In this FlipNerd.com VIP Interview, we talk with real estate investing legend, Lou Brown. Lou is one of the most well known and respected real estate investors, mentors and coaches in America. As the past president of the largest real estate investor association (Georgia REIA) in America, and Founding President of National Real Estate Investor Association, Lou has played a major role in the industry. He’s taught thousands how to ‘retire with rentals’, and goes out of his way to teach others to invest with high ethics. Please join us now to learn more from the one and only, Lou Brown!
Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright. And on this show I will introduce you to VIPs in the real estate investment industry as well as other interesting entrepreneurs, whose stories and 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. So without further ado, let’s get started.
Hey, this is Mike Hambright with a FlipNerd VIP show. Today I have with me an exciting guest, Lou Brown, who is an industry veteran. He’s been around for several decades and has just a tremendous amount of information to share. He’s also the founding president of the national REIA. So we’re going to be talking about REIA clubs. But general speaking, today we’re going to focus a lot of our time on talking about the importance of building a rental portfolio for your retirement or for additional cash flow. So before we get started with Lou though, let’s take a second to recognize our feature sponsors.
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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.
Hey Lou, welcome to the show.
Lou: Hey Mike, how’s it going?
Mike: Good, good. Glad to have you on.
Lou: Thank you. I’m looking forward to it.
Mike: Awesome. Well, for those who don’t know you, or don’t know you well enough yet, why don’t you tell us a little bit about your background? I know we only have about a 30 minute show, but I think you’ve got a tremendous amount of history and experience, but at a high level, tell us a little bit about you and your background.
Lou: Well Mike, I’ve been buying, selling, and holding property for over 30 years. I bought my first house when I was 19 years old, and I found out the magic of real estate and the fact that I could buy real estate without going to banks, without qualifying for loans, and I found out that it was an exciting and wonderful way to augment income and also create retirement, and so that ended up being my full-time profession since 1983.
Mike: And when you started that had you ever had a traditional job? You said you bought your first house when you were 19. Have you always been in real estate?
Lou: No. I used to work for corporate America. I used to be a traveling salesman, and have a company car and all expenses, and traveled four states, and found out what that was like, and then found out what corporate life was like, and then I found out what real estate was like. And I really loved the idea of owning your own business and being able to be successful in good business that lasts forever.
Mike: Absolutely. So talk a little bit about when you made the transition to doing this for yourself to teaching others, because I know you’re obviously an author, a coach, a mentor, all sorts of stuff. In fact before the show we talked about a whole bunch of common friends that we have, of people that we know that you actually mentored and coached at some point. So talk a little bit about how you made that transition into teaching others how you do what you do.
Lou: That’s an interesting story. I got involved, I’m kind of a volunteer at heart, and I got involved with my local association of Georgia Real Estate Investors Association, and I ended up getting on the Board of Directors and then ended up doing seminars. They asked me to do a seminar, and I did like an afternoon Saturday seminar and that went very well. And the organization said, gee, why don’t you do that again? And then they said why don’t you do that again and again? So it ended up being that every month I was teaching some kind of subject on real estate and I had a following.
And then people started coming in from other states to my Saturday seminars and then one thing led to another, and I found out that I had a gift of teaching, and so that started in 1987.
Mike: Yeah, and I coach and mentor folks, too, and one of the things that I tell people all of the time is that by itself, real estate investing can become a very lonely business. Generally speaking, a lot of folks in the, you can be friendly with people, but not ever wants to get too close with you, because the feel some competitive issue is there. It depends on whether you have a scarcity mentality or not.
But I know in my experience, it really makes it more enjoyable if you can kind of share your knowledge with other people. When you see them doing deals and changing their lives and stuff like that, it’s awesome. So I guess from there at some point, so talk about how you became the founding president of National REIA.
Lou: Well, it’s interesting. I continued on the board of directors of Georgia REIA and I was invited to the board of the Real Estate Leadership Association of America, Mike. And that, I became Vice President and President of that and then I took that organization and transformed it into National REIA in 1993. And so there were a number of chapters that joined us at that time, and since then, of course, it’s evolved into 200 chapters around the country, and I’m very proud of what they accomplished since I’ve left. And I was on the board of directors for five years and Georgia REIA for nine years, all volunteer positions. Also as the chairman of the Apartment Association’s Small Owners Counsel as well. So it’s been fun.
Mike: Yeah, and for folks who don’t listen to my show at all, and just so you know, I’m a huge advocate of REIA clubs. I know myself and a whole lot of other folks that I know one way or another got started by stepping into a REIA club meeting to see what this was all about, and ultimately ended up making our way, one way or another. But I think they’re just pivotal to the point that we’re literally on FlipNerd.com, we have a section of the website dedicated just to a directory of all of the REIA clubs across the country.
Lou: I’m really pleased to hear that. That’s a major thing that we can all do to help one another. You know, you were talking about the scarcity mentality. And you know it’s a funny thing, as a speaker, I go around the country and speak for different real estate investment associations. And some organization, you walk into it, and everybody is like this, I got mine, you get yours type of attitudes. And I go to other organizations, and everybody got their hands wide open trying to help everybody.
So I just encourage everybody to have the abundance mentality, because our industry grows the more people that are actually doing this business, the more people are open to sell their house this way to real estate investors rather than in the traditional way. So I think we all help one another just when we are in an abundance mentality.
Mike: Absolutely. I know that one of the things we’re going to talk about today is the importance of building a rental portfolio as your retirement fund, or rainy day fund, or paying you’re your children’s education, there’s a lot of different things that people do with it. But talk a little about your high-level thoughts on the importance of building a portfolio of cash flowing assets.
Lou: Absolutely, you know one of the things I learned early on is that our real estate investments really can be our goldmine and instead of amassing cash and putting it into the bank only to lose value each and every year, I said what if we actually had income producing assets that produced income for us forever? And so I’m a big believer that everyone should have an eye towards retirement, not that anyone needs to retire, but it’s just that I want to put into people’s mind the idea that you need to be in a position to retire if anything ever happens in your life, or you just get tired and want to take some time off, then you’re in a position to retire.
And rental property really does that, and I’ve seen so many of my students put their kids through college. They’ve been able to get themselves in a position to retire. I’ve had people join me at retirement. So it’s just a great thing that when you buy property right, and buy it cheap, and put them to work producing income, you can really have a fabulous life.
Mike: Yeah, yeah, and without getting into a lot of details about my story, just being in corporate America and working for a very large company, and having massive layoffs, working for a startup that’s flying high and then fizzles out, I just think that it’s important for people to be . . . there used to be put three or five percent of your income away, which that, between you and me and everybody else, that’s not enough. I grew up in the Midwest, a very much kind of the rust belt, where a lot of folks, they justify in their head, well, I need less money when I retire, because I’m just going to sit around and do nothing which sounds ridiculous to me.
Why work hard your whole life and do nothing? But I think it’s really important to protect yourself if not just from retirement, just that there’s no such thing as a blue chip company anymore. There is no safe thing as a job anymore, and I think that people who have some assets there to fall back on and need them is hugely important.
Lou: Well Mike, you know, if you really look at the Bureau of Labor Statistics over the last 20 years, inflation has been 2.23 percent per year. So if you’re not making at least 2.23 percent, you’re going backwards. And you’re absolutely right, putting away 3 or 5 percent is not going to do the trick. You have to do significantly more than that to really build a retirement.
Mike: Right. So well, talk about how you kind of advice folks to get started. And I know there is always folks who jump into real estate and want to do it full time. And then of course there’s the majority of folks that have another job or another business, and they need to get started in a different way. So let’s talk about, I guess for the folks that already have another job or another business and want to kind of start keeping rentals, what advice do you give them?
Lou: Well definitely, I think it’s a great place to once you do have a job, keep your job, keep your day job and then begin learning and building the process, because there are many twists and turns, and there are many opportunities in real estate, and one wrong move early in the game can take you out of the games. So I always encourage people to really pay attention, learn, get good advice, get support, get the right tools, get the right training, get the right technology, get the right team, because if you’ll do it the right way, you can’t help but to win at this game.
But I think that it’s a good idea to begin when you do have dependable, predictable monthly income and then build it up overtime, and then begin replacing that income. And then when you get to a certain point, you can even start shaving days off at work until you get down to a four-day work week, and a three- day work week, and a two-day work week, and then finally say goodbye baby, or say, take this job and, as a lot of my student tells me.
Mike: Yeah, you know it’s interesting, I was talking to somebody else earlier and this guy is 29 years old and he’s retired, and he has a business that’s doing somewhere around $15 million a year, pretty impressive. And for him, we talked a little bit about it. Retirement is for a lot of people I think is a mindset that I can do what I want. It’s not I’m going to go, I can watch more TV now, or I can sit by the beach and do absolutely nothing because for a lot of us, we’d be bored out of our minds after a few days.
Lou: I’d like to say in a position to retire not to retire.
Mike: That’s right. Yeah, it’s knowing that you cannot just do anything if you want to or know that you can do whatever the heck you want whether you do it or not.
Lou: That’s right.
Mike: So for folks that are really focused on real estate full time, it’s inevitable that a lot of folks, they hit a ceiling where they just can’t grow beyond that. I think especially in this market where it’s gotten a little bit harder to buy lately, because the market is doing well from a retail standpoint. A lot of the investors are having a hard time buying. Talk a little about your advice to folks on how to kind of go from a low level of where they’ve been operating at to taking it to kind of just generally the next level, whatever that next level may be.
Lou: Well, I’m a big believer in systems. I think that people who look at this business like a business and look at it from the point of view of operating it like a business, then you’ve got many, many more benefits that can really happen. So the idea is that you create a machine essentially, and part of that machine is a marketing machine.
So when you do your postcards correctly, when you do your letters correctly, then you’re bringing in a bunch of leads, dependable, predictable number of leads, and I’d say mail 330 postcards, every ten days a thousand mailings per month is going to bring most people who are individuals enough leads for them to be able to manage over an ongoing space of time.
And so we attack certain lists and things like that in order to bring in those leads, and then that’s what operating a business is really about. And I encourage everyone to really have a marketing budget because what happens is a lot of people just, I don’t know, expect the leads to show up, or they expect that they’re going to get a real estate agent, and the real estate agent is now going to bring them all of the real estate they possibly need.
But as you pointed out, there is just not a lot of product available there at the right price. So I say that you’ve got to go find no competition deals. Deals nobody else knows about and those become your bread and butter.
Mike: Yeah, and then of course another potential opportunity is to take deals that you have that you may not be able to do anything with otherwise and get creative with, which I know you’ve got a fair amount of experience with in the creative financing space whether it’s seller financing. Talk a little bit of that kind of tool in your tool chest, if you will.
Lou: Well, I’m a big believer in seller financing. In fact in my over 30 years of being in this business, I have never been to the bank, Mike. I’ve never qualified for a loan on a single family or a small multi-family property, because I learned something magical. I learned that you don’t have to go to the bank and you don’t have to qualify for loans. And so it’s a matter of learning the, well I call them the magic words to say to a seller and present yourself in a certain way that has the seller be comfortable to want to do business with you.
And once they do business with you, obviously you’re much better off that you haven’t gone to the bank and qualified for a loan. First of all, you end up with a loan typically at a much better interest rate than you would have paid with the bank, typically a much shorter period of time than you would have paid to the bank, and that puts you in a position to make your properties free and clear a lot sooner.
So that’s a part of my game is to teach and show how people can actually be in the business without having to have a pile of credit or a pile of money in the bank and be able to actually buy the properties right, buy them cheap, and buy them with the right financing in place.
Mike: Right, and I know I’m probably answering the question for you here, I suspect are you doing seller financing to you as well as subject to type deals?
Lou: Absolutely, so we buy the properties with the, if there is equity, then the seller carries that equity in the form of seller financing. If they do have existing financing on the property, then I’m interested in that financing because that’s money that we don’t have to raise otherwise.
And if I can take that property over at the right interest rate at the right terms that means I can make those payments now forever until that loan pays off. And then by the same token, my new buyer can get a loan from me, and they can actually have the benefit of the seller financing from us. It’s a beautiful thing.
Mike: Yeah. It never ceases to amaze me how many different ways there are to make money in real estate.
Lou: You’ve got it man. It’s beautiful.
Mike: So for folks that you teach, do you kind of advise them to do whatever they can to monetize that deal when they’re first getting started or to stay focused or, there is kind of a fine line there?
Lou: Well, you know, it’s not a generic answer. I really think it begins with the person. It really begins with what their situation is. How much money do they have in the bank? What are their goals? Do they love their job? You know, they might have a career that they actually love. So I’m not going to tell them to give up their career. But what I’m going to say is where do you stand?
Some people have really great retirement, and they can invest that retirement in being the bank for a lot of buyers, and so that retirement fund now goes from here to here in a very short period of time, because they were wise enough to invest in real estate and then provide the financing for their buyer.
Mike: Right. So in terms of kind of shifts in the market, you know, in my market and other markets around the country, it’s gotten tougher to buy over the last couple of years. It could be because the retail market is better, it’s artificially low interest rates, it’s hedge fund coming in and buying, it’s a lot of different things.
And so one thing I try to ask a lot of veterans is to get your thoughts on a lot of the opportunity that has existed for us over the years and probably throughout your career is the fact that real estate really tends to be an inefficient marketplace.
And with hedge funds and franchise property management companies, and lots of institutional players that are coming in, not that we are anywhere close to efficiency, but it seems to be coming more efficient, generally speaking. So what do you think about that and what that means to individual real estate investors like you and me?
Lou: Well, I think that’s a good question. I do see that what you’re saying is absolutely true. I do see that the opportunity that occurred in 2008, 2009 for people to come in with huge sums of money and be able to buy lots and lots of properties really changed the game.
But what I do find to be true is that there is still moms and pops out there, still people that want to sell their property, and we can capture them before the hedge funds find them, before the real estate agents find them, before anybody else finds them. So I haven’t found that the market has changed that dramatically from what it used to be for me.
Mike: Yeah, that’s good. Hedge funds are never going to go and sit on the couch and talk to somebody about how to solve their problem.
Lou: It’s not efficient. It’s efficient for us, but it’s not efficient for them.
Mike: Well, Lou, I know you focus a lot of your efforts on teaching people. In fact you have a book “Doing Good While Doing Well”, is that right?
Lou: That’s right.
Mike: Talk a little bit about just the book and just kind of your general mentality of how to do well in the process of running your business.
Lou: Well, you know, over the years, I’ve discovered that we, as real estate investors, really get a bad rap out there in the world. And I’m talking about from government, particularly I’m talking about mayors and city council and housing code and all of the different people that are in our community. They really think we’re bad guys, and the truth is we’re very good guys.
We help people through very negative situations in their life, and they have a real estate problem, and we can solve that problem instantly for them as opposed to the normal marketplace which you said was very inefficient for people really knowing whether they’re going to be able to sell their property or not.
We come in as heroes, you know, white knights on the horse, and we rescue them very quickly. The other thing that we do that we really don’t get credit for is that we take abandoned and dilapidated properties, we hire people locally, we buy supplies locally, Mike. We do very good things for the community. We take crime-attracted properties, we restore them, we put deserving families into them, and we don’t get any credit for that.
So I said, okay, what do we need to do, and of course, having my background as founding president of National REIA and all of the real estate organizations that I happened to help over the years, and the people that I trained, I learned that there were some key factors that we were really missing.
We didn’t have a brand. We didn’t have a name that people could point to and say we’re good guys. So I started looking at that and created a brand called Certified Affordable Housing Provider. And so I now have a certification program giving people the opportunity to learn how to do it right and learn how to get credit for it as well.
So we created a book called Doing Good While Doing Well, and in fact, it’s written by certified affordable housing providers from all over the country. And it’s on amazon.com now, and it’s a best seller and all of that good stuff. I’m so very proud of it. And the message of the book is really that you can have a wonderful business that makes you a lot of money, and you can make a difference in other people’s lives, both sellers and buyers.
And not only that, other people that need our help, such as special needs populations. I’ve got one of my authors in the book, actually he talks about his sober housing. He’s got 70 sober housing clients where he make a lot of cash flow off of that, but also, he’s helping a segment of the community.
And it’s just great stories like that, as you were saying earlier, there are so many ways that you can make money in real estate. And oh my goodness, we’ve got so much great things that we do in the community, but I said it’s really our job now to get our message to the market to show the community, and the government, and the politicians that we are good guys, and we deserve credit for that.
Mike: Absolutely, and you know a lot of folks do things that they don’t share with others. They just do it out of the kindness of their heart. I know even several years back, my wife made a commitment to every house that we sell, I’m going to make a charitable donation. And we had a few different charities that we did things for. We didn’t really share that with anybody, it’s just something that we thought was the right thing to do, and we believe in karma and all of those kinds of things. But, yeah, that’s great. And I think you said you had a link for listeners of the show to get that book free, is that right?
Lou: I would love for them to download the book and take a look at it. It’s getdoinggoodbook.com. And gives people a free link to actually download it. They don’t have to go to Amazon and buy it, but would appreciate once people read it, they go to Amazon and do a book critique of it, and let people know about it.
Mike: Well, thank you for that. I appreciate that. So we’ll add a link down below the video here as well so folks don’t have to, if they couldn’t write that down, they’ll remember it. Well Lou, I definitely appreciate your time today. It’s been a pleasure talking to you.
Lou: I’ve got another gift, too, if you would like.
Mike: Okay. Keep the gifts coming.
Lou: Since we were talking about building a retirement portfolio and buying and holding properties long term, another thought is I do have a calculator. It’s a retirement calculator, because I, myself, need to calculate how much money will Janice and I need at the time of retirement. And I’m not saying that we’re going to retire. I’m saying that to be in a position to retire, how much money would that be?
Well, one of the things that you’ve got to have is you’ve got to be able to extrapolate that into inflation. When is it that you want to be in a position to retire and what is the inflation rate, and how much in assets do you have to have working at a certain inflation rate in order to have enough income to cover that month or not. And so we created a calculator, and you can go to retiremelou.com, that’s retiremelou.com and download the calculator and have fun with that.
Mike: That’s great and you know it’s funny that in the Wall Street world, financial planners, they know how to tell you which mutual funds to buy and which stocks to buy, and things like that. And they very much plan for how you can replace your income or exceed your income, but I don’t know of anything like that that exists in the real estate space. And in all honesty, if you were to go ask a traditional financial planner to help you plan your real estate business to retire, they wouldn’t have any idea what to tell you.
Lou: You’re right, Mike. They would tell you to go buy stocks. That would be the last thing I would recommend anybody to do.
Mike: Yeah, sell all of that.
Lou: Stay out of the stock market. Please believe me. Stay out of the stock market.
Mike: Absolutely. Yeah. Well Lou, thank you again so much for your time. I appreciate it and we look forward to talking to you again soon.
Lou: All right, Mike. Thanks so much for inviting me. I appreciate it.
Mike: Absolutely. Have a great day.
Lou: Thank you.
Mike: Thanks for joining us on today’s FlipNerd.com podcast. To listen to more of our shows and hear our incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video version of our shows by visiting us at FlipNerd.com.