Show Summary

It’s common for most that get into real estate to do so to build wealth…and financial freedom. Quickly though, many get hung up on volume, the quick buck, and often lose sight of why they started in the first place. True, retailing and wholesaling real estate can help you achieve some great pay days, but if you’re not creating a stable of cash flowing assets, the money stops when you do. Said another way, you’re trading your time for dollars. If you’re intention is to create financial freedom, don’t take your eye off the prize. Gary Johnston tells us more in this FlipNerd.com Flip Show interview…don’t miss it!

Highlights of this show

  • Meet Gary Johnston, real estate investor and educator.
  • Learn how the advice “You’ll never get rich on a W-2” at age 13 has stuck with Gary throughout his life.
  • Join the discussion on the power of financial literacy, and how some quick lessons will help you do more deals.

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Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike Hambright: 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 investing 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.

Mike Hambright: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting VIP interview, where I interview some of the most successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. Today, I’m joined by Gary Johnston, who is a real estate investor and a coach that shows others how to become financially free using real estate. That’s something we all want. Right? So, before we get started though talking to Gary, let’s take a moment to recognize our featured 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.

Mike Hambright: Hey, Gary, welcome to the show.

Gary Johnston: Hey, thanks for having me.

Mike Hambright: Glad you’re here today. So, I know a little bit about you in terms of that you spend a lot of time teaching others how to become financially free and how to leave that job behind or be able to achieve all the things that we all aspire to do. For those that don’t know you, why don’t you introduce yourself and tell us how you started in real estate and made your way up to, basically, teaching others how to achieve freedom.

Gary Johnston: Okay, great. Well, I’ll go back a little ways then. I grew up in Eastern Oregon in a small little town. Couple hundred [inaudible 00:02:41] cat and dog you could find. Ninety miles to the nearest McDonald’s and 40 to the nearest grocery store, so not what you’d call the hotbed of wealth. One of the things that I was able to do in that community was meet a gentleman that moved up from California by the name of Norbert Volney. I was probably about 13 years old when Volney hired me to pack boards and concrete, the grunt stuff.

But one of the great things while we were working together is, he always called me “kid,” even up until he died, he always called me kid. When we were working along, he would go, “Now, kid, now listen up now. Are you listening?” You knew when he said that, there was going to be something that followed that was really important to Volney.

He would say something like, “Now kid, now listen up now. Are you listening?” Then he would say, “You’ll never get rich on a W-2.” Now, I’m 13 years old and I have no clue what a W-2 is. Right? He would then explain it to me, and explain what he meant, and he was right. As another friend of mine says, you’ve got to get something working for you besides you, and that’s very true. Another question he was always asking me was he said, “Now, kid, do you know what two things will make you money while you sleep?” I’m a teenager. Making money while you sleep sounds pretty good to me. His answer was rent and interest. If you really think about interest, interest is really just rent on money.

Mike Hambright: Right.

Gary Johnston: It was Volney that was a huge influence in my life. I had lots of other great influences, including my mom and dad, but Volney had a huge impact in my life financially, education wise and other. It was really those lessons when I was working for him that really shaped me and he encouraged me to focus on. Buying assets that created cash flow. The other piece that he was high on was to get a college education. So, I did. I got a degree, and when I got out I started to work for HP, Hewlett Packard. I worked for them just short of 17 years. From day one, I was following Volney’s plan and buying assets that generated interest.

I got to the point where I could have left, but I was having a lot of fun. I had great teams and we were developing great products, but it just came to the point that my kids were getting to the age where I needed to be home more. So, then I left. I left HP when I was 38 and focused full time on the investment stuff. The teaching that kind of came by accident, a friend challenged me not to do anything for a year and I was like, “No problem.” Yeah right. He was right, so one of the things I did was I started documenting the things that I learned from Volney and from the things that I had learned over the years. I taught a class with a friend of mine and thought, “Well, if I can do one of these and be done and record it for the kids and the grandkids and be done,” and it’s just kind of kept rolling. The class piece is more of a side bar. It’s not our business by any stretch of the imagination.

Mike Hambright: Right.

Gary Johnston: We have fun with it, teaching people what we know and it’s been good. That’s [inaudible 6:20].

Mike Hambright: That’s great. Not to get off on a political tangent but I can I ask you, you start to realize at some point, not everybody realizes, unfortunately, but it’s a bit of a shame that most people from the very beginning are taught to go to school. It’s essentially a production line to prepare you to go work for somebody else and, in many ways, be kind of enslaved, financially.

Gary Johnston: Right.

Mike Hambright: I think anybody that has an education component to that, I know there are a lot of gurus and people that maybe get a bad name, but deep down inside I think most of those people that educate, myself included and I know you, have a passion to teach other people some of the great things that you’ve learned. It’s not necessarily about making money, although you have an opportunity cost so there has to be something there. That’s a great thing. I know you teach a number of different things, but a lot of it, generally, is kind of centered around becoming financially free.

Gary Johnston: That’s correct.

Mike Hambright: Talk a little bit about the general framework that you teach other to how to achieve that.

Gary Johnston: One of our core classes we call Financial Freedom Principles, and it’s a class really focused on tools, strategies, and principles on becoming financially free. The goal is that at the end of the weekend for people to walk away with a plan on how to become financially free. You and I discussed this briefly before we started the interview. I think that people sometimes forget what the real goal is. The goal is not to own 100 houses. That’s, at least for me in my biases, that’s not the goal. The goal is to become financially free. To be able to generate enough cash flow from assets to cover your monthly note. That’s the goal, and sometimes when we’re focused on real estate investment we get focused and think the goal is to buy a bunch of property.

Mike Hambright: Units, yeah.

Gary Johnston: It really isn’t. It’s funny, every once in a while when I visit real estate clubs, one of the classic questions is, “How many doors do you own?” Well, I’ve got a front door, a back door, a garage door. I’ve got several doors. Obviously what they’re meaning is how many units do you have. Again, we can talk about it, but it’s a meaningless number. So, if I told you that I had 750 doors, would you be impressed?

Mike Hambright: Right.

Gary Johnston: Would you be impressed, Mike, if I told you that I had 750 units?

Mike Hambright: That sounds impressive, yeah.

Gary Johnston: So now, what if I also followed up and told you that of all 750 doors, I was losing 50 bucks a door?

Mike Hambright: Right.

Gary Johnston: Not so impressed anymore. Right?

Mike Hambright: Right.

Gary Johnston: That’s why I think that people get focused on the wrong thing. The real thing is how much cash flow is generated from your assets. At the end of the day, I think that is the real goal for people.

Mike Hambright: Talk a little bit about how in terms of how you advise people or where you instruct people to get started. I assume a lot of folks that come to your events, and even some that are listening to this, have an interest in real estate investing and they see that as a vehicle to achieve financial freedom, to leave that job they don’t like, to give them more time for their family, to allow them to travel or do more things that they like, to give back to their community. Some people, a lot of people, just have a hard time getting out of the gate and getting started. Some of it’s because they are overwhelmed with so much information that they’ve downloaded from real estate folks or late night TV or whatever it might be in terms of commercials for real estate investing courses. Talk a little bit about how you advise people just to kind of get out of that gate.

Gary Johnston: The first thing that I really help people work people through, which sounds cliched but it’s very true, and my belief is the wealth process always begins in your thoughts. Period. It is our thoughts that really control where we go and how far we go. I can teach you techniques of how to negotiate, how to structure a deal, how to put a deal together, but if you are not growing and working through your thought process at the same time, you’re not going to get there. Same thing, you can’t spend every day meditating because you have to take some action at some point too. I don’t think people really internalize how important the thought process is. I’m a buy and hold guy. I’m not a flipper, I’m not a wholesaler, I’m not a retailer. I’m a buy and hold guy. People say, “Well, that would be great. I would love to buy and hold, but I don’t have any money.” Well, that’s just the thought. You’ve got to start working through the thought process that you’re assuming because you don’t have any money that there’s no way that you could put together a deal that can generate cash flow where you don’t need the money.

Mike Hambright: Right.

Gary Johnston: You’ve got to work through that thought process first and really be focused on what are you really trying to achieve. Some people love flipping. I’ve got buddies that make a lot of money flipping, and that’s great. If you don’t first start out with, “What am I trying to achieve?” and, “What are my limiting thought processes?” That’s the first huge hurdle. After that, what I encourage people to do is start smaller. One time we had a student that said, “I’m going to have ten houses by the end of the year.” Well, he hadn’t even managed one first. I think people get ahead of themselves. You don’t have the system to be able to handle ten houses, you don’t have the experience to handle ten houses, so just start with one and get that under your belt. Learn how to screen tenants, learn how to do rent ups, learn how to manage, and then add to that, but don’t go out and buy a bundle of 40 properties. The other piece that I see, and again this is all personal bias, is that people will chase the shiny object, as you said. For example, I’ve got this house that I found this great deal on, and it’s in Indiana, Indianapolis, but I don’t know anybody in Indianapolis. If I don’t know somebody that I trust and they know what they’re doing in a market, then I don’t go there. I invest out of state, but I prefer to invest in my own back yard. I would encourage people that are just getting started, don’t be chasing halfway around the country.

Mike Hambright: Right.

Gary Johnston: You can’t go buy a $30,000 house in some state that you don’t know anything about. There’s not enough profit there to be able to get on a plane or drive or however you’re going to get there to look it over and appropriately manage it. I’m a big believe in try to stay in your backyard, try to keep the deals smaller. I think, for example, one little niche that people continuously overlook is mobile homes. Mobile homes own their own land. You have to always be careful with a lot of things, but start small. Whether it’s a lease option or mobile home, or it’s a small house, start small. Start in your back yard. Again, the key process, I believe, needs to start in your thoughts. If you can’t stop, reflect, work through your thought process of what’s really rolling around in your head, you’re going to have a tough time getting off the starting blocks.

Mike Hambright: For folks that think they have an issue with raising money, there’s a number of folks I know that often preach on how to reposition that questions, “I don’t have the money,” and you just basically change the wording around, “How do I get the money,” and you start thinking in that way. But, it’s true, there are a lot of folks that that financing side can be a limiting factor early on as you’re getting started, and then it gets to a point to where people want to lend you money that you don’t need because you have more access to more capital than you do. It’s really weird how this whole business tends to be feast or famine. Certainly not the rental business as much as flipping or wholesaling. It’s the same thing with capital. I found that for a while nobody want to lend to you, you can’t get it, it’s untouchable, and then you have access to far more money than you could ever use. It’s a weird thing. In terms of folks that are looking to getting started, are there any creative strategies or things that you advise on how to get those deals done early on before you have access to more capital than maybe you will down the line?

Gary Johnston: I think that the first thing I would say is, if the deed was good enough, the money is never going to be an issue. It is never going to be an issue. I had some folks that I visited with, gave them some ideas, and they went and put a deal together that was a lot bigger than they had ever done before. I just told them, “Look, you find a good enough deal, the money will show up.” Sure enough, they found the deal, called me about it, but before I could get a call returned back to them they found somebody else that would fund the deal for them. If the deal’s good enough, money is never ever an issue, it really isn’t. For people to wrap their mind around that is a good starting point. The next thing that I would say is my big belief is that investing is a team sport. If you think you’re going to Lone Ranger this one, it’s going to be a hard road to hoe. I’m not saying that you need to form some general partnership with somebody, I’m not saying that. You need to have a team. You need to have a good accountant. You need to have a good lawyer. You need to have people on your team, and then the same thing with investor friends. I’ve got several investing friends. You bounce deal ideas around all the time. “Hey, I’m working on this,” and “Oh, why don’t you think about structuring it this way or this way.” So, it’s important, I think, to always be focused on the team. The same is true with money. There are lots of people today that have cash earning less than 1%. I’m talking significant sums of cash. So, if you don’t get greedy and you look at ways to structure deals to where everybody wins, you win and they win, and you put them in a really safe, secure, controlling position, there is plenty of money to put bills together without any of your own money. You have to bring something to the table, but I love the people that don’t know how to find the deal and they don’t know how to manage the deal and they don’t have any money, but they want a cut of the deal. It doesn’t work that way. You need to bring something and add some value to the deal to get a piece of the deal. But, again, don’t be greedy. Be willing to give enough of the deal away to get what you want.

Mike Hambright: Talk a little bit about some of the tools that you advise. I know we talked a little bit early on, but you said you kind of teach on a number of different things. Some of those are the tools that real estate investors need to use. I think, in all honestly, there are a lot of folks, especially buy and hold folks that maybe don’t know how to correctly analyze a deal.

Gary Johnston: One of my favorite tools that I would encourage anybody that’s going to be in this business to learn how to use is a financial calculator. If you go into a situation where you have an investor that knows how to run a financial calculator and you don’t, it’s not going to be a fair fight. I’m okay with unfair fights, but if you’re going to be in this business you really need to learn how to run a financial calculator. One of the things I always did was, people would say, “Gary, I don’t like math.” My question to them is, “Do you like money?” Most everybody will say, “I like money.” I have yet to run into a person that says, “I don’t like money.” Then I would love to have that conversation because there would be some good psychobabble on that conversation. If people like money, what I tell them is it’s not about the math. It’s about the money. Again, it’s back to the real estate. It’s not about the real estate, it’s about financial freedom. Same thing about the financial calculator. It’s not about the math, it’s about the money. How do you structure deals to get money out of it. My favorite is the HP 10BII. It’s the 10BII+ now. You can get it for $40 or less at any office supply superstore. It’s not because I worked at HP earlier that I like it, I just think it’s the fastest, easiest to use, most powerful calculator on the market that’s reasonably priced. Again, it’s a cheap investment to really get a tool in your tool kit that you can structure better deals. I’m a big believer that if you’re going to be in this business, you really need to know how to run a financial calculator.

Mike Hambright: Short of giving a demo here, why don’t you talk for a minute or two on what people are actually calculating. Is it a greater return that they’re going to require? Just talk about how they typically are analyzing a deal.

Gary Johnston: Right. One way to do it, obviously, is to figure out the cash flow that a deal’s going to generate and what you can pay for it to get the return that you’re seeking. That’s one. We have an in-depth calculator course that’s three days. Whenever we put that one, people go, “You’ve got to be kidding me. That can be taught into house.” When we get it done within three days, we run out of time. We never have enough to get everything that I want to get done done. People just don’t realize all the different ways that you can structure a deal if you understand the power of a calculator.

For example, how many deals have people put together where you graduate the payments. Maybe you start at $1,000, and every two years you increase the payment by $100. Well, how do you analyze that deal? Instead of doing monthly payment, what about doing quarterly payments? Figure out the interest. If I told you that we’re going to pay x dollars, you’re going to carry this much and we’ll make these many payment. What about a zero percent loan? If you have a zero percent loan, let’s say that this $100,000, and I tell you I’m going to pay you $1,000 a month for 100 months, what am I really paying for that property? So, it’s all kinds of different scenarios. Not just, what is my return, but a lot of different ways on how you can structure a deal that most investors don’t know, let alone a lot of the sellers that you’re buying properties from.

Mike Hambright: So, it’s very possible that you’re missing deals right now that didn’t seem like it made sense but it could come down to the structuring of how you structured that. Some creative ways to structure it where you could make it work for both yourself and the seller.

Gary Johnston: Absolutely. Now, if somebody’s stuck on their price? Fine, give them their price. Most investors, what they do is they try to chisel people on the price. I think the terms are more valuable than the price. Not always. Sometimes this is a number that’s like, “Ah, that’s not going to work,” but a lot of times if you’re stuck on your price, fine. I’ll give you your price, now here’s the terms.

Mike Hambright: That’s very interesting. I don’t do a lot of creative things. I probably miss a lot of opportunities because of that. There are times where a seller is here and our offer is here, and they won’t budge and we just can’t budge and we say, “What if I gave you this. But, it’s going to be, effectively, you’ll sell it finance it to us and over 15 years you’ll get that paid back at some interest rate.” Like you’ve said, we’ve had people for sure that are like, “Wow, six percent? I was just going to get that in a CD and get less than one percent. That sounds awesome.” Of course, you are limited to folks that don’t need the money right away and things like that. There is probably a lot of unique ways to structure deals that we’ve missed out on. You’ve got a fly going nuts on you there.

Gary Johnston: I got some fly going around.

Mike Hambright: Hey man, we don’t edit this [inaudible 23:59]. Awesome. How do you advise your folks in terms of getting out of the gate and in terms of finding deals? Do you give advice on that as well?

Gary Johnston: I think the biggest thing, and this is back to what we talked about earlier, you have to take action. How hard is it to sit down at a computer and search for a property? You could be in Maine and search for a property in Dallas.

Mike Hambright: Right.

Gary Johnston: I mean, it’s easy these days. But, it’s pretty hard in Maine to go knock on a door and say, “Hey, I’m looking at buying a house in this neighborhood. Do you know anybody that has a house for sale?” It’s an old, easy one, but it’s powerful. If you get out and talk to people and let them know what you’re looking for, you’ll be amazed. You’ll be amazed. A guy in Atlanta was telling me he was having troubles finding deals. My challenge to him was, in the next two weeks, I want you to knock on 25 doors in a neighborhood that you like. He said, “Well, what is that going to do?” I said, “Go knock on 25 doors.” He knocked on 25 doors. Now, not those 25 houses, but generated two deals out of those 25 doors. My belief is this is a people business.

Mike Hambright: Absolutely.

Gary Johnston: The best deals that you’re going to create are going to be person-to-person. It is not doing some Internet search, and then sending Mike a blind letter that says, “Hey, I want to buy your house.” Now, will that work? Yeah, I mean, people will mail mailings all the time and have very successful businesses with that, so I’m not trying to bash that by any means. But, people think, “Oh, I don’t have $1,000 to do a mailing campaign.” Well, ride your bicycle to the neighborhood you’re interested in and start knocking on doors. All that takes is effort. The problem is, it’s kind of like Jim Rohn says. I don’t know if you’ve read or seen anything Jim Rohn.

Mike Hambright: Absolutely.

Gary Johnston: Phenomenal. To the listeners: anything that Jim Rohn has written or produced, read or listen to. The guy is great. Now, he is from Idaho, but that’s not the reason I like him. He says, if it’s easy to do, it’s easy not to do, and that’s very true. There’s going to be a bunch of people that listen to this thing, and very few of them will get off of their computer and go knock on some stranger’s door in a neighborhood they like and ask them if they know of any place in the neighborhood that could be for sale. That’s one of many, but it doesn’t take a lot of money to do this stuff. You just have to take action.

Mike Hambright: Gary, I know you have some different events around the country and you teach a number of things, and I know that’s for the most part very humble. You’re not a big guru that’s going to up-sale people on stuff, you’re just putting some good information out there because you enjoy doing it. If folks want to learn more about what you’re doing and maybe some of the events coming up, where do they go?

Gary Johnston: GaryJohnston.com. It has our class schedule, like you said. We have no coaching program, we have no mentoring program, we have to up-sale to the $10,000 class. They’re basically $500 classes where you’re going to get some great education.

Mike Hambright: Great. Any last words of wisdom for folks to get off their butts and take some action?

Gary Johnston: First, kill all the flies before you start an interview. I think that the key thing, I call it the one push-up. If you ask me to get on the floor right now and do one push-up, I would do that, and thankfully I could. But, if you said, “Get down and give me 200 push-ups, Gary,” I wouldn’t even get started.

Mike Hambright: Right.

Gary Johnston: Right? But if you told me, “Get down and give me one push-up,” I could easily do that and I would do. The reality is, I would probably do 10 or 25 before I was done. So, I think the key thing with action for people is do it even if it’s super small. Take those baby steps. Don’t try to bite off, “Well, I’m going to have a deal closed in 30 days.” Don’t start with that kind of an action item. Start with, “I’m going to take this specific action tonight. I’m going to knock on one door in the neighborhood next door that I’m interested in buying a house in.” It’s that that will steamroll.

Mike Hambright: Great. Gary, thanks so much for joining today. I appreciate it.

Gary Johnston: Thank you, Mike. Thanks for having me.

Mike Hambright: For those that are listening, we’ll add a link down below if you want to learn more about the great work that Gary’s doing and figure out a way to find him.

Thanks for joining us on today’s FlipNerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows by visiting us at FlipNerd.com.