This is episode #369, and my guest today is David Tilney. If you don’t know David yet, he’s legendary in the real estate investing industry, with nearly 40 years in the business, and a very unique approach to building wealth and cash flow with rentals.
Today we talk about master leasing, which is a vehicle that allows you to generate cash flow from rentals, while never actually owning the property, and very commonly, never having to put cash into the deal, as you’re not actually buying it. It also allows you to mitigate many of the risks that you’d have as an owner, as you never actually own the property!
It’s a fascinating episode, and for those looking to build wealth through rentals without a lot of capital to start…I’m certain that you’re going to learn some new techniques today!
Please help me welcome David Tilney to the show.
Mike: This is the flipnerd.com Expert Real Estate Investing Show, the show for real estate investors, whether you’re a veteran or brand new. I’m your host, Mike Hambright and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility and taking control of your life and financial destiny, you’re in the right place.
This is episode number 369 and my guest today is David Tilney. Now, if you don’t know David yet, he’s legendary in the real estate investing industry with nearly 40 years in the business and a very unique approach to building wealth and cash flow with rentals. This is something he’s done himself for decades and he teaches other people how to do it now to kind of pass the torch.
Today we talk about master leasing, which is a vehicle that allows you to generate cash flow from rentals while never actually owning the property and very commonly never having to put cash into the deal as you’re not actually buying it. It also allows you to mitigate many of the risks that you have as an owner, many of the risks that I deal with, as you never actually own the property.
Now, it’s a fascinating episode. For those looking to build wealth through rentals without a lot of capital to start or those looking to monetize the low equity deals that we tend to throw away, I know I’m certain that you’re going to learn about today’s show and some new techniques. So, please help me welcome David Tilney to the show.
David, welcome to the show.
David: Thanks, Mike.
Mike: Glad to have you back. So it’s been two and a half years since you were on before. I remember the conversation because it was so unique in approach. I have about 40 rental properties and we have all sorts of issues sometimes that when they happen, I think back to our conversation about how to do things differently and avoid maybe some of the issues that we’ve had.
For those that aren’t aware of you, you definitely are a [inaudible 00:02:12] person and you have an approach that everybody needs to know about. So, for those of you that are watching today, you need to listen up and you need to check out David. We’ll give you his website in a little bit to learn more about his approach. In fact, he has an event coming up next month. So, I’m trying to figure out a way that I might be able to get to part of it. I have a little bit of a conflict here.
But David, for those that don’t know you yet, introduce yourself and tell us a little bit more about you and how you got started in real estate investing.
David: Sure. I bought my first house in either 1977 or ’78, I’m not sure which. I was really pushed, pulled and dragged into the real estate business. Family background–my dad said the one thing you don’t ever want to do is buy real estate because it’s not liquid. So, I kind of had a little bit of an uphill battle. I had a friend at work who got me to buy my first property. We bought a little house for, I think, $2,850, took it subject to a [via 8 00:03:10] percent loan and borrowed money on our credit cards for the down payment.
So we didn’t do everything right, but we started buying houses, wrapping the financing and selling them, keeping the spread. That worked for a while until interest rates went up and then we had to modify and the next thing I think we did was we bought foreclosures. We set up several large lines of credit and we bought a bunch of foreclosures and sold some of them and kept some of them and that worked until people started paying retail-plus for foreclosures, at which time we did two things.
I ran a little over a $3 million note portfolio for a friend who was in Hong Kong and I also started aggressively buying pack sales, meaning paying people’s taxes, defaulted taxes and ultimately getting title to quite a bit of property, some good and some bad. Hopefully enough good mud stuck on the wall that it made sense. We did that until people started coming into town with suitcases full of money because the yields on tax certs were pretty good and they bid up the over bid, which again, forced us to find something else.
So the next thing we did–and this whole time I was running my properties and I was managing some other properties, but we really changed our whole operation. I did a master lease in 1985. A master lease is where you lease someone’s property and turn around and sublease it and take a spread. It’s very different from managing their property because in this case, you do not have a fiduciary responsibility to them. I was not their agent.
They did business with me because whatever I offered made sense to them and likewise, I did the same thing. I leased this house for 35 years, really at a fixed rent. Ten years later when the property was sold, for me to remove my lease, I was given half the appreciation that had taken place from the time I put my lease on the property. I secured my lease with a deed of trust. For some of you in some states, I’d secure it with a mortgage.
But in October of ’96, I cancelled every agency relationship I had. I was a licensed real estate broker. I was managing other people’s properties and I turned around and leased the properties I used to manage, did not lose one account. I found it was a much better way to do business. I think master leasing a wonderful way to control assets without ownership and it really is what we’ve told our own children to do. It’s a great way to get started in the business without having any capital. There’s a tremendous amount of benefits you can transfer in a lease that people just don’t see.
Mike: Yeah. I’m excited to talk about those things today. So maybe just to start off, you could go into a little more detail about what–I have a bunch of questions for you, but a little bit more about what a master lease is. I know you could talk about this topic for days, but maybe just at a high level of what that looks like and then I’ll hit you with my next question after we talk a little bit more about that.
David: Sure. Well, as I said, a master lease is where you lease a property from one entity and turn around and sublease it to another with permission in your lease and you take some benefits in the process. And this has been going on for years in the commercial business if you think about it. If you look at the largest scale master leases I can think of, Hong Kong was leased from the People’s Republic of China for 100 years by the Brits.
A lot of the land in Hawaii is leasehold land owned by the Bishop Trust that funds the Kamehameha Schools. Hotels, oftentimes one entity owns the land. Another entity leases the land and builds a hotel. Another entity subleases the hotel for ten years at a time, meaning Marriott or some management organization. Then they sublease the catering out of that. So you have a whole series of different leases available on the same piece of property.
David: We just took that concept and moved it into the single-family house realm. It worked very, very well. We could lease a house and guarantee the rent under some terms and conditions, guarantee expenses up to a stop loss, or we could lease a house on a performance basis and agree to pay a percentage of what we received if and when we received it. You could slice and dice your lease documents just to meet the needs of the owners. You essentially said what does the owner need, give the owner what they need, and what’s left? Take everything that’s left. It’s been a great way to do business.
Mike: That’s great. So let’s maybe get into some of the–if we can, I want to talk about pros and cons for investors, guys like you, and then talk about pros and cons for the homeowner. You can see that if they’re having a hard time selling it, that might make sense, but in what other ways it might make sense for them even if they weren’t originally planning to do that, they just wanted an outside sale. So let’s start to talk with investors. So there’s the obvious ones of if you can get a seller to agree with this, you can structure that in a way where you don’t necessarily put down any cash, right?
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You can structure that in a way where you don’t necessarily put down any cash, right?
David: You don’t have to put down any cash, correct. Again, it’s all negotiable. If you’ve got an owner that’s got a major crisis right on their hands right then and there, they need to put a roof on or whatever and if you can see there’s an economic benefit for you to put down some cash and negotiate some benefits from them, fine. In most cases, you’re right, you don’t need any cash.
So who are you dealing with? Let’s face it, you have a lot of unintentional landlords out there, people that ended up with an inconvenient property. They transferred out of town or maybe they want to come back at a later time. They don’t want to sell the house at the current time or let’s say they have too much debt and the house is not salable. There’s so many different–any property that a management company could look to do business with, boy, a master tenant can certainly provide every benefit that a management company can provide and much, much more.
Why much more? Because you can negotiate based on the owner’s needs. It’s not a one-size fits all. It’s what do they need, give them what they need. Each transaction can be a unique, separate transaction.
Mike: Right. I’m sure you can structure these things any way you can imagine. But as an investor, would it be realistic to structure it to where, I guess it’s just common practice, to where are you on the hook for lost rent, for maintenance? Talk about some of those pros and cons for the investor. My biggest expense in my rental portfolio is turnover and not so much ongoing maintenance, but just make readies when I have to turn the property and then of course vacancy obviously. So talk about how that might be different in a master lease situation, commonly. I’m sure it can be however you define it, but what’s realistic.
David: Well, I’d like to back up a little bit and compare it first to ownership. So let me ask you–if you own a property, do you have those problems that you just mentioned? The answer is clearly you do. There are a lot of people that bought properties and around 2008 through 2010, they wish they didn’t own those properties because it was very difficult and in many cases impossible to get out a title on those properties. Can you imagine it might be a little easier to get out a title on a lease than it would be out of ownership?
David: So if you’re creating the lease, can you see that as a lease hold position, you can limit your downside? You can limit what you do agree to pay for. Yes, you can take on requirements that you will take care of maintenance. You can take on requirements for vacancy. But you can say a maximum of 30 days vacancy a year. You can say, “We’ll take care of all the expenses up to a monthly stop loss of $75 or $900 a year.” You can negotiate–all of those things are negotiable items. So, you can limit much better than you ever can as an owner.
David: On a big ticket item, if the furnace goes out, the air conditioning goes out, the roof needs to be replaced, don’t bother me, I’m a tenant. Call the owner. The owner has to take care of those things.
Mike: I’ll play devil’s advocate a little bit. If you’re buying houses from somebody that has little to no equity, they see you as a solution to take a problem off of their hands and they don’t necessarily think of themselves as an investor or, “I’m going to get some long-term equity.”
What happens if you get in a situation where you effectively are covering their mortgage costs, let’s say, and then there’s a few thousand dollars in damage or repair. Even though in your contract, you might put that they’re responsible for it, but of course, your ability to generate rent and get a tenant in is based on their ability to pay for those repairs, right?
What do you do in those situations? If you’re trying to create win-win situations with a seller to where you’re getting in and generating cash flow and building long-term cash flowing assets and wealth building and they are too, but if you pass that risk along to them, what happens if they can’t cover it or they don’t want to even though your lease says that they have to?
David: Right. So what you’re really saying is you need to screen your owners much the way as landlords we screen our tenants. You need to find out that number one, they have the financial ability to uphold their end of the contract and number two that they have the moral code that they will uphold their end of the contract. So you might want to put credit reports on owners, which is kind of a unique thought.
David: Now, you say that owners are trying to increase their net worth too. That’s not always the case. Many times–let me give you the scenario where a husband has been transferred with work to Cincinnati, Ohio and he’s left wife with two teenage boys in Colorado Springs and the wife knows if she doesn’t get the family back together pretty quick, they’re going to lose the whole family because she can’t control the sons.
David: So they’re not in it for economics. They’re in it for personal family solutions to problems they have currently. Your marketing approach might be not that we’re going to make you a whole bunch of money, but we’re going to lose you less than you’re going to lose with a vacant house. We’re going to put a caretaker in there that will deal with certain aspects of repairs and maintenance and lawn care and those kinds of things, but there’s a limitation as to how far we’ll go. So we need to know that the owners are willing to do what it takes to save their credit. Credit has to be important to them.
Mike: Yeah. And I’m asking some of these questions because as we speak, I have a tenant that just destroyed my property, was in there for three months, only paid rent the first month and apparently got hooked on drugs or something and did $5,000 to $7,000 in damage, like toilets missing, all sorts of weird stuff. So as an investor, I’d love to never have that problem again, but I’m also trying to be realistic.
As an investor, I see the opportunity too for people that have low equity and I can’t buy them the traditional cash route and turn it around as an opportunity to say, “Well, I can solve your problem and help me do what I want to do here, which is accumulate cash flow.” But just trying to be realistic about somebody’s got to foot the bill for things like that, ultimately.
David: Yeah. Our approach really is if that kind of a situation happens, we’ve got to look at whose fault was it. And I think from my standpoint, the buck stops here. Something was wrong in my screening system. Something allowed the wrong person to get into my house. So I really have to do an autopsy and figure out how I can keep that from happening again.
You remember the movie “Pacific Heights.” For any landlords listening to this, if you haven’t seen “Pacific Heights,” you should see it. You should always look at it from the idea of how could you have changed things so all of the bad and evil that took place in that movie didn’t impact you. I think you’ve got to do that.
I used to have a guy from someplace in Ohio and he’d call me and say, “I put a tenant in a house and I couldn’t keep him more than six months and every time a tenant moved out, I had a $5,000 balloon note that came due to resurrect the house.” That’s a problem. That means you need management skills.
David: That’s why I think management is the key to running real estate. We’ve had very good luck with management. It doesn’t mean we haven’t had some failures, but my longest tenant was with me for 24 years and 10 months. I had another one for 18 years. I have one currently for over 10. You don’t want turnover between tenants. Houses are meant to have caretakers in them. If you have a vacant house, you’ll find air conditioners, compressors stolen. You’ll find copper taken out of the wall depending upon the price of copper.
You’ll find all kinds of funny things happen. In my market in Colorado Springs, we’ll have broken pipes in the winter very quickly from freezes. We’ll lose a lawn in the summer. You’ve got to get the management down before you can do master leasing, but they really go hand in hand.
Mike: Yeah. Ultimately, yeah. For those of you that are listening right now, David was on the show, like I said, two and a half years ago, it was episode number 175 and he has a unique approach to how he thinks about tenants. A lot of us think our house is the asset. David thinks that his tenants are his asset. It’s a really unique approach to giving people an opportunity to feel like they are a part of something long-term instead of year to year, month to month or whatever your structure might be.
So we’ll add a link in the show notes, but it was episode number 175 and if you do a search on FlipNerd for David Tilney, you’ll find that episode. It’s not what you hear from other people that talk about rentals. So, it’s a real unique approach and I encourage you to check that out.
So, David, a typical structure on these leases that makes sense–of course, in your mind, you have taken the effort to secure an asset for yourself now to generate cash flow and you’re still dependent upon the seller or the homeowner, I guess, they’re not technically a seller, to pay the mortgage, to pay the insurance. They’ll probably do all those things. Typically when people seller finance a house, they usually have somebody managing those payments and things like that. Do you do that with sellers? How do you keep an eye out to make sure they keep up their end of the deal, which is to continue to pay the mortgage, right?
David: Yeah, I certainly can do that. The one thing you’ve got to make darn well sure is that you don’t promise something to your occupant tenants that you can’t perform on. For example, if I have a year’s lease with an occupant tenant and I lose my master lease, now I’ve promised rights of possessions that I can’t give, that’s fraudulent. That’s a problem.
So you’ve got to have your contracts match up that if something happens and you lose your master lease, you can terminate the lease with your occupant tenant fast enough that you don’t have a liability there, i.e. if someone doesn’t make a mortgage payment and the property does go into foreclosure, can I cancel my lease with my occupant tenant? All of those things are crucial that you get down correctly.
David: Let’s look at the real big picture.
David: One of the things I ask people sometimes is I say, “How many people own real estate?” And I’m in a group where I get a reaction, not where I’m looking at a camera and I don’t hear any response, but a whole bunch of hands will go up. Then I say, “Okay, so do you really own it or are you making payments on time?” And a whole bunch of hands will go down, meaning they’ve got it financed. They don’t own it free and clear.
David: Then they’ll say, “Well, I was along the Dalmatian Coast one day on vacation with some other real estate guys and we hired a driver and we drove around and he just built a house.” So, we’re real estate guys and we’re asking him about his costs and we said, “Tell me what your property taxes are.” He said, “They’re 10%.” We were aghast. We said, “How can you possible afford to own a house if your property taxes are 10%?” He said, “That’s what they are. They’re 10%.”
Well, they were 10%, but they were 10% and then he owned the house. I don’t think you ever own property in this country because if you don’t pay the taxes, the government just takes it away from you. I’ve ended up getting in title on a house, free and clear house, just by paying property taxes.
So if you drill down from that and you say you always have to pay someone or you lose the property, to pay the owner of record, the person who’s in title, can be a very, very efficient way to do business. I mean, think about this for a second. If you own real estate and you say, “Well, there’s great tax benefits.” Well, what are the tax benefits? Well, you can depreciate the property, right? You go over 27 and a half years or 40 years, straight line, but can you depreciate the whole property? No. You can’t depreciate the land.
What happens when you sell it and you have to recapture depreciation? Well, if you lease it, every dime that you pay is a total write off. It’s a rent expense and you don’t recapture anything. I’ve shared with you how you can get appreciation. You can certainly get cash flow. You can transfer most of the bundle of ownership rights through a lease that you can get through ownership and yet, you don’t transfer some of the liabilities.
Let’s face it. If you’ve got a bunch of properties and they’re free and clear, you’re walking around with a bull’s eye on your back because if someone stubs their toe on a property, in many cases, some attorney will take a lawsuit on contingency because you’ve got assets that are exposed, whereas if I’m a tenant and I have a good lease and my lease is well secured in the public records, usually with a deed of trust or with a deed of trust, that means I look like a lender. It’s a very simple procedure and since I’m creating the documents, when I’m the master tenant, my lease is obviously going to be very pro-tenant.
When I am the master tenant dealing with the occupant, it’s going to be very pro-landlord. So I can be Dr. Jekyll and Mr. Hyde. Let’s face it, for most of us, when we buy real estate and we go to a closing of some sort, we sign paperwork and we don’t get to create that paperwork. Someone else shoves it front of us, whether we’re getting a loan or whatever else. This is one of the only times in real estate that I know that you get to create all the paperwork.
David: That’s pretty unique.
Mike: Absolutely, yeah. Let’s talk about some issues that happen. I’ve bought some houses where the seller has seller financed it to me and I in turn turned it into a rental. We’ve had some challenges like the seller died a few years later and got caught up in an estate mess for a couple of years. We’ve had issues where we do a–I’m not a big fan of sub-to’s but we’ve done some sub-to’s and then we had a hailstorm and a bunch of drama with getting the insurance through the mortgage company to pay for stuff like that. Stuff happens to those sellers or they may be alive and fine, five years later they’re like, “I’m done with this. I want to sell it.”
So, in those instances, how do you–of course, your primary interest is to have this thing last forever, but how do you sync up and get on the same page with a seller or navigate through issues like some of those I just mentioned?
David: Well, we do get the owners to put us as an additional insured on the insurance. If I had some of those kinds of issues you mentioned, you can have a limited power of attorney to act as the owner in most cases. I use a stamp on all of my deposits that say, “Credited to the account of the within name payee, absence of endorsement guaranteed,” and I’ve had no problem whatsoever depositing checks. They do go into a trust account and my contract gives me the right to cash them. Yes, you need mortgage companies to sign off, but that’s a detail. You deal with that.
Fifty percent of the real estate in this country, it’s my understanding that about 50% is free and clear. So not everyone has debt in the first place. So you may be dealing with someone that doesn’t have debt. You’re dealing with all kinds of situations. You’re dealing with folks my age and above that are retired that can’t deal with stairs anymore and yes, their house is free and clear and yes, they went and bought a ranch or they moved into assisted living or something else, but they have this inconvenient house that has steps in it and it’s free and clear. There’s all kinds of opportunities and things you can do with that.
Mike: Sure. One other question, as an investor, I look back at the literally tens of thousands of sellers we’ve talk to. Historically we’re a cash buyer. We’ve bought hundreds of houses, but we’ve had to look at thousands to get probably 10,000 or more, I’m guessing, to get those hundred because we offer a deeply discounted offer of cash, take the house as is, the traditional discounted investor approach, but as I think about my rentals now, I have been the voice that’s told people for years you need to focus on cash flow. If you get appreciation, that’s just icing on top.
Now, with that said, the appreciation on my rental portfolio in the time I’ve been doing this has been massive. I’m in Dallas. Prices have gone up quite a bit. Most areas of the country–of course, it all comes down to when you bought, but as you know, you’ve been in this business for a long, long time, there’s ups and downs. But there’s been significant appreciation in most markets across the country over the long-term, right?
So, as I look back about that, it’s like I could have paid more for houses that I wanted to keep as rental because appreciation has been real. Principal paydown has been real like from my tenants and things like that. So, effectively, it allows you to do a deal that has low equity in it, potentially, because you’re able to mitigate some of your risks, as you’ve kind of discussed because the owner may still have some risk on their side and you benefit from appreciation and cash flow and principal paydown and all those things.
So this is a long-winded way to ask you, for guys like me, this seems like a vehicle to monetize a low equity deal that I historically would pass on.
David: Yeah. I think it definitely is. I think people for years have said, “Well, I need a deal.” No. You need to find a situation. You find a situation and then you have your toolbox full of real estate tools and you open the toolbox and you take out the right tool to deal with that specific situation.
David: So, if you’re marketing in the situation you’re talking about is “We’ll lose you less than you’ll lose with a vacant house,” or, “We’ll care take your house,” that’s an opportunity for you. But there’s so many different ways it can be done. I can give you example after example of people who have changed their occupation and done very well in this business. Let me give you a couple because I think that may be of interest to you. Is that okay?
Mike: Sure. Yeah. Absolutely.
David: There’s a couple of folks, John Kane and Lauren Brand, they’re in the Frisco area out in the mountains in Colorado. They will tell you–actually, you can probably find them on the internet–that they were living out of a little travel trailer and didn’t have any assets at all and they started master leasing resort property and subleasing and they’ve got $20,000 a month income coming in. They’re able to take off whenever they want. They go snowboarding when they feel like it and they’ve got the systems in place. It works great.
Matt Funk out of Tampa, Florida, he printed my manual for two years in a row and the second year he came to my class, he sold his printing company, started working out of his house while he was bringing up two young kids. He’s replaced his income, most of his wife’s income. She sells high-tech electronics. It just creates a great lifestyle.
One of my sons-in-law modeled his business after ours and he’s master leased a significant amount of properties that gives him the opportunity to teach all of his kids pretty much every sport known to man. He used to be a sportswriter. They’ve got a motor home. They travel around. They have a wonderful time. None of these people have outside employees. The Kanes obviously have people who can square away their short-term rentals.
But each one is so uniquely different. There’s an individual in Florida that heard me talk. He was a sales person of a condo complex that didn’t have a limitation as to how short an occupancy someone could rent the place for. So, he set up a rental pool where if you wanted to be in the rental pool, you master leased you property to him on a performance basis. He told me he made $140,000 between Christmas and Easter. I told him I’d never done that. There’s so many different examples.
Jan Leasure [SP] out of Monterey Bay, she leased five or six houses in Pebble Beach during a time when high-end multi-million dollar houses wouldn’t sell. She leased them while they were on the market on a month to month basis and just got agreement that she’d get 60 or 90 days’ notice to cancel her lease. She put some furniture in them and subleased them and made I think $60,000 in four to six months. I haven’t done that. Every deal is a different deal. There’s no one map to the gold mine.
But master leasing is a tremendous way to get your foot in the door. Then if you under promise and over-perform and create a rapport with the owner, who are they going to want to sell the property to if they’re not in the town anymore. It’s been a great way for me to acquire property. People say, “Why wouldn’t you lease option right up front?”
Well, my perception is that if you get a lease option, you’ve got more than a lease and the owner either wants to charge you something for that option or else they want to charge you inflated rent. I’d rather get a good, well-secured lease as the first bite of the apple and then create rapport, whittle and rock, so to speak, with the owner. When they trust you, then go back for the option or the sale at a later time. It works well.
There are times when you want to do the lease option right up front and those times would be when an owner would not lease it to you because they really want the property to go away. In that case, you might agree to lease option the property and you might appeal to their greed by offering them too high a price on the option, but a very low lease so you generate more cash flow.
When the time comes that you must exercise your option, you either renegotiate it or throw it away. An option is a right without any offsetting liability. So there’s no requirement that you exercise it or you can renew your lease. So there’s plenty of things you can do in this business and it’s not just Tilney’s way of putting a lease together. It’s what does an owner need, give them what they need, and take everything else. If a lease is the right tool in the toolbox, boy, it’s a great way to get started and it produces tremendous cash flow.
Mike: Yeah. David, for guys like me, the appeal that I see is a byproduct of what I’m already doing. I’m advertising for motivated sellers to buy at cash prices, which truthfully, we close one out of 20 to 30 leads, real leads. There’s a lot of byproduct, essentially. But that’s my model. What are other models? I don’t think you are actively spending a lot of money on advertising to try to buy cash deals, but you’re still finding deals like this. So how do you market to find those deals? Can you kind of give a few minutes on acquisition, like you find prospects, I guess?
David: Yeah. The first thing I need to tell you is I’m semi-retired. I spend eight months in Naples, Florida and four months in Colorado Springs and I have no employees and I run my real estate portfolio from wherever I am. So I’m not out actively beating the bushes anymore. I’m now passing the baton down to the next generation and showing other people how to do this. I managed properties from 1981 to October of ’96 and I got pretty well known in my community that we had a pretty good success rate. The only eviction I ever did was in 1981 and it happen to be a urologist out of a higher end house.
We tend to go from a tenant with a tenant with no down time. We do our major capital investment while the tenants are occupied in many cases. So people found me from word of mouth and they came to me and they thought they were hiring me to manage their properties. I would talk a lot–I had to shut up about what we did and I had to ask them about their situation and their needs. When I discovered their situation and their needs, I would then say, “Well, you can’t hire me. I’m not for sale. But we might be able to do business.”
Then we’d talk about, “Do you want to take the risk and you get the reward?” which would mean I’d lease their property from them on a performance basis and they’d pay the various expenses a la carte or would they like me to take risk and I’d get the reward, in which I’d guarantee the rent. I’d guarantee the expenses up to some kind of a stop loss and I guarantee–I’d just take care of the property.
Mike: So you were kind of an alternative to that, alternative to traditional property . . .
David: I’m sorry. Go ahead.
Mike: You’re an alternative to traditional paper management, I see.
David: That’s the way I really got started. People really got to know me based on word of mouth, largely. Now, I think there’s so many ways to do this. Now, I’ve seen so many people do it different ways. We have done some. Just knocking on doors, it’s amazing what you can find out knocking on doors. One of the guys that I think you ought to interview or consider interviewing is a guy by the name of Bill Cook, who’s just spectacular. I’ve spent three days knocking on doors with him. When you knock on doors, they can listed or not listed. They can be for sale or not for sale, all kinds of opportunities come out. There’s no marketing expense.
We found properties that we put under contract the very first day we went out. If you’re not licensed, you can go across the sign, a sign that is for sale and you’d knock on the door, “I can’t buy it, but I’d like to lease it.” Now, you tell me if the person can’t sell the house if you did that to a few in a neighborhood, darn it, you’re going to have good opportunities. If you are licensed, you may not want to cross the sign, but you can go to every house in the neighborhood that doesn’t have a for sale sign and say, “I’m looking for buying a house in this neighborhood. What can you tell me? Who do you know that may have a situation that I might be able to help?” There’s just lots of ways.
There’s a guy, David Pond in Fort Collins. He got a list from a title company of where property tax notices were sent out of town. He’d drive around and he’d take a picture of all the properties and he turned it into a postcard. Postcards are very effective because any way they come out of your mailbox, you’ve got to read that side. You give them a post card saying, “I guess you didn’t know what was happening. If I can help, give me a call.” He picked up all kinds of stuff.
David: There’s lots of ways to find the product. I just didn’t beat the bushes as hard as I should because I already had, let’s say, 100 houses and I really didn’t want any employees and my system worked just fine.
Mike: Yeah. That’s awesome. Coincidentally, I just found out about your event when we started the show. Maybe tell us real fast about your event and how people can learn more. I know it’s coming up at the end of September.
David: Yeah. Just Google my name or go to davidtilney.com. And Tilney is spelled T-I-L-N as in Nancy, E-Y. So davidtilney.com.
David: I do two seminars. I typically do them just once a year. We actually did them in Tampa in April. We actually shut it down. We sold out for the first time in our history. We’ve done the seminars I think for–I think this is the 27th year. The first two days is hassle-free property management and that’s a course designed to teach you how to get people to do what you want them to do and have them enjoy it in the process.
I will not let anyone take a master leasing seminar, which is the third day, unless they first have taken that class. Why? Because you can’t master lease before your first know how to manage and if you do, you’ll just hurt people. Your contracts will be messed up and it will really be a problem. So, those are the two seminars we have.
After we finished the Tampa seminar, I received all kinds of emails and calls saying, “We missed the seminar. When are you doing it again?” Typically, I don’t know when I’m going to do it again, but I was planning on doing it fall quarter of 2018, somewhere on the west coast. Bottom line is we agreed to do it for a very small group in Colorado Springs because I could sleep in my own bed and it was convenient.
Well, we outgrew the location very quickly. So we have room. I did not anticipate that people would fly into that seminar. We have people coming from California and Florida and other points. We are doing it this year, September 22nd through the 24th.
Mike: Okay. So davidtilney.com. We’ll add a link for folks down there to find you there. I’ll let you know if I can make it myself. I do have a conflict right on that Saturday, but it sounds fascinating. I look at it as a way to maybe do a lot more. If there’s one thing that I know, this market has been up and down.
We’ve done well over time, but for me, the rental portfolio, that was my ultimate exist strategy. That’s our retirement plan. We’ve been aggressively focused on paying it down. So it cash flows, but not nearly as well when it’s paid off because we’re aggressively paying down debt. But I often think about why isn’t my portfolio 10x the size of what it is. I could have done that over time with some creative solutions and I see this is one of those.
David: Yeah. Just my personal bias on that–because when I started, I wanted to own 10% of 200 houses and I just felt if I did what Peter Fortunato would say, which was breathe oxygen, over time, they’d be free and clear and that would be financial freedom. I discovered that’s not financial freedom. That’s financial servitude. I’d much rather have a much smaller number of properties free and clear.
When we moved to Florida going on 17 years ago, we exchanged a bunch of properties. We sold two and bought one and upgraded and had less. I felt really less was more. I no longer want to own anywhere near 200 properties. I took my wife and kids around the world one summer. I couldn’t do that if I had 200 properties.
David: So I would question whether you need–you said you had 40. What about sell half and pay off half and be free clear and that’s a pretty good income stream?
Mike: Sure. Yeah. Well, David, thanks for being with us. For folks that didn’t hear us in the past minute or two, we’re going to give you a link for davidtilney.com to learn more about David and his upcoming event if you’re interested. It’s coming up here pretty quickly. But David, appreciate you being with us today.
David: Thanks, Mike, I enjoyed it.
Mike: Awesome. Everybody, thanks for joining us. This is episode number 369 of the FlipNerd Expert Interview Show. We appreciate you. If you don’t mind, over hundreds of episodes, I’ve probably only asked us about ten times. But if you like our show here, we’ve been doing this for a long time, and I get jazzed up about getting positive reviews and getting some feedback on the show. So do one of a couple things. Send us a message to [email protected] just to tell us if you like the show, give us some feedback. We’ll get that directly.
What I’d love even better is if you went on iTunes or Stitcher Radio or any of those places and left us a review of the show. We’d appreciate that. It actually helps us show up higher in the rankings and makes me feel better and all that stuff. We appreciate it and appreciate hundreds of guests that have been on like David today. So, David, one more time, thanks again, my friend. I really appreciate it.
David: Thanks, Mike.
Mike: All right. Everybody have a great day. We’ll see you on another upcoming episode. Bye, bye.
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