This is episode #325, and today’s guest is Frank Cava. Frank is a good friend of mine, and a super smart guy that worked for a significant builder before he became an investor. A lot of people respect Frank in how he thinks and plans for market cycles, as there are plenty of opportunities for real estate investors in both up and down markets. That is, if you can prepare for them and not be caught off guard.
Today we talk about the 4 major market cycles, how your business strategies may change during each cycle, and where Frank thinks we’re at today.
Get ready to expand your mind…this is an insightful episode that you don’t want to miss.
Please welcome Frank Cava to the show!
Mike: This is the FlipNerd.com Expert Real Estate Investing Show, the show for real estate investors whether you’re a veteran or brand new. I’m your host Mike Hambright and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility and taking control of your life and financial destiny, you’re in the right place.
This is episode number 325 and today’s guest is Frank Cava. Now, Frank’s become a good friend of mind, a super smart guy that worked for a significant builder before he became an investor. So he has a lot of insights on market cycles. In fact, a lot of people respect Frank in how he thinks about and plans for market cycles, as there are plenty of opportunities for real estate investors in both up and down markets, that is if you can prepare for them and not be caught off guard and really kind of plan to take advantage of cycles as they come and go.
Today we talk about the four major market cycles and how your business strategies may change during each cycle. And also where Frank thinks we are at in the cycle today, kind of where we are in this cycle. So if you’re ready to expand your mind, this is an insightful episode that you just don’t want to miss. Please help me welcome, Frank Cava to the show.
Hey Frank, welcome to the show, my friend.
Frank: Good to see you, Mike, thanks for having me.
Mike: Yeah, yeah, always good to see you. I love talking to you because we get . . . you used this word before we started here but talking about somebody else cerebral but I love having in-depth conversations about our business and today we’re obviously going to be talking about market cycles and where things are going. So, for those of you that are listening right now, be prepared for some deep thoughts from Frank Cava.
Frank: I was actually thinking about the Saturday Night Live skit from when we were kids.
Mike: Yeah. So hey man, before we get started, why don’t you tell the people about who you are and your background.
Frank: Sure. Thanks Mike. So I guess the easiest way to start is I was in a construction family as a kid. My dad, my granddad were in construction, and when I was 15, 16-years-old I told my dad I was going to graduate high school and just go work for him and he’s like, “No, be smarter than me. Go to college.”
So I went to the University of Florida. I got a degree in construction management and upon graduating, I went to work. So, I went to the University of Florida down to Florida. I moved to Washington, DC suburbs and worked for one of the largest home builders in the US. For me what was cool about was most of the folks that I went to school with went and got commercial jobs. So they . . . like big structures and I want to build houses.
And I kind of noticed that it would give me a leg up to do that because the company I went to work for . . . and this kind of positioning which we’re going to talk about a lot today. But the company I went to work for mostly hire like math majors and people who had no construction experience. So I knew that I’ll be able to like work my way through the ranks really fast.
And I also knew that they would cross train me in sales, so I could learn construction, I can learn sales and I thought it would be a launching pad for the rest of my life. And in the last five years, I was there as a vice-president and we would do upwards of 500 deals a year, so huge volume. At the peak, like $200 million a year in sales and in the trough like $75, $80 million a year in sales, so big, big numbers.
Mike: Yeah. And so, let’s talk because I know we’re going to talk about cycles today and we’re going to talk about like when you and I started as real estate investors and hopefully help people understand cycles and what’s going on, what to expect. But let’s talk about timeframe, so when did you leave there? And talk about the context of where we were at in the cycle then. And as a builder, I know you’ve talked about this before, builders historically, I know they’ve gotten a lot smarter after this last cycle if they’re still around, right? But builders are historically pretty good at predicting cycles and preparing for it, which really kind of prepared you as a real estate investor that you moved into, right? So talk about timeframes.
Frank: I graduate college 1998. 1998 to 2001 was more or less . . . it was like a steep and gradual rise. Around 2001, September 11th happens at the end of 2001 and there was a pullback. But then the Fed got involved and they made money really, really cheap and I remember where I was sitting when money got cheap, like interest rates went from like seven and a half, eight, to like three and a half, four. And it was like, “Holy crap!” And what happened was, you know, the slight dip and then it went boom. So from ’02 to 2005, it was like a rocket ship.
Frank: And I remember being like 30 years old, 29 years old and being like, “This doesn’t seem like reality anymore.” Like it seems like if you just like you just do something silly like buy a house and wait for the builder to build it, you suddenly made $100,000, and that seemed a lot more like luck than smart. And that was the first time I started to realize like I’m participating but I’m getting lucky. And then, I remember for me in 2005, it was June 1st of 2005 the market kind of changed and by middle of 2008 it was eviscerated.
So like in that three-year window when most of the market was out there thinking like, “Hey, the market is slowing down,” like we not only knew it was slowing down, the business was complete altered like ’05, ’06, ’07 and most of the people that we consider friends and colleagues now say ’08. And to that end, I kind of think you got to be a little bit smarter and a little bit more on task with what’s really happening, and that’s what we’re going to talk about because I worked for a company with a billion dollars in the bank and I watched them get like literally cut in half.
Frank: And I don’t know, you seem like a nice guy but I don’t have a billion dollars, maybe you do. So I want to protect my . . .
Mike: I’ve got a duffle bag right over here. Well, the funny thing that I want people to like think about here is . . . because what’s great about this conversation today is you have the insights of a large builder that had a lot of resources that should’ve probably been paying closer attention to . . . and I’m sure the builders that are around now, they found ways through that cycle to mitigate risk, right? And I think the general problem with real estate investors is they don’t have those resources. There’s no like economic advisors, there’s no . . . we’re all kind of running and gunning. It’s like the Wild West still.
And so, I think the challenge is some people are getting scared right now maybe with where the market’s at because they went through the last cycle like this. Some people don’t know to be scared. Some people aren’t scared at all and that’s okay too. But I think the important thing is, you know, hopefully like via FlipNerd and via this show and conversations like this, I think if investors kind of put their head together and it helps us all kind of plan for the next cycle or be prepared for it, and not just to survive. It’s like how do you thrive when those markets change, right?
Frank: Very much so.
Frank: And you kind of asked a question a minute ago about like . . . you initially asked like, where was I when I started my business? I started in ’08 and I had . . . oh, excuse me, ’09, January of ’09. But I had a really, really, really good job, like a lot of money. My mom is a school teacher and I would make like eight to ten times a year what she was making, a lot of money. And I quit in ’09 and everyone goes, “Frankie is an idiot.” And about three years go by and I closed like my first really big deal, I made like $85,000. And I told some people about it and they’re like, “Oh, Frankie is brilliant.” So it’s all perspective and timing. But what it is that you have to realize is there’s never the perfect time for anything.
Frank: And you . . . what we’re going to talk about today I hope is, no matter when you get in the cycle, if you have the right business model and you have the right exit strategy, or if you have a couple of exit strategies, which I know you do.
Frank: You have a couple of them, the market can shift a little bit and you can still get out. And you can not only get out and be okay, you can get out and make money. So that’s kind of the process.
Mike: Yeah. Well, let’s kind of dive in. Let’s talk about cycles. Let’s talk about . . . do you want to kind of talk about it in the context of the last cycle we’ve been through, like when you started and maybe where you think we’re at in the current cycle?
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Do you want to kind of talk about in the context of the last cycle we’ve been through like when you started and maybe where you think we’re at in the current cycle?
Frank: So I kind of stumbled into this, right? Like I’m a jock, like I played sports, I like Sportscenter, I’m a jock. I took econ in college, it bored me. I probably fell asleep more than I was awake. So like it amazes me like now people look at me like the economics guy, and I’m not. I’m just the guy that doesn’t want to lose my ass this time.
Frank: When it comes up. So let me kind of give context in this. I got lucky last time. I worked for a builder, they had great data, they had great intel. And the other thing that happened was that company that I worked for got napalmed in the S&L crisis in the late ’80s, early ’90s. Like they went through and had to do debt restructure through bankruptcy and they did such a good job that it was taught in Harvard Business School. So I worked there.
So their business model was always not get rich, always build for the next down cycle. So as a 22-year-old out of college until I left as a 32-year-old or a 33-year-old, I was taught it’s not about making, it’s about keeping.
Frank: And I have had that beat into my head. So, when I got on my own, I wanted to first figure out how to run a real business and grow a business. So, you know this as well as me. You start on your own and the whole thing is, “How do I get leads? How do I make money?” You’ve got to do those things first.
Frank: Then, once you start doing those things, you want to do the other thing which is keep what you just built.
Frank: So I’ve been pretty passionate about like reading The Wall Street Journal, reading different places that will start to tell you like, “Here’s the data that you no longer have,” an analyst that can just send you a spread sheet on and how to read the tells. So to boil this down for you, I refer to a ton of books, a ton of articles. But there’s a book called “This Time is Different” okay. And the subtext is “Eight Centuries of Fiscal Folly.” And I read this book . . . it’s this thick and it looks like a textbook and it reads slower than a textbook.
Frank: And I spent the better part of the last 18 months reading it three times. But the upside of it is it teaches you like back when there wasn’t even money, there was just rice and wheat trade, what people did to make mistakes. And what people mostly do is they get fool-headed and they don’t realize where they are. They think they’re the reason that’s something good is happening.
And what I wanted to be truthful of is, it’s not me. I participate in the market. I don’t dictate it, and what I want to chat with you and your audience about is how you can see that and then how you can then pivot based on what’s going on around you and always make money. And I know you’re great at this. I think I’m pretty good at it. But the goal is to get started, to make money and then continue to be able to do it no matter the cycle. And that was always my driver.
Mike: That’s great. And I hope people listen to this today. You should know that this is . . . I think, I know Frank and I are on the same page. This isn’t about scaring you, this is about . . . there’s really . . . one thing that I told Frank that I want to make sure that we come across is, you know, I know there’s a lot of people probably listening to the show, there’s certainly a lot of people in real estate investing that never get started because they’re afraid like the market is going down so they don’t want to get in because it hasn’t hit bottom yet. The market is going up but well now it’s too hot and I want to wait until it cools down.
These cycles happen over and over again. And, you know, we’re not Nostradamus here. We’re not able to predict these things, but what we do know is that they do occur. And the other thing that I think Frank and I wholeheartedly agree on is there’s never a bad time to get started in real estate investing. You just have to jump in but just know that your exit strategies or things you do in your business may be different in different cycles. And knowing a lot of veteran real estate investors, that’s one of things that I admire most about people that have been around through multiple cycle is they can not predict exactly when they’re going to happen, but they know the cycles happen and you can figure out how to thrive in both. Not just survive but like thrive, and I can plan for it.
I’m raising money right now because money is plentiful and I know that when the market turns, some of those lenders are going to go away. Therefore, don’t have all my eggs in one basket with one lender, right? And I know people like that. You probably know people like that, Frank, that they lost their entire line. They had access to millions of dollars but it’s with one bank and the bank called that day and said, “I’m sorry, we’re going to have to pull your line.” And you’re like, “What do I do now?”
Frank: And so, Mike’s point is a good one and I think the easiest way to talk about this is kind of like do you remember the old kid’s game, four square? It’s a rectangle cut in exactly four smaller rectangles or four squares.
Mike: Yeah, yeah.
Frank: So the bottom left is where we were when you and I started our business, right? We were in recovery. If you go from recovery up a box, the second one is expansion. Over here is hyper supply and then, down here is recession. And the analogy I like to use is this is like a bad ’80s Atari game. When you go out the screen, it comes back the other side of the screen. So this example, it becomes like . . . it spins. Cycle four becomes cycle one again. So if you use . . . I can’t . . . this isn’t a good baseball analogy but it’s a good football analogy. There’s four separate quarters. The fourth quarter is the winter, is the recession. The first quarter is the cleansing spring or the recovery and then it works its way around.
Frank: So what you just said a second ago resonated, right? Like there’s never a bad time to get in. But there are bad strategies. Like right now if you got in, you wanted to do 35 short sales a month but you missed it. That window’s open. Like one of our good buddies from our Mastermind group that we’re both part of, he did one of those like trainings that one of the, you know, to educate ourselves and someone called him up. He did the training. He did like the testimony in like ’08 and they called him in 2013 and go, “Hey, does it work?” he goes, “It did. But it doesn’t work now.”
So like of the things I respect about you and this program is you’re constantly giving content and talking to people who are in the trenches, right? So what we’re doing everyday works now. Those of us that will be around through the next cycle are going to take our business and tweak them slightly as the cycle changes.
Frank: And I can tell you in ’09 when I started versus now, I do different things to get property and I do different things to sell them because the market’s a little bit different.
Mike: Right. Yeah, absolutely. Well, we’re going to talk a little bit about extra strategies because I know we talked about this a little bit before the show, I’m doing things differently now than I did three years ago in terms of my exit strategies. And I think it’s less risk for me. Not to sound negative, you know, bad but I’m taking advantage. I’m kind of exploiting the opportunity that exists today which is just what we call “wholetailing”. I’m still on the retail market because I think there’s just some silly money whether it’s, you know, kind of air quote investors that are new. They come into the market that are willing to pay more.
And truthfully I think even kind of owner occupants have come downstream because there’s less supply, right? So they’re willing to buy less than perfect inventory and do the work themselves where in another market, you know, you have to knock it out and be the nicest house on the block. But do you want to talk . . . let’s kind of dive in and talk about exit strategies overall and how you might use them differently in different markets, different cycles?
Frank: Sure. So I want to talk about two things and I’m going to go quickly. So I worked for a big company with a ton of money. And I quit. I’m on my own and I don’t have a ton of money anymore. So what I wanted to do is I wanted to get into four streamlined different businesses kind of at once which is silly for most people to say, “Pick one, master it.”
Frank: But kind of like you, I love corporate America with some money in the bank and I wanted to see it work for me and grow. So I do in my business four things. I do fix and flips, I do wholesale, I do rentals, and I have a consulting and educating business, okay? And the thinking with that is in any market, I can take advantage of the market and do the right strategy.
Frank: So the fix and flip, the best time to do that strategy is kind of where we are now or on the very, very . . . in the fourth quarter in the recession and recovery, a lot of the money hasn’t made its way back into the market. So as a marketer, I know that I have to either buy things in the great locations or I have to . . . I’m going to have to do the work because there’s not going to be a ton of people who are going to buy it.
Franks: But during in the other parts of the cycle like where we are now, the wholetail strategy works but so too does the flip strategy.
Mike: Yeah, yeah absolutely.
Frank: What we do in our business, Mike, is we look at each deal and we say, “Okay. We can make $50,000 if we flip it. But if we can make 40% of that $50,000, $20,000, as a wholesale, we’ll just wholesale it.” And that’s the metric we use in our office. So from an exit strategy it’s when we get it under contract. Hey, this is what we’re going to do with it and this is what we think is the best strategy.
Mike: Sure, yeah. And sometimes too, I think you’ll agree with me, sometimes it’s . . . when you look at each deal, sometimes it’s kind of dependent upon based on this level of deal, what might somebody do with this house. For example, I’m in Dallas and it’s a great rental market in certain parts of town. So, you know, if the median, the kind of the average price point of the house here is . . . I don’t know what it is anymore because it been on fire here for the last year and a half but let’s just say $180,000, okay? But I think rentals are great that are kind of sub $120,000, like $80,000 to $120,000 ARV.
And so if I pick a house up that’s in what I’ll call a great part of town for rentals, you know, versus a high-end area where they’re just not going to cash flow as well, I sometimes look at that and say, “Well, who’s going to buy this?” It’s either going to be a first time home buyer or it’s going to be somebody that wants to keep it as a rental, you know. And I know I can make more sometimes selling it to somebody that’s going to keep it as a rental because I figured it needed a retail rehab, but I know that for a rental property somebody is going to put a lot less money into it and therefore probably pay more for it, right?
So if you look at kind of the opportunity itself as well, right, to say, “Hey, if it’s a half million dollar house, nobody’s going to buy that to rent it or . . .” by the way, if you’re listening to this and you disagree with what I just said, I think you’re crazy. But if you know what I’m saying for example, you would never try to wholesale. Well, you might try to wholesale it to a rehabber but you’re not going to sell it to a landlord, right?
Mike: Yeah, yeah.
Frank: So, the exit strategy also comes a little bit from education.
Frank: You’ve got to know if you got a duck, you’ve got to know if you got a goose.
Mike: That’s right.
Frank: But they’re different.
Mike: You just said what I said in like four minutes in like two words, duck and goose, yeah. One of those is a duck and one of those is a goose, Frank. Yeah.
Frank: That’s it man. But that’s the trick. You’ve got to know what you got.
Frank: But the thing is in some instances . . . I don’t know how to make or look at this to play on like the ugly duckling, but in some instances you might have both, right? And that’s the beauty of being in this business is then the market can tell you what to do with it.
Frank: And I’ll give you a great example, Mike. We had a house under contract for . . . I think we got it for $75,000. And I thought we could’ve sold it for $200,000 if we did work and fixed it. And we would’ve made about $50,000 on it. But I said, “Ah, let’s just market it to our buyers list and see what someone will pay.” And we sold it for like $105,000. So we made $30,000 and we didn’t have touch it.
Frank: Like that’s a good deal.
Frank: Like I mean for me, $30,000 is like a nice stand up double.
Frank: Like you barely even break a sweat with a stand up double.
Mike: Yeah, absolutely.
Frank: So like those are good deals. But the cool thing is if I wanted to flip it, I could’ve but I’ve built my business to a point now where I can do a little bit of both.
Mike: Yeah. Well, I think it’s good too for . . . we won’t get into kind of a tangent here. But it’s good for people to always buy . . . that’s the beauty of buying direct if you will. And it’s okay to buy from other investors sometimes too if you’re going to rehab it. But buying direct, you are hopefully buying at a wholesale price which gives you options. You could wholesale it or you could retail it. I mean, there’s . . . options is a good thing in this business.
Frank: But the thing to also be really be mindful of, and I think this is the difference between being new and being someone who can really analyze a market, is if five years ago that house that I’m taking about or the one you’re talking about was really only worth $175,000 and now it’s worth $200,000 or $225,000 or $250,000, you’ve got to be mindful of you know what, the market has changed a little bit and I can now sell it for more because of this. But if I want to still be in business, I may have to, like you said earlier, have more than one line of credit or have more than one strategy with a property.
Frank: The reasons I want to have a robust flip business is when the market does crater and we’re in that recession game again, cash is going to go to the sidelines or it’s going to get . . . depending on what happens at the stock market, everything else, it’s not going to be investing in real estate, it’s not a frothy time to do it. So you’re going to have to target retail buyers. And this is a micro example but if you can think of this, you’re doing a wholetail strategy right now, right? But if you were going to put a house on the market for top dollar, think about what happened three, four, five years ago.
You could put a house on the market staged with red cabinetry and dark colored granite and it would sell. But now everybody on cable, they have all this flipping shows, nobody does red. That’s gone. It’s got to all be white and gorgeous. So if you really want to get market value for it, you have to look at it from that perspective. Like that’s another subtle change that’s happened to the market. But if you see that, you can play to it and you can be ahead or you can be ahead a curve a little and push.
Mike: Yeah, yeah. So, well let’s talk about furthering in the cycle a little bit about kind of expansion and hyper supply. When did you see that I guess in the last few years? What years would you say you saw that? And then how did exit strategies maybe change then?
Frank: Sure. So out of recession, you usually get a little bit to expansion. And what expansion is is like we’re firmly planted in expansion. The guy that we buy data from, and I had this conversation three days ago, are we in expansion or are we to the third quarter? And we both are kind of thinking we’re still in expansion. And what expansion looks like is things start to happen, right? If you think of it . . .
Mike: Builders come back.
Frank: Yeah. It’s spring. It’s not overly hopeful but life is starting again, you know. People are getting out of the winter doldrums. To answer your question specifically, during the next step of hyper supply is . . . this is like a crazy old quote from one of the Batman movies but the night is always darkest just before the dawn, right?
Frank: Even if you’re still up top and you’re still in that mode, during that mode of hyper supply and hyper expansion is when the first signs of trouble are starting. But before you get the trouble, what you start to see is stupidity, like it’s just crazy crap starts happening. Like for me, that was during 2003, 2004, 2005. Like really stupid stuff is you buy a house for $250,000 and by the time it’s finished, the builder takes nine months to build it and delivers it and it’s worth $350,000. Like that’s hyper supply. That’s crazy.
Frank: The condo market in Miami, same thing. That’s already happened twice since the last downturn. So like all this foreign money came in, they bought a ton of it and like there was huge appreciation. If you bought something on floor 7, by the time they got to floor 35 you had a million in equity. Like those things go boom and bust. So like those things to me, that are warning signs. What about you, what did you see?
Mike: Yeah, I think when you start to see easy money for . . . you started . . . you probably started to hear some things lately about . . . you might’ve seen some things. People are like, “Well, you can do stated income loans again.” You start to hear some of that stuff and you’re like, “Okay, this isn’t going to end well.” When you start to hear that, you start to get really suspicion of we’re at the tail end of something here or it’s coming, right?
Frank: One of the things to track also, and I’m kind of jumping ahead, but if you ever look at what loans, the types of loans that are popular, what were the most popular loans in 2009, ’10, and ’11?
Mike: It was all FHA stuff.
Frank: But who underwrites that?
Mike: Just a Fannie . . . are you talking about Fannie and Freddie stuff?
Frank: Which are owned by the government?
Mike: Right, right, right.
Frank: So those are government loans. Do you remember 2003, 2004, 2005? What percentage of loans were underwritten by government loans? It was like less than 8%.
Frank: And if you look at it on the reverse in 2010, ’11, and ’12, it was like less than 8% that weren’t government loans.
Frank: I literally remember being a 29-year-old kid and being like, “Government loans, you should do away with them. Whoever is going to need those again?” And like five years later if we didn’t have those, nobody would’ve bought a house.
Frank: So those things are real. And what we talked about is just getting educated. I remember in 2012, I started hearing about no income no asset loans. They’re there but there’s just a smaller number now. But if you see that as being a larger number, you start seeing your friends that have never been able to hold down a job owning two houses, it’s a bad time. Like [inaudible 00:26:53] happen.
Mike: Yup, yup. Well Frank, I want to talk a little bit about . . . maybe we can talk a little bit more . . . well, actually one more thing I want to ask you, I have this question, social question of the week which comes from Josh Smith. This is a little bit awful but we talked about exit strategies. But specifically with investors, and we’re talking about getting started, his question was why do most advisors, people that coach and mentor people like you and I do for example, why do they advise most new investors to start with wholesaling?
Frank: So I have some coaching clients as well and the upside of wholesaling is it requires less of your money to none of it if you structure the deal right and there’s not as much risk. So I think it’s an easy way to make money with no . . .
Frank: I’ve got this young couple who’s out in Arizona that I’ve been trying to do a wholesale deal and they’re struggling. So they’re like, “We’re just going to buy this one.” I’m like, “You just go from teetering to really, really being in it. And if you buy something to flip it, you’re wedded to it. You can lose.” You might lose a small deposit with a wholesale. So it’s a quicker game and it’s a less risky game. That’s why I usually steer people towards that course.
Mike: Yeah, great. And I agree with that. And I do think that, you know, if you’re a committed real estate investor and you can buy something without getting too crazy, I definitely would advise people in the past to do . . . to buy from a wholesaler and rehab it. Now, if you have a full-time job and if you’re not totally committed to the business and you don’t have access to funds and stuff, you shouldn’t do that. But it is a way to get started faster because, as you know, part of the challenge of this business . . . one of the biggest challenge in this business is finding the deals right.
Frank: Oh, yeah.
Mike: And I think until a lot of new people get started as like an actively fine deals, it’s hard to be a wholesaler because that presumes you’re buying it probably direct from a seller and you have some system in place to find those deals so. But yeah, good, thanks. And thanks Josh for sharing that. So let’s maybe just kind of talk for a few minutes about where you feel like we’re at today.
Frank: Sure. I feel like the market is still pretty healthy, right? We’re just out of this election and who the hell knows what’s going to happen. But by and large, I think the macroeconomic scene is pretty healthy. Interest rates are extremely low. I mean, they’re the lowest they’ve been since the invention of overhead, so they’re low. There’s a housing undersupply.
Now, you have to look a little bit at millennials and are millennials going to buy? Are they going to be perpetual renters into their third, fourth quarter of life? So you have to kind of think of like what is the landscape going to look like. But by and large, in our market, and you and I are friends with enough people in every other market, if you provide a good value in a wanted, desired area, you can sell real estate.
So because of that, I think it’s a good time to get into the business if you’re doing it and it’s a good time to continue and grow a business because I think it’s healthy.
Mike: Yeah, yeah. And maybe share some thoughts on rentals. I don’t know how many rentals you own or what you own there. But for me, truthfully, I got in this business because I wanted to accumulate rentals. And then it’s like my fix and flips and my wholesales kind of cover my overhead and they help allow me to buy five, six deals a month, whatever it is, and keep one, cherry pick the one that’s like perfect for my rental portfolio. That’s really how it’s been for a number of years.
But until I started to get enough rentals built up and until we started to see, you know, pretty nice cash flows spinning off from those over the years, for the first many years, I was like, “Man, is this worth it?” And then it got to a point where we would get to the end of the year and kind of see how they performed and we’re like, yeah, I had one that burned down and I had some drama there.
No, don’t get me wrong, but it’s like wow, these are . . . just imagine when these are paid of like how nice it’ll be. And I think that’s an important thing for all real estate investors. Because if you’re just wholesaling and you’re just fix and flipping, there’s never an end, right? You have to kind of do that forever. Unless you’re doing something to build passive income or build up assets, then I think it’s hard to see yourself kind of ever getting out of that rat race, right?
Frank: For sure. We own . . . you asked a question in there about how many we own. We own about 50 rentals. And guys and gals who are listening to this, even because Mike and I are on this call and we’re so-called the experts, we do this every day, I can tell you even an expert was a beginner once. And buying rentals five or six years ago, I just don’t get it. I bought the wrong ones and made a ton of mistakes. Now the upside of what I did is I bought $30,000 houses that are now worth a $100,000. So it’s not hard to make money when you do that. So some of them, what we’re doing, Mike is we’re picking off some of the dogs in order to shoot them and we’re just getting rid of them.
Mike: Yeah, yeah.
Frank: And others, what we’re doing is we’re kind of taking an old house and we’re renovating it at the turn and we’re making it better so we don’t have to burn as much cash on repairs. And then what we’re doing is we make plenty of money in other businesses, we’re aggressively paying debt. So the goal is for us to always . . . we don’t make anything on our rentals but we’re building an equity position and we’re building better properties. And if I needed to make money next month, I’d stop spending as much or I stop paying more towards mortgages and I’d have a cash machine that I can turn on in a second.
Mike: Yeah. And that’s kind of what we’re doing too. We don’t rely . . . I don’t . . . we don’t pay ourselves from our rentals. We don’t need that money to eat. So what we do is we just keep using any kind of excess cash flow. We just wrote a massive tax bill which was, you know, hard to write those checks but it’s that time of year.
But once everything’s kind of paid off, we just say, “Hey, let’s go . . .” every year, we’re just like let’s go pay three of them off. Let’s go pay down debt on a bunch of them. And we’re just kind of aggressively trying to get those paid off because you’re right. For me, that’s certainly a big part of my extra strategy is one day . . . I mean truthfully even at this point, we could live off of our rental properties and very few of them are paid off at this point. And so once they are paid off, that’s a good thing.
And truthfully, you know, one of the things that I love, been thinking about this business a lot lately and talking to some folks, having gone some transitions lately with our business, in that it’s a good thing when you get to a point to where you don’t have to think any more about can my business support me or if I don’t go do something tomorrow then I may not be able to pay the bills or whatever. Once you get to a point to where you’re very comfortably generating money that will support your family, then everything else . . . it allows you take more risk. It allows you to experiment and try other things. And that’s not how new investors start off. But just know that if you’re kind of smart about this stuff we’re talking about, that you’ll get there too for sure.
Frank: The cool thing about this business is if you can learn how to really do it, if you can learn how to market then have the phone ring and then learn how to convert those deals and you stay at it for a while . . . like remember I told you earlier that everyone thought I was an idiot when I quit my job and everyone thought I was brilliant when I made that first check? It doesn’t happen overnight. It takes time.
Frank: You’ve been at this since ’08. I’ve been at it since ’09 on my own. And the cool thing is, is you start to have options. When I put all my cards on the table, I’ve got somewhere between 50 and 70 properties that I owned. That gives me options. Like if I wanted to just close my business and I wanted to just have enough money to live comfortably, I mean I can sell everything but 20 of them, have no debt and surf the rest of my life.
Mike: Right, right.
Frank: So I can already do that. But if I want to keep doing what I’m doing and get to another number, keep building something, which is what I want, I have that option too.
Frank: The cool thing about this . . . like we were both corporate guys. We were talking about this before. We’re not corporate guys anymore. We’re our own guys. And for you guys that are listening to this call, guys and gals, the cool thing is is once you get to that point, you call the shots. You get what you want. And if you decide to change your mind, you’re allowed. You don’t have to staff it or ask somebody, you know. You can make life choices, like . . .
Mike: You might have to ask a spouse, yeah.
Frank: For sure. But [inaudible 00:35:29] call to two and a half years ago. I live in Charlottesville, Virginia. My business looked different. And I had one of those moments where I’m like I’m not really thrilled. I’m having a hard time hiring people. I don’t like my personal life and I up and move. I moved 65 miles away and I’m happy as hell. So you have those choices.
Mike: Yeah, absolutely. Yeah, it’s funny because the last couple of days . . . my wife doesn’t listen to these shows so I can . . . I’m not going to talk bad about my wife. She’s awesome. But she’s like last couple of days, she’s like, “I’m not going in today.” I was like, “Cool,” you know. So it’s nice to have those options. Yeah, cool. Well, Frank, I want to . . . before we kind of wind this down, I want to . . . I probably should as you this early on. If folks want to learn more about you or what you’ve got going on, you’re a great guy to be connected to, where should they go to learn more?
Frank: I’m not overly creative, Mike. I see your logo and your cool name with the glasses. I’m not that creative. It’s just my first and last name dot com, so frankcava.com.
Mike: I have a graphics person on my team. Do you want me make you a logo of like your face? It could be like . . .
Frank: Can you exaggerate it and make me look like Harry Caray like with really big [inaudible 00:36:45]
Mike: We probably could do that, yeah.
Frank: Oh, I love that. I use that [inaudible 00:36:49]
Mike: So hey, let’s kind of wrap this up. So for folks that are listening, I guess what I wanted to get out of this is one, I want people to kind of think more about market cycles. And one of the things that I tell people to do, I guess we’ll get your thoughts on this as well, is that just listen to shows like this and surround yourself with other people that are doing what you’re doing, especially people that have been around longer than you and have seen more cycles or worked at a builder, have more experiences because you’ll hear it.
Even surrounding yourself with some lenders. I have a lender that we’re about to get our foot in the door. But I can hear some hesitation in their voice. I’ve got plenty of experience. They’re very conservative but, you know, they’ve been through many cycles before. And just kind of being around those people, grab coffee, grab lunch, listen to shows like this. Because you start to hear things and somebody might not just say, “Hey, the shit’s hitting the fan next week.” Like nobody knows that. But if you start to hear a little like crumbs of stuff or concern or opportunity, right, you start to hear those things but you don’t do that unless you surround yourself with the right people.
I know you [inaudible 00:37:52] obviously Mastermind together. Talk about the importance of that to you, like kind of being around people that you can learn from.
Frank: It’s critical. It’s absolutely critical. And the hard part is is I don’t know where the folks are that are listening because where you live or how to do it. But there’s some absolutes that you kind of have in life, right? A couple of them that I’ve looked at and I mentioned on this call is when stupid stuff starts happening, realize it’s not you, realize you’re just participating in something bigger than you and you’re getting lucky and just say thanks. And they’ll think you’re [inaudible 00:38:27] quadruple down so like that’s part of it but it’s also like it’s maybe getting yourself a little bit educated with not only listening, reading certain publications or kind of figuring out a little bit like where are three or four kind of sources that I can go to. That’s big.
And I’ve got the Mastermind group that we’re in. In my local market, I’ve been invited to be a part of a CEO’s kind of forum which is good because I can talk to people about that. And those are usually helpful.
Mike: Yeah, yeah. It’s really important, yeah. Like you said, you don’t ever want to be . . . you don’t ever want to think you’re the smartest person in your circle of influence because then you’re in the wrong circle, right?
Frank: Right. But at the same time, you can’t get so much data that it’s crippling.
Mike: Sure, yeah.
Frank: You can’t just talk to the Debbie Downers or your grandparents and say, “Oh, it’s not the right market. You know, I’ll keep doing this.”
Mike: Right, right.
Frank: So this past weekend, I was with a whole group of friends and I’m 41 years old. When I was 28, 29, even I think into my 30s, low 30s, I went to a couple of Tony Robbins events. And they asked me like, “Are you a fan?” I’m like, “Yeah, a huge fan.” They’re like, “Do you still participating?” I’m like, “Well, no.” And they’re like, “Well, why not?” and I’m like, “I kind of learned it.” Like he gives you some great building blocks but I’m not still there anymore. Like I don’t need that stuff. So what I tell you is it’s great to be educated but get to the point, consume it and then take the action you need to get to the next step.
Frank: You can progressively keep finding sources of information that serve you now.
Mike: Yup, yup, awesome. Well hey Frank, thanks so much for joining us. I definitely appreciate your time and your insights.
Frank: It was my pleasure. And good to talk to you and I look forward to seeing you soon.
Mike: Yeah, absolutely. And everybody, thanks again for joining us for this episode with Frank. I appreciate you listening and I guess we’ll see you on the next episode. Have a great day.
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