Real Estate Cash Flow

Mike: [00:00:00] Welcome to flipnerd, live discussions with and training from America’s very best real estate investing professionals. We meet live twice a month to discuss what’s working now and get your questions answered. We broadcast live inside of a private online community, which you can join for free by visiting flip nerd.com/live.

Let’s start today’s show. Hey everybody. Welcome to the show today. We’re really excited to have you join us here. And really excited to have my buddy, uh, Rob Swanson. I’m with us, Rob, how are you? My friend.

Rob: I’m doing fantastic. What’s up Mike?

Mike: Um, just, uh, happy to be here with you. I’m the best thing about the podcast doing this for like eight and a half years now, different varieties and different flavors of the podcast is I get to hang out with people that I really respect and, and good friends and smart people.

And we get to share your knowledge with, with whoever’s joining us today. So glad you. Glad to be here. Be awesome. Yeah. Yeah. So, Hey, we’re gonna talk about some really cool things today for, for those of you that don’t know, Rob, I’m gonna ask him to tell us a little bit about his background in just a moment.

[00:01:00] Um, but he’s, he’s really a legend in the industry and he’s just a smart guy. He’s the type of guy that when he shares knowledge, people listen including me and, you know, lots of other people that many of you might even look up to that we all look up to Rob, cuz he’s, uh, got some amazing life experiences and really a lot of wisdom.

In terms of his real estate investing, uh, career. So today we’re gonna talk about a lot of things, really just, you know, this is all ultimately about freedom, right? It’s like building up a business that allows us to live a better life for our families to help support our teams and our communities and things like that.

And we’re gonna be talking a lot about, you know, what’s working now, uh, what’s going on in the industry. We’re gonna talk a lot about passive income and some ability. Um, generate recurring revenue for a lot of you that are going into a new market cycle. You might not really have, uh, additional, uh, you know, other streams of revenue that can feed you.

You might have, if you’re just a wholesaler, like you might be a little more nervous right now than you are. If you’re a wholesaler and you also have a hundred rental properties, cuz you have another stream of income, that’s actually pretty stable right now. So. Those are the types of things we’re gonna talk about today.[00:02:00]

This is meant to be interactive. So if you would, uh, if you type some questions in, if you ask a good one, uh we’ll, we’ll try to bring it up here. So, and if you ask a bad one, maybe we’ll skip it. So ask good questions basically. Um, but, uh, Rob, why don’t you tell us a little bit about your kind of background and, you know, kind of how you got up to where you are today?

Rob: Yeah. Happy to Mike I’ll. Uh, I’ll give you the abbreviated, uh, 22 year, uh, history. Um, I got into it like most people that, uh, Got into this, uh, business. Um, I attended a, a late night seminar at the Denver west Marriott, um, back, uh, Tuesday or Wednesday night, you know, back in the early well, early 2000 now, late nineties.

So somewhere in the late nineties and, uh, you know, the guy on stage had a lot of smart things to say, and I wasn’t buy. I was just there to get inform. But I’m like, man, the more he talked, the more I felt like I could do that. And so I was a buyer. I, I was a product buyer. I went through coaching. I, I spent, uh, you know, [00:03:00] $22,000 in, in the year, 2000, uh, to enroll in a coaching program.

Mike: That’s like, uh, a hundred thousand in today’s money. Right.

Rob: yeah, there’s a lot of money. And

Mike: who, uh, can you say who that.

Rob: Uh, yeah, it was through, uh, Russ, Whitney and their organization back in the day. Okay. Um, and you know, here’s what I, here’s what I say. Thank thank God for really good salesman because I wasn’t in there to buy, but.

I didn’t realize they were selling at the time, but because they did it in a way that they were pros, I felt like number one, I could do it. Number two, it made sense to me, number three, I wanted it and, and I bought, yeah. And, uh, you know, then here’s the difference I bought. And then I took massive action.

Right. And so sure I got into the business. I built up, uh, a rental portfolio. 40 some houses in the first 18 months of my real estate investing career. And I did that with everything from traditional [00:04:00] financing to owner financing, to, uh, sandwich, lease options, to other creative tools, to cash transactions.

I had, you know, trial by fire and, and it was very quick and I learned a lot really fast. I learned, I made some mistakes. I had some win. and, uh, you know, that brought me kind of up through, into the, the crash of 2008 in, in 2008, as the financial markets were collapsing. Um, I put my first large real estate fund together.

I had put, I had done millions in private money prior to that, but then I put a large fund together to take advantage of, of the crash. And I started to aggressively buy as the market was going down, I was buying aggress. And the thing that I learned about that was as long as I had my rules of what was my buy box and did I understand why I was buying and where did I believe the bottom was?

And there was a, there was a formula, an approach that I used to estimate [00:05:00] the bottom and I, and I approached it as a value investor, which is what we as real estate investors mostly do.

Um,[00:06:00]

I felt really safe and, and really, uh, low risk. That that worked out really, really good. Um, we ran that fund for about four years. Uh, and then, uh, you know, I also call that Mike, my, my 30 million mistake and today looking at it, it’s probably a 55 million mistake. Um, I should have bought and held every house that.

We bought. Yeah. Uh, we bought and flipped. Um, we didn’t buy and hold. And a big lesson for, for folks here is you build wealth in real estate, uh, by buying and holding real estate. Uh, you, you make a lot of money by buying and flipping real estate, but you don’t build wealth. Right. And, and so, you [00:07:00] know, looking back fast forward, um, I got into the software business.

And, uh, you know, I built software for my own business. I built software then that I sold to others. And then I acquired FreedomSoft in 2015 and rolled that into my software, uh, business and, and built it into what it is today. So today I continue to buy real estate. Uh, I, I buy mostly and hold. Uh, I’m only gonna make major mistakes once in my life.

And so I buy and hold. I love passive income and. I, I like where we sit in the market today, despite some of the tremors in the conversations

Mike: out there. Yeah. There’s opportunity. We, we were talking about this. We had a town hall for one of our companies today had like 40 people on the, on the call and we were, you know, some of them are it’s for a service company.

So some of they’re not all real estate investors or most of ’em aren’t right. They deal out with, but we were saying like, who’s hearing about a bunch of rumblings in. You know, traditional media that the market’s collapsing and all [00:08:00] this stuff, a bunch of people raise their hand. We’re like, okay, well, let us tell you like how we’re different than the retail market on the investor side and how a down market is actually good for real estate investors.

Right. And so that’s right. You know, guys like you and me have been, you know, I don’t wish ill will on anybody, but we’ve been secretly leading for a down market for a while because we know it’s like black Friday, right. That that’s that’s when things go on. That’s right.

Rob: And you know, everybody has a choice, right?

If anybody that’s watching this right now, right. Mike, you took the, the time, energy and effort to put this together, reach out to me, have back and forth, like figure out, Hey, what time works and, and put it all together and you do it because it, it helps us, like when we teach. It makes us think when we talk about what’s going on in the market, especially on a live show like this, we have to think about what are, what are we gonna say?

And let’s, let’s try not to look stupid, right? Let’s say something intelligent. And for everybody listening right now and seeing this whether live or [00:09:00] recorded later, Here’s one of the key things. You have a choice right now to say, okay, there is a shift in the market because that’s what real estate markets do.

The, the, the most consistent thing in real estate investing is change, right? So here we’re facing a new change in the market. And so you have a choice to either be on the winning, receiving side of that change, or you have a choice to be on the losing. Giving side of, of that change. And I know I’m, I’m gonna choose to be on the winning side and to do that, I gotta have a little knowledge.

I gotta know how to go about it and what to do.

Mike: Yeah. Well, I know you’re gonna share a lot of good stuff today. It’s interesting to me, when I think back about my, you know, I think for both of us, we started as real estate investors. And as you go on you bolt on a rental business, then you start doing some coaching.

You and I both have service businesses. Now I have the mastermind, all those things, right? Yep. But. When I look back back to your comment on, I wish I had kept more, cuz I feel the same way. I flipped hundreds of houses that I didn’t [00:10:00] keep. I wish I had kept them now. And we have, you know, we have rentals that we bought for like 20 grand and now they’re appraised at like 180.

It’s like, oh my God, like, right. Just imagine if we had all those, you know, Um, but that’s kind of how hindsight works. Right? You look back and you say, well, what will I do differently next time? I think that’s some of the benefit that people that are watching today can get is like, if they haven’t been through that cycle, like learn from guys like us that have been through a cycle before, because you can shut, you can kind of shorten your learning curve.

Right. So exactly for me, you know, when I look back now, it’s like, okay, I needed active income to pay for marketing and my staff and my over it. So I couldn’t keep ’em. All right. Or so I thought, I mean, there are ways you can do that now by one company effectively selling it to another, right. And kinda have a acquisitions company and then a rental company.

And, you know, if you, the way that we did it is we just took the equity off the table and said, Hey, I’m just gonna tuck this away. And I’m gonna just. Loss I had for marketing or whatever right now, but you don’t have to do it that way. Right. That’s right. Um, and then as you move on, just like me, we have service business, other things that provide active income right [00:11:00] now.

So we’re looking for ways to take that money and plow it somewhere else, right? Yeah. For a lot of us as real estate. And so for folks that are listening right now, maybe let’s talk about that dynamic of. You have to have some income right now because you have to pay the bills. You have to cover marketing costs and overhead costs and all those things.

But if you really wanna keep them all, like here’s a way to orchestrate that. Um, and we’ll also talk, let’s talk a little bit about the case for scale, right? If you’re doing a house a month, not taking anything away from anybody, it’s hard to keep it, but if you’re doing four, maybe you could sell two, a keep two type thing.

Rob: That’s right. Yeah. I, I mean, people ask me all the time, you know, what, what should I focus on? Should I, should I quit my job? Should I go real estate full time? Should I do X, Y, and Z. And, and I always, I always break it down into those two things that you just alluded to Mike, and that is, you know, and even my kids that are now grown adults, even, even my kids, I tell ’em the same thing.

Figure out how to have a high. Figure out how to have a high paying, active [00:12:00] income that is that, that you can tap into, to generate cash right now, at some point in your evolution, you may get to the point where the passive cash flow is enough to generate the cash. And that starts to perpetually build sure.

The portfolio, but I always tell people like, what’s your, what’s your high income earning skill. That is gonna generate cash based on effort and knowledge that you put in today. And then with that, how do you plow it into real estate and how do you put it into passive cash flow? Yeah.

Mike: Yeah. Um, so, uh, by the way, for those that are listening right now, if you could just maybe just chat in, we wanna make sure you’re out there and get some good knowledge here.

Just let us know where you’re from. And if you have any questions or any, uh, anything you wanna share. Um, also if you’re, if you’re not. If you’re listening to the recording of this, make sure that you register for our future live shows. We, I basically do these every, uh, two weeks, twice a [00:13:00] month and have amazing guests on and that’s just gonna continue and you can register by going to flipper.com/live.

That kind of gets you on the list. So we’ll notify you. Uh, when we’re going live again. So let’s talk about why is passive income important? Anyway, I think a lot of folks that get into this, you know, a common scenario would be somebody had a, a regular J B, right. They didn’t really like it. Maybe didn’t even make a lot of money or maybe they did.

Um, and they get into this and they quickly make more money than they ever have before. And it seems like just constantly working hard to make today. Um, and I think it takes wisdom. It takes maybe some health issues, which I know you’ve had in the past itself to really understand, like how can I work today and earn money on that forever.

Right. Instead of I have to work today to make money. As soon as I make that money, I’m never gonna make another dime off that property. So I have to just be in this hamster wheel of starting over, starting over, starting over. So talk about maybe just, I know, I know, I know your story, cuz we’re good friends.

You don’t have to share the whole story, but. This kind of revelation of [00:14:00] the importance of passive or recurring

Rob: revenue. Yeah. Yeah. It’s huge. Um, and, and I won’t tell the whole story, but I’ll just tell people this. I was in. I was in a hundred mile ultramarathon shape. I was in the best shape of my life, uh, about a decade ago.

And I woke up one day and I just didn’t feel very good. And I turns out, ended up, I ended up with a sta infection internally inside of my. Inside. And it almost killed me in 25, uh, 2015 and 2016. It, it was pretty bad and it took a lot of years to recover and get back to a place where I feel good and healthy and strong again.

Um, but I ultimately did, but that made me an absentee business owner for about three to three and a half years. And so. If, if my income would’ve been reliant on my activity, um, when I was really sick, my brain was foggy. I didn’t function well. I, I was in pain all the time. I was, [00:15:00] I was really sick, so I was kind of out.

Fortunately, what I had done is I had recognized this just, you know, it, it’s the stuff you think about. At at, at some point, I said, you know, I’ve gotta make sure that I get to my freedom number. Right. And freedom number is, you know, what’s your outgoing, a monthly basis and what income do I need to, to cover it?

And that was my goal. I, I said, I want to get to the point where. I’m I’m covered and I’m good. And so those three and a half years of me literally being an absentee business owner, like not doing anything, my family didn’t suffer. Um, my financial situation didn’t suffer. Um, I did just fine. I did. Okay.

Because I had set up passive income. And so, you know, my story, I think, resonates with people when I tell it, because I was in the best shape of my life to three months later, I thought I was dying of cancer. I didn’t know what it was and, uh, turned out to [00:16:00] figure it out. And, and fortunately, you know, by the, by the grace of God, I had put the, the things in.

Ahead of time and, uh, passive income basically saved me.

Mike: Yeah, that’s great. And I know I, you, I’m guessing you probably feel like, like this too. Like it wasn’t that long ago I was the young guy in the room. I was like the young whipper snapper hustling, working hard. And now I’m like the old guy that everybody’s like asking questions to or whatever.

So I, I feel like, you know, when I was young, my parents, oh, I used to walk barefoot in the snow to school both ways or whatever, you know, like, we’re that guy now, we’re the, we’re that kind of guy now. But totally. Um, I, I, I just, there’s so many things that you share there that I wish I had known ear early on.

Right. And I, yes. I feel like, you know, the other thing. Um, and I know like you you’re, you’re not a big debt guy. And so you have a lot of equity too. Right? So we have, you know, we have millions of dollars in equity in our rentals that on some hand it’s like, like you and I have talked about this, should I just refi the debt’s the debt’s so cheap right now?

Of course, when it was back like three and a half, 4%. And I didn’t, and I have, you know, [00:17:00] millions of dollars trapped in equity, I say trapped, but it’s also on some level in insurance policy for our families too. Right. I mean, right. We’re getting up to an age. I. You know, I won’t, we won’t talk about ages here, but you start to see friends or people that, you know, or whatever that have like major health issues.

Just like, just like you explained there. Right. They just seem more prevalent cuz we’re getting a little bit older and it’s like, you know, I, you know, God forbid something ever happens to me. I wanna live forever. Uh, as long as I feel good, but um, You know, from my family’s standpoint, we have a legacy there that can be tapped into that.

Doesn’t require us spending another dollar on marketing, having an office, like having anything like there’s an insurance policy that they could tap into if they ever needed to.

Rob: Right. Yeah. Well, and, and the two things go hand in hand, right? So you, you, you need passive income because you wanna set yourself and your family and, and your future up to disassociate.

The work and the time you put in from your income, that’s that’s number one. That’s the, the freedom thing everybody talks about. That’s passive income, [00:18:00] but there’s another reason that right now, figuring passive income. makes a lot of sense. And that’s just where we are in the economic cycle. Right? If, if you look back and, you know, I’m, I’m not the, the sharpest, uh, knife in the drawer, but I’ve spent a lot of time studying guys and gals that I think are a lot smarter than me and piecing my own.

Economic and investment thesis together to say, okay, where do I think we are? You know, if I look back historically in the crash of 73, 74 and the crash of 90, 91 and the crash of 2008, the great recession and. You know, everybody remembers the, the crash of 2008 for the most part. Um, a lot, some of our audience that we’re now talking to, uh, Mike was, you know, in elementary school when the, when 2008 happened and now they’re in their, in their twenties, early twenties.

And they’re starting to think about this stuff. Well, if you look historically [00:19:00] back and. Go outside of the, the housing crashes of the United States and look at the currency cycles of countries like Greece and countries like Venice, uh, Venezuela is not exactly as a great, uh, example because of their political environment, but Argentina and Japan.

The last three crashes were predominantly short term debt crashes, right. And today, and we’re seeing, we’re seeing it, uh, we’re seeing the next crash is gonna be a currency crash. Hmm. And thi this is my opinion. And I think I’m right, because. Uh, there, there are historically three things that the fed does to control monetary policy, right?

They, they adjust interest rates, they print money and they do stimulus directly to the people. Well, they only do stimulus directly to the people historically that last third tool when. The other two are outta [00:20:00] juice. So in 2007, it took 14 months for interest rates to drop to near zero from 2007 to December-ish of 2008 in 2020, it took 30 days.

So that interest rate juice was already gone. When they drop interest rates, they stimulate the economy, right? Well, they had no more juice. They couldn’t drop interest rates or they could drop them to negative. Uh, That doesn’t work for very long. Right? Right. So you get down to zero, they they’re outta juice and they’ve been printing trillions of dollars.

Mike, 80% of all of the dollars in existence in the entire world have been printed in the last 24 months. That’s insane. 80% were printed in the last 24 months. That means they’re out of juice, they’re doing everything they can at such an accelerated pace to try to prevent the [00:21:00] collapse. And what did we see last year?

We saw stimulus, uh, directly to the people and Hey, here’s your. Here’s your check number one, check number two, check number three, $600 checks. And then, oh yeah, by the way, next year gas is going up 30%. So that $600 really doesn’t help. Yeah. It doesn’t help you at all. Yeah. So, you know, I, I look at where are we headed next?

And, and I see that the currency is going to be the economic driver of the next crash. So how does passive income play into that? You have passive income when you own assets or. Own the control of income streams off of assets. Yep. The, the key is own assets. And an asset is you can own the real estate. An asset is you can own the income stream off of the asset.

So if there’s two things I would tell people to learn it’s number one. Okay. How do we go find these assets to acquire and what are the strategies to, to [00:22:00] buy them at a discount and how do I fund it, fund them and finance them. But, but most importantly, how do I structure. The ownership of, of cash flow streams and when the crash occurs, and this is historically true, uh, this is not theoretical.

Uh, Rob, this is historically true. The people that owned assets and owned income streams tied to assets through a crash, whether it be a short term debt crash, or a currency crash came out the other side. Wealthy. Right. So there’s gonna be the masses of people are going to be hurt because the masses of people are not gonna pay attention.

They’re not gonna listen. They’re not gonna try to set themselves up for success. A small segment of the population is gonna pay attention, listen, and, and massive wealth is gonna be created.

Mike: Yeah. Yep. Um, so Rob, let’s talk a little bit about [00:23:00] like how to analyze. Investment deals, cashflow deals a little bit differently because you know, there’s gonna be tens of thousands of people listening to this show.

Ultimately, whether it’s live or prerecord, especially when we syndicate and put things out there. Um, you know, a lot of people know how to analyze the deal for the sake of wholesaling it for the sake of rehabbing it. Or those are the, some of the easy ways I think historically, you know, on, on one level, most of the single family houses I bought, I bought them.

As if I could wholesale them. So we bought them super deep, but we just chose to keep it, which was a good thing. But I think when you’re really looking to stack up deals, you don’t necessarily have to buy you. Don’t of course, everybody wants to buy deep, but you don’t have to buy that deep. So that’s right.

Can you share some thoughts and some wisdom on how you might analyze, uh, rental properties or owner finance type deals, a couple of maybe creative options, like a little bit differently than you would if you’re gonna wholesale it or

Rob: rehab it? Yeah. Well, I think, uh, A a wholesaler needs to number one, get really good at evaluating a rental property [00:24:00] because you know, he’s evaluating for the end buyer, the, the landlord that’s ultimately gonna.

You know, repair and, and rent the property out. Um, here here’s the, here’s the way I do it. I, to me, everything starts with building out what I call the buy box. And this is, this is how you get really clear on what your goals and objectives are. So build out your buy box. And what that means to me is my buy box in residential real estate is I wanna buy.

Three bedroom one bath 900 to 1200 square feet. Uh, brick ranch houses in sea neighborhoods that need less than $20,000 in repairs. That’s generally my buy box. Now, then I ask the second question. Once I’ve defined the buy box. And, you know, why does, why does that look like my buy box and how much [00:25:00] deviation do I go on either side?

Uh, Hey, if, if three bedroom one bath is your target. Uh, do you buy two bedrooms? Yes, I do. Uh, if three bedroom, one bath is your target. Do you buy. Uh, three bedroom, two baths. Yes, I do. Uh, it all adjusts my price because price cures, everything. Right? And so once you define your, your buy box and the type of asset that is going to help you get to your freedom number, then you start to look at it and you say, okay, well, how am I going to.

How am I gonna get there? What do I have to do? Where does that type of, of inventory exist? So the second thing is you pick your, your location, your geography, and you know, many people do it in their own backyard. Uh, if, if I was an investor in Denver today trying to build my freedom number off of rentals in Denver, I would be, [00:26:00] I would be very disappointed.

I would be, I would be frustrated and I would think, God, this doesn’t work. Uh, contrast that with building in the rust belt, the Bible belt, you know, the middle of the United States, uh, east of the Mississippi, uh, west of the Appalachian mountains and there’s opportunity to build, uh, passive cash flow portfolios.

Big time. So number two, pick your geography. Number three, ask this one question. How do you want your money to. Okay. And the reason I say ask that question is because most people start and come from the lens of the 401k investment world. Right. And, you know, mom and dad said, get a good job, Johnny, uh, you know, find a company that’ll match your 401k, max it out.

And in 40 years, if you haven’t died by then you’ll be rich. Right. I think that’s a terrible decision, but it’s a framework that most people have to say, what [00:27:00] is an expected return that is reasonable. And so I start to think then, okay, well, it depends on the neighborhood you are in. So if you say I wanna make 10% on my money.

Okay. I’m comfortable with 10% on my money or 8% on my money, or I want 12% on my money. And look, there are strategies that Mike, you and I could both show people how you can consistently get over 20% on their money. 30%, 50% on your money. The question is what’s the strategy? How much capital can you, can you do that with right?

It’s easy to get 50% if you’re investing $8,000, right? That’s not, that’s not very hard. It’s not, it’s hard, harder to. It’s harder to scale. It’s harder to get 50% if you’re investing two and a half million dollars, right. Or 10 million or two and a half billion dollars. Right. And so you start to ask, how do you want your money to perform and what that.

Equates to is what [00:28:00] I think about as risk. So then I look at the geographies inside of the geography, the neighborhoods, where would I want to buy that three bedroom, one bath house. And, you know, I break neighborhoods down from, uh, a neighborhoods to war zones, ass BS, CS and DS, uh, a B CS. And Fs based or BS and Fs, right.

And F is your war zone. And so your, a neighborhood is your retail neighborhood, right? If you’ve got millions of dollars in capital to deploy and most value investors like us are, are probably gonna end up buying. If we bought cash flow in those neighborhoods in a six to 8% cash flow range, right? Our money is gonna perform at six to 8%.

If we paid cash in those neighborhoods, if I get into a B neighborhood, it’s probably in the eight to 10% range. If I get into a C neighborhood it’s 10 to 12%. If I get into a D neighborhood it’s [00:29:00] 12 plus, and I’d usually probably say 14 to 15 plus, and then if I get into a war zone, I usually don’t wanna be there.

Right, right. And so I start to think about how do I want my money to perform, because that helps me pick the type of neighborhood that I want to invest in. And what I’ve told people for years as Microsoft Excel, uh, is the biggest liar in the world. Right. Uh, and that is because everybody puts, excuse me, idealistic numbers in, and they don’t necessarily.

put accurate numbers in. Right. Right. And

Mike: assumptions are 5% maintenance costs, 10% vacancy.

Rob: Right, right. exactly, exactly. And so when you, when you get, once you get to a point of picking the neighborhoods that, that, that question of how do you want your money to perform? Is. Is a question of [00:30:00] performance and risk adjustment.

So if I’ve got millions of dollars that I want to put in and I just wanna generate cash flow and I wanna do it in low risk, man, I’m gonna go buy in an, a minus to B plus neighborhood, uh, six to 8% cash flow and six to 8% cash flow on millions of dollars is meaningful. Right? It, it does something for someone’s life.

If I’m willing to take a little bit more risk. A little bit more effort, a little bit more oversight management, tenant risk. Oftentimes I’ll go into that, you know, B minus C neighborhood, and then I’m gonna say, okay, I want my money to perform at least 10%, maybe, maybe 10 to 12%. because now that’s, that starts to be meaningful, to adjust against the, the tenant turn and the various things that happen in that type of a neighborhood.

Right. I go into lower neighborhoods. I better be an active landlord. I have to be, I have [00:31:00] to not outsource my management. I’ve gotta be an active neighborhood, uh, an active landlord. If I’m gonna get into a C minus D. And lower type neighborhoods. And so that, that’s how I think about like picking your, your geography or your buy box first, your geography, second, um, answering that question of how do I want my money to perform then picking the specific neighborhoods where you can get that performance.

And then I just start to run the math and the math. Is pretty simple, Mike, and, and I’ll just walk somebody through it real quick. And it all starts with, with the rents and here, the way I do it, I, I can do it on an iPhone calculator really, really fast. And if I just say that I’m in an area, I’m gonna call it a C plus to B B minus neighborhood that rents at $900 a month.

And I’m gonna take $900 a month and I’m gonna [00:32:00] multiply that. Point seven or 70%. What that’s doing is that’s just taking 30% operating costs off the top, right. That just takes it off the top. It’s Tim V taxes, insurance maintenance management vacancy takes 30% off the top. So I’ve got net cash flow of $630 a month before debt service.

All right. Okay. Now I’m gonna take that six 30 times, 12 months. So that means. If I have no debt, this house is gonna put $7,560 into Rob’s hip pocket national bank every single year. Yep. Okay. Now, if I’m in a, a sea neighborhood and I want my money to perform at say 12%, I’m gonna divide that by 0.12. So $63,000.

So I can be all [00:33:00] in on this house. Purchase price, closing costs, holding costs, uh, and repair costs. I can be all in at $63,000. So in my buy box, let’s say that I maxed out my repair estimate, you know, repair costs on this house. I wanna be less than 20. So let’s say that I found a house meets my buy box, meets my geographies in that sea neighborhood, which means I wanna make 12% on my money and it rents for $900 a month and it needs $20,000 in repairs.

I’m gonna subtract $20,000 from this, and I won’t pay more than $43,000 for that house. Cause 43 plus 20. Gets me all in at $63,000. That’s how I analyze every real estate deal. So I always start with Mike, what are [00:34:00] the rents? What is the neighborhood grade that tells me how I’m gonna want my money to perform?

And number three, what are the repair costs? If I know those three things, I can evaluate any cash flow real estate. In existence really simple.

Mike: And that does a cash buy. So let’s, we we’ll skip over the financing part and talk about you. I mean, do you use a lot of creative finance, a lot of creative deal structuring stuff you do sub twos and things like that, or,

Rob: you know, I don’t do a lot of sub two, but.

Uh, I’ve done. I’ve done a lot of them in the past. Um, I, I’ve not doing them actively today. So th this is a cash transaction that got us down to remember net $630 a month. Right? So out of that net $630 a month, here’s the question that you then ask yourself, you, you now know how much you can. You now know what you’re gonna repair it for?

The question is out of this [00:35:00] $630 a month, how much do you wanna put in your pocket? Because this, these are net numbers, right? Tim V’s already gone. And that 30% is just an estimate. Sure. Uh, in, in some cities it’s higher, some cities it’s lower, some real estate investors operate better than others. So it’s an estimate, but let’s say you wanna put no less than $250 a month cash flow in your pocket, two 50.

So you. Six 30 minus two 50, that leaves you with $380 to service debt. So if, if you’re taking over a sub two payment, if you’re TA, if you’re creating owner financing, if you’re borrowing private lender funds to do this deal, uh, how however you’re getting the money, you can pay that money $380 a month. and pocket two 50 for yourself.

Yeah. Gotcha. So that’s, that’s [00:36:00] how I, that’s how I look at it. And if you follow that process, figuring out how much can I borrow and how much can I pay becomes really easy. Let’s say, let’s say, you’re gonna, let’s say Rob is gonna fund you on this deal. Okay. And you come to me and you say, Hey, I’d like to borrow my purchase price, plus my repairs.

Okay. Because the after repaired value, which we didn’t talk about of this house, once it’s fixed up is $90,000. So Rob, would you lend me $63,000 to do this deal? Well, how am I gonna figure that out? I’m gonna take the $380 that you can pay me every month and I’m gonna multiply it by. so you’re gonna pay me $4,560 a year.

And if I lent you $63,000, [00:37:00] that would be a 7.2% return on my money. Right. That doesn’t get me too excited. Right. Right. So you’ve gotta that. So you’ve gotta look at it from that perspective and say, well, what would get you excited, Rob? Well, Maybe if I was making 9% on this deal with you doing all the work.

And so you can run your math back and say, well, if I give him 9%, I’m, I’m only gonna make $208 a month cash flow. Am I willing to do that?

Mike: That’s how you, yeah. Everybody individually has to make those decisions, right. Whoever you’re working with, right. Just like if you’re gonna wholesale it, somebody to decide whether they want to pay your price.

If you’re a lender, Am I willing to lend at this rate. Right. So everybody’s different, but there, but you’re not far off from what reasonable expectations of a reasonable person are. Right?

Rob: Yeah. And, and, and the reality is I just, I just said, you know, that doesn’t get Rob excited. Well, right. Rob is, Rob is an anomaly.

Rob knows how to go get 12, [00:38:00] 15, 18, 20% on his money. And so I can tell you, um, I’ve got a significant portfolio that’s built with private money that the most I pay is seven. Like the most I pay. So the ceiling now Rob said seven and a half percent. Doesn’t get him too excited. And yet I talk to countless people out there who are ecstatic by 7% for, for a couple reasons.

Number one, they, they believe in real estate, their money’s secured by real estate and their money is covered by an insurance policy. Right? Like those things right there. Take somebody out of the stock market and put them into real estate at six, 6.5, 7% all day long.

Mike: Yeah. Well, and plus it depends on what’s going on in the stock market too, right?

It’s hasn’t been doing so well lately. So people are looking for other places to put their money. That seems a little bit safer, or at least it’s backed by. A physical [00:39:00] asset,

Rob: right. That’s right. Yeah, exactly. Yeah, exactly. And, and even when the stock market is quote unquote, doing well, it’s it’s paper money.

Right. You get your statement and it says, oh, you’re you, you, you’re doing an annual return right now of 9.7%. Okay. Well, can you spend that? No, it’s it’s on a sheet of paper, right? You can’t spend it and oh, the next statement. It, it, it disappears and then it comes back, right? Yep. Yep. Real estate is money that shows up in your pocket and hip pocket national bank and you can spend it.

Mike: Yep. Yep. So Rob, uh, with where we’re going to the marketplace right now, you’re, you’re still, uh, you’re pretty bullish on assets as we talked about. Right. Um, and I, and I think cuz they, they basically are gonna float. I mean, it’s, you know, we won’t get into the whole currency thing. I know you’ve got a lot of.

Uh, beliefs and wisdom there, right. Of if the dollar were to collapse and go away. But at the end of the [00:40:00] day, um, well maybe, I don’t know. Maybe we should go there. I don’t know. Uh, we brought have enough time to go there, but at the end of the day, like guys like you and me believe that. the price of properties, rents and things are gonna at least float with inflation, even if the dollar went away and got totally reset.

Now we’re trading those houses in some other currency, right? Like that those assets are gonna just maybe it’s chicken eggs at the end of the day. And we’re trying to be really good at selling chicken eggs, cuz we’ve got a lot of ’em. Right?

Rob: Yep. Well, and that, and that’s the thing, right? So it’s not as hard as people make it out to be right.

If, if I own an asset and. And the, the crash or the, or the shift co because look, there’s, there’s only two ways historically that people get through these currency. Uh de-leveraging right. And I think, I think Ray Dalio talked about this, um, on one of his really popular videos. And he said, there’s, there’s two ways [00:41:00] that people transition or.

Societies civilizations transfer through this currency. De-leveraging and one is the politicians step up. They do the right things. They, they put good economic and financial policy in place and they navigate it through doesn’t mean that it’s not painful. Doesn’t mean that some people don’t suffer, but it means that the politicians step up with character and they do, and they do the tough things to, to get.

Economy and the, and the society of people through. I have zero faith. Yeah. That seems

Mike: unlikely.

Rob: in their

Mike: ability to do that. So tell us about number two, because

Rob: money ain’t happening. Yeah. So number two, unfortunately, is war. and these are, these are historical facts. And so number, number two is, is war because you need the spending and the debt and the, and the destruction of war to offset the, the de-leveraging.

So, so [00:42:00] where, where do we, where do we sit today? I a, I believe that if the currency continued to devalue and if we saw it devalue in a significant way, Hyperinflation triggered, like, uh, like what we see in, um, uh, like what we saw in Argentina in the nineties, right? 5000% inflation. Literally the grocery stores in Argentina were not printing the price on goods.

They were making verbal announcements because prices of commodities and things were going up so fast and. if you own assets and that currency devalue and the asset that you owned in and you cuz currency is just a measure of. Value, right? Sure. And so if you own a house that’s worth a hundred thousand dollars today, and that dollar [00:43:00] is not worth much tomorrow, then measuring that a hundred thousand dollars house against that currency, it might look like the house is only worth $5,000, but.

There is going to be a new currency on the other side of that, de-leveraging that the society of people begin to trade in and you can then say, well, give me us dollar 2.0, pay me rent in two point. Oh. And so when you own assets, you get to just arbitrarily say, well, today I’m gonna value my asset. What, what everybody is valuing their assets, the us dollar tomorrow, you, you get to value the assets in whatever tomorrow’s currency is, and you get to collect income in whatever tomorrow’s currency is.

Right. If you don’t own the asset to bridge you through that, that transition, you’re stuck with whatever. [00:44:00] Cash you’re holding is now worth not, not nearly what you thought it was, and you have to go out and actively earn income in the new economy. So bringing this full circle, Mike, for where we started active income to passive income, to owning assets, to where we are in the economic cycle, people need to figure out the small segment of people that are gonna listen to this conversation and listen to.

What we keep telling people is figure out how to own assets. Yeah. Is it, it will save your family.

Mike: Yeah, absolutely. Absolutely. Well, Rob, good stuff today, my friend. So, uh, would you mind sharing people, obviously you run FreedomSoft, it’s one of the top CRMs for real estate investors, really powerful tool. I know you’ve made massive, uh, improvements there over the years as well.

Maybe just talk about how folks can learn more about the things you work on or how to connect with you.

Rob: Yeah, uh, happy to, uh, they can go to, uh, real estate, [00:45:00] uh, or go to freedomsoft.com and just check out our software. Um, our software is, uh, a, a lead generation, uh, sales and marketing CRM for real estate investors.

Um, and we’ve got a lot of great training and a lot of good stuff there for people that want to, uh, dive in on that. Um, and they can go to freedomsoft.com/podcast. Uh, I run the real estate mogul podcast. And if you want to go listen to, uh, more, more ramblings, uh, like what we just talked about, Mike , uh, with, with me, uh, you can do that.

freedomsoft.com/podcast. And, uh, as long as my voice doesn’t annoy you, you might enjoy a show or two. I love your voice,

Mike: Rob. You got a

Rob: beautiful voice. thank you, Mike.

Mike: Awesome, man. Hey, thanks for spending some time with us today. Appreciate it. Awesome. And everybody, uh, if you are, if you’re joining us live, thanks so much.

Uh, if you did not join us live and you wanna make sure that you don’t miss another live episode, where you get the opportunity to ask questions and we can banter, uh, please go to [00:46:00] flipper.com/live and you can register there and we’ll make sure that we notify you of all the streams. So you can also go to flipper.com/live and see our next several shows.

I believe our next show is actually with Trevor mock, a good friend of both Rob and I, and, uh, we have lots of other amazing people. We’ve actually had some amazing guests on this show as well. So appreciate you a bunch. We’ll see you in the next. Thanks for joining me on today’s flip nerd live to get access to our upcoming interviews with experts and get your questions answered and join our free online community.

Please visit flip nerd.com/live. Thanks again to our sponsors. Investor fuel is America’s number one, mastermind community for professional real estate investors, where hundreds of the top investors from across the country come together to build stronger businesses and stronger lives. Our community is about giving and transformation.

If you’re ready to take your business to a whole new level, please learn more. And schedule a call with us [00:47:00] [email protected]. Investor machine is the nation’s number one done for you. Lead source for professional real estate investors, serving many of the highest performing and most respected real estate investors in America.

We use a unique approach to data that is truly unlike anything else on the market, then execute your direct mail and skip tracing campaigns for you. Markets are filling up quickly. If you’d like to learn more about our world class service, please visit investor machine.com. Find out why over 7,000 real estate investors and agents have chosen carrot to build their website to attract and convert more online motivated seller leads.

Visit flipnerd.com/carrot. To learn more about how carrot can help you. We look forward to seeing you on the next flip nerd. Live real estate investor training. Please make sure to join our free community so you can join us live at flipnerd.com/live.