somewhere. Don’t take that illusion that investment properties don’t require feeding of money once in a while. You’re going to go through a vacancy. You’re going to pay a deductible; you’re going to have repairs. You’ll have to feed that and unfortunately, back in the middle of 2000s everybody was building wealth and not income streams.
I’ve always promoted income streams, not wealth. So they would run out and buy these investment properties whether they are making a small cash flow or not, and the next thing that happens is a recession. They’ve built their portfolio on sand and it sunk. There were a few of us that really survived and that’s because we knew we had to generate income to be able to feed our investment properties. For me, what’s important for investors, again, is going back to, okay, we know what the end goal is and the end goal is to build a financial security for me and my family.
Through that it’s going to have passive income and appreciating assets. But how do I get that portfolio of appreciating and cash flow assets. Well, you’ve got do develop these income streams. In real estate you can start off not the easy way, but it’s not the most difficult way and that’s becoming a wholesaler. Wholesaling to me is the foundation of all real estate, because if you’re a rehabber, you’re a wholesaler. You’ve got to buy at wholesale prices to sell at retail price.
If you’re a landlord like me, I don’t pay retail and I hope you don’t pay retail, Mike. I pay wholesale because I want that build in equity position and have a better return on my investment. That way if I’m focusing on my wholesale side, I can assign contracts and have immediate income. I can pick and choose certain properties that I want to buy, fix, and flip.
My flipping of contracts may be able to pay all cash for these rehab projects. Now I’ve got two income streams. Then I’ve got purchase options, which is another form of wholesaling but I actually call it the yin yang of wholesaling because wholesale is all about equity positions and, oh, you like that. I see you writing that down.

Mike: I’m writing a number of things.

Sensei: And purchase options, where we’re looking at lease options subject to financing. Properties that lack a little bit of equity, maybe they’re upside down. I can still put those properties that are contract and flip them out, generating an immediate income just like I do in wholesaling. Now I’ve developed three different types of income streams within my hub of wholesaling.

Mike: Right.

Sensei: With that money, okay, maybe we flip, flip, flip, flip, oh let’s buy and hold this one. Let’s flip, flip, flip, flip, and look at this situation. Now I can come in and get some sort of creative financing or owner financing. I’m building my portfolio slowly, but I’m still ringing my cash register.
One of my oldest domains is cashandwealth.com. I don’t have wealth first, I have cash first. To me, that’s extremely important.

Mike: That’s interesting coming from a California guy. I’d like to talk to you about operating in other markets, because I know you do, but before we get to that, for folks that are out there, can you talk a little bit about some of the hybrid strategies of purchase options, lease options. How you kind of basically, I think what you’re doing is you’re finding essentially a lower equity deal, or a deal you can’t buy otherwise, and finding a way to still monetize it. It that it?

Sensei: Absolutely. Yeah, it is. My primary strategy is always to wholesale. Meaning, to flip the contract. Then I’ll take a look at possibly buying a property to fix and flip. If it doesn’t’ have that equity position, I can’t create the equity position, then I’ve got to look at other strategies. That may be subject to the existing financing. That may be a lease option, that may be a sandwich lease, a sandwich subject to, or some sort of owner financing.
Here we have a situation, let’s say for a quick example, let’s say we have property that’s valued at $300,000. Theo owner of the property is distressed and wants to sell, but they can’t sell because they have a loan balance of $290,000. We’ve got an equity position of $10,000, don’t we? Come to find out, they’re actually $20,000 behind in payments. Now they’re upside down on their property by $10,000 with a total owed of $310,000. You know what I’m going to do with that, Mike?
I’m going to take that property, I’m going to put it under a contract, and I’m going to sell it to homeowner for $355,000. A lot of people are going to think, why would anybody buy an upside down property. Why? Typically because, number one, the financing is going to remain in place and that new buyer can step right in and start making payments directly to the bank. Two, we’ve got a lot of people out there that still want that American dream of buying a home. Most of our home purchases are done today using an average of 10% down. If they are already targeting a $300,000 house, 10% of $300,000 is $30,000. I actually just saved $5,000 because all they have to do is come up with $25,000.
So $20,000, I’ll go and pay off the back payments and put the loan back in good standing and $15,000 is going to go where? Right in my pocket or right in your pocket. That way they can keep they’re income to debt ratio in check and there’s many, many people out there that are cash rich but credit poor and cannot go get a mortgage on new properties. We’ve got a very large broad based clientele of distressed owners and frustrated buyers that can’t acquire the loan. It’s a perfect match.

Mike: Right. Awesome. Let’s talk a little bit about investing in other markets. One of the great things that I’ve gotten out of this show is, I’ve always been very kind of myopic and focused on my market and always kind of freaked out about investing in other markets, if my money is on the line or money that I’m responsible for.

Sensei: No doubt.

Mike: I’ve met a ton of folks like you that are investing in multiple markets and it’s just fascinating for me. Talk a little bit about why you do that and then a little bit about how you do that, really more operationally. Share some insights on that?

Sensei: Absolutely. Why I do it, well I started out of state is because I couldn’t afford to do it in California. If I’m going to go buy something outside of the borders it’s going to be a fraction of the cost than here. I can go over to Arizona and buy a newer house that was built in the last 10 years for $125,000. A house like that over here is going to come with wheels. There’s a big difference and I couldn’t afford it and I was 25 years old so I had to go where it was affordable for me. That was, at that time, Ft. Meyers, Florida.
I find a lot of Californians in the same position. You know, they’ve got some money, a little bit of money, maybe a lot of money. However, they find out that for the price what they can purchase over here would be on average of $350,000 in not even in the best of neighborhoods, they can go buy multiple properties outside of California. Now that $350,000 purchase here in California using the 1% rule basically stating that 1% of $350,000 I should be bringing in at least $3,500 in rent is not going to happen here.
That $350,000 property is going to bringing maybe $2,000 or $2,200 in rent. So you’re not getting the best returns, right? However, we can step up out of state, let’s say for instance, Cleveland and I can be in the same type of neighborhood, a strong working class neighborhood, buy a turn-key property in an emerging market for $50,000 and I’m going to pull in a $1,000 a month in rents. That makes a better return on investment, obviously.
Now, those investors like yourself that love to invest in your own backyard, you can do that. If you’re in Dallas/Fort Worth, I’m very familiar with the area. I’ve wholesaled in the area several years ago. Love it; it’s a great market. But for Californians that’s very difficult. Not only that, I’m also into diversification. Every market is different, so when the recession hit, I have properties scattered all over the states and every market responded differently.
In your primary markets which are going to be the five diamond states which are California, Arizona and Nevada, Texas and Florida, those were hit the hardest. They also bounced back the best. Those are great areas to buy for appreciation. However the other markets such as Indianapolis and Kansas City, Missouri for example, they didn’t get hit that hard, they didn’t lose that much. I created balance into my portfolio and balance is very, very important to me.
The other thing is this, Mike. People invest in 401(k)s. People invest in mutual funds, they invest in stocks. Is that in their own hometown?

Mike: Right.

Sensei: No, it’s not. Do they ever get to go visit that stock or that company? Absolutely not. Do they get to sit down at the round table with the CEOs and chairman’s to disuses their stock? Absolutely not. So how come it’s ok to invest in the stock market where you cannot see, touch, feel, taste that stock? But people are scared to invest in real estate where they can actually go drive by and see how tall the grass is?

Mike: Right.

Sensei: Or go fly to it.

Mike: I think some of the challenge is more of managing a contractor remotely, having a property manager in different markets that may or may not be reliable. So those are some of the operation things of can you trust the boots, because you’re always going to have to have boots on the ground there.

Sensei: You’re right. And the boots on the ground is primarily going to be your property management company. I’m a property manager. I don’t suggest anybody being a property manage unless you know that state law. Especially if you’re going to be owning remotely. You’re property manager can either be your best friend or your worst enemy.

Mike: Right.

Sensei: It’s very, very important that you get hooked up with a property management company that has been there, done that and through the thick and thin of everything. If you’re out there searching for a property management company, one of the easiest strategies that we do if you’re not on the grounds yet. Before we get on the grounds is we’ll simply call the large players in the area, the realty companies, maybe a Century 21 or a RE/MAX, guys that have been around of a while and ask for referrals. If they’re all pointing in the same direction, then I’ve got a good clue of whom I’m going to be using for property management. Then I will actually go out there and interview them. I won’t do it over the phone; I’ll do it in person.
I’ll interview them and if I get a good gut feeling, then I’m signing up with them. You don’t want to be a completely passive investor. You’re not that guy on TV doing Ronco where you put a chicken in, set it and forget it. You have to check on your assets and optimize your portfolio every few months.

Mike: Right, right. Awesome. Well, you’ve got a lot of great information. I appreciate you sharing today. For folks that want to learn more about Black Belt Investors and more about you where should they go?

Sensei: You can visit one of my websites and that is blackbeltinvestors.com. Or they can simply give us call here at 951-280-1900. Again, that’s 951-280-1900 and we’d be more than happy to help you out. We’re open Monday through Friday.

Mike: Great and we’ll add links and the phone number below the video here. Sensei, thanks so much for sharing your insights. It was a pleasure talking to you today. I look forward to talking to you again soon.

Sensei: Well, I appreciate having me on the show. It was a fun day.

Mike: All right, take care.

Sensei: Thank you.

Mike: Bye-bye. Thanks for joining us today on FlipNerd.com pod cast. To listen to more of our shows and hear from more incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows.