So, you’ve decided you want to invest in real estate. Now what?
Do you just go online and start looking at houses to buy, rent, or flip?
Do you even know what flipping is?
What do you even want to get out of investing in real estate? Don’t say, “Money!” because other forms of investment will earn you money too.
There has to be a particular reason to invest in real estate as opposed to something else. Luckily, others have been exactly where you are right now and became successful real estate investors. And you can learn from all their wins and losses to also come out on top!
Real estate is an excellent investment for many reasons:
Additionally, as you expand your portfolio, you can use economies of scale, which is when your assets’ scope gives you enough leverage to negotiate for better prices on goods and labor.
What do you want to accomplish in real estate?
Do you want to make a certain amount of money in passive income monthly or retire in a particular time frame?
Write out your goals using the SMART method. That means goals that are:
Once you’ve written out your SMART goals, you need to figure out how to get there,
There are seven common real estate investment strategies:
You should study each strategy carefully. In addition to weighing their pros and cons, you should also ask yourself how involved you want to be in your real estate investments and which strategies are most suited for your personality and lifestyle.
When investing in real estate, you'll have to have a financial plan in place. You have to consider operating expenses, associated costs, emergencies, big value items like replacing an HVAC, revenue, tax benefits, etc.
Luckily, investing in real estate is far more accessible than one might think.
If you don’t live in a state that fits into your SMART goals, don’t forget that you can remotely manage a rental property! And if you’re having a hard time finding the right properties, invest in class C and class D assets to increase your cash-on-cash return (CCR).
CCR is the measure of how much cash your cash makes you, and you can make your CCR go up by investing in class C and D properties. These are usually older properties, require more repairs, aren’t in high demand areas, experience tenant turnover more often, and are less likely to appreciate. Still, they are also more affordable and, as a result, could be your entryway into real estate investment.
There’s also always the possibility that if you hold onto a class C or D asset long enough, that the area will experience a renaissance, and you’ll have a more desirable property on your hands in the future.
The indicators that suggest that the real estate market will be strong in 2021 show that young people are leaving cities for suburbs that are expected to stick around for a while. So, if you can’t snatch up a property in the most coveted areas, expand your search, and somewhere down the road, people might look at your property and say to themselves, “I should have invested here early just like they did!”
Once you have your property, getting the right tenants is the next most important step. Doing so requires knowing:
When you make your tenant criteria clear in your listing, you’ll narrow down your pool of applicants before they even see the place. A rigorous screening process will further winnow down your potential tenants, but so will being upfront about pets, drugs, smoking, and overnight guests. That way, you’re more likely to avoid an early termination.
Although, do keep in mind that working animals like service and emotional support animals are not pets, and it’s against the law to prohibit them.
If you want your real estate investment to remain passive, you’ll want to hire a property manager. Property managers do a lot:
If you have a few properties to manage, you could conceivable manage your investments on your own without it taking over your life. But if you’re serious about scaling your portfolio or investing in properties remotely, you’re probably better off with a property manager.
You always need to have a plan of what to do when things go awry, and they will. That’s why real estate investors:
But no matter how well prepared you are, sometimes the unimaginable happens. In 2020, for example, the US was gripped by the coronavirus pandemic. Investors were left wondering what record-breaking unemployment would mean for the real estate market.
There was also concern with how to deal with tenants who couldn’t pay their rent in full and couldn’t be evicted because of the CDC’s nationwide eviction moratorium. Individual state eviction moratoriums (like California’s AB3088) were also new laws to contend with.
For many investors, there were no easy answers. This is why, when it comes to real estate, always learning, being flexible, and having connections are invaluable. If you don’t know what to do, someone else might; if you’re in a jam, you might have to make sacrifices; and if you need help, you may have to ask for it. Of course, these skills are just as important in taking advantage of an opportunity as they are in fixing a mess.
Real estate investing can be very rewarding and, in many ways, a safer way to invest your money. But it also requires planning, research, preparation, networking, and flexibility. Of course, you can also always hire a property manager to handle most of the work for you. That way, your investment will genuinely be passive!
Steve Rozenberg and Alex Osenenko are joined by J Scott while in Nashville attending the Bigger Pockets Convention 2019.
J Scott is an entrepreneur, technologist, investor, and advisor. Host of the BiggerPockets Business Podcast. Author of four BiggerPockets books, including “The Book on Flipping Houses,” “The Book on Estimating Rehab Costs,” and “The Book on Negotiating Real Estate.”
Alex Osenenko: Boys and girls, welcome to the first episode of The Myndful Investor podcast Show. Your hosts here, Alex Osenenko and-
Steve Rozenberg: Steve Rozenberg.
Alex Osenenko: Steve Rozenberg. Good buddy. This might not be episode one, this is episode zero. Why don’t you introduce the series do.
Steve Rozenberg: Sure.
Alex Osenenko: So, very quick background. Steve and I have spent the last probably decade plus in real estate in various-
Steve Rozenberg: various forms
Alex Osenenko: various forms. We don’t have to dig in too much into it, but the takeaways is we want to still provide on this episode and this very, very first, first episode is, how do you deal with fear of getting started? This is something that I think is in the way of a lot of people’s success.
Steve Rozenberg: Sure. It’s sometimes it prohibits them from success because they just don’t take action. And I don’t think it’s just real estate. I think it’s anything that they do whether it’s we’ll talk about us making decisions to you know, join Mynd and leave our businesses and join our companies together. And all the things that we’ve done. But those are big things that lack of action would not cause us to be here.
Alex Osenenko: Huge. Or there’s risk-tolerance. So let’s start unpacking this.
Steve Rozenberg: Yeah.
Alex Osenenko: So this is The Myndful Investor podcast show boys and girls. Our purpose here, our goal is to bring reality data, facts for real estate investors who are about to make an investment or can, will continue to be successful making investments, maybe pivot into different types of investments. We’re going to cover a lot of things here, but the underlying purpose for us is to make sure we provide you with data and fact driven stuff, but also in story format.
Steve Rozenberg: Yeah. And you know, the one thing I think that a lot of people have a challenge with is when they, they want to get involved in investing and they want to see and seek out how to get wealth. I think the biggest challenges is that everybody shows you kind of how to get the deal. You know, the sexy, how I can make a bunch of cash on cash return and investments. But there’s nobody there that actually shows you what do you do on day two? Once you own that deal, like you get a deal that says this is going to be a 30% cash on cash return and this is going to be these numbers. But the next thing is what do you do on day five when the tenant says, I lost my job and I’m not leaving. And so we’re going to talk to the investors in my opinion and discuss how did you guys as investors get around those kinds of things and how did you work through those problems?
Because as investing, I always tell people this is the sandbox that we play in. We’re in a sandbox where there are a lot of challenges. There’s a lot of, the good thing about real estate is there’s no rules. The bad thing about real estate is there’s no rules. So it’s, good and it’s bad. And if you know, unfortunately when you’re in this industry, there’s really nobody there. There’s no guidelines to tell you whether you’re doing right or doing wrong.
Alex Osenenko: You know what Warren buffet said, which is like stays with me forever. He’s like, he’s never, he would never make an investment in the business or company. He does not understand. Completely. He’s a smart guy? He understands a lot of things. But this is kind of the… This show’s purpose is to help you understand. Whether it’s a specific vertical you want to get into. But even before getting like super educated on a particular vertical, let’s call it, buy and hold or-
Steve Rozenberg: Flipping [crosstalk 00:00:03:53]. Or maybe
Alex Osenenko: and within buying hold, there’s single-family, there’s multi-facets-
Steve Rozenberg: Absolutely there’s so many ways.
Alex Osenenko: There’s Houston, there’s Boise, there’s Albuquerque, right?
Steve Rozenberg: It cascades down. I mean it’s, it’s such a deep cavernous column. People don’t realize. And that’s a good point cause I think a lot of people, they want to get into investing. There’s all these people that show them how to get the deal, but there’s nobody to show you how to create the wealth.
And they never, and I think that a lot of people, they don’t want to take the time to slow down, to speed up. They don’t want to take the time to educate themselves on how to actually get the wealth. They just want the wealth. And I think all of us want that, right?
We just want to make it happen. And unfortunately there’s people that have hands in your pockets, they want to make money off of you. They see the a-
Alex Osenenko: especially in this business,
Steve Rozenberg: absolutely.
Alex Osenenko: there’s a loosely say, there’s no rules-
Steve Rozenberg: there’s no rules. That’s the problem.
Alex Osenenko: You can put a syndication. You can announce syndication on this show and there will be people who will-
Steve Rozenberg: Absolutely [crosstalk 00:04:47]. absolutely. And you know the whole, like you had said, the whole goal of this show is not to talk about the glory of some of these investors that we’ve had on the show and going to have on our show-
Alex Osenenko: cause their shows like that. Everybody’s just coming in and-
Steve Rozenberg: everybody showing me how broke they are, how much money they make. I don’t want to know that. You know, we want to know and I want to know personally, like first of all, how did you get to where you are and how do you continue to drive yourself to be a better person, better?
You know, because a lot of people on the show are going to learn that a lot of the people that we talk to, the one common thread that you’re going to find with a lot of these investors is the balance of their personal life and how happy they are on a personal level, not just a fine, it’s not just a numbers thing of owning investments. They’re doing it to create a lifestyle for them and for their family. And it’s very interesting to see how people that are creating wealth and being wealthy, how they actually will continue to do it. They’ve already made the money. They don’t need the money. They’re doing it to keep the lifestyle that they want to have and the balance with their family, which is totally different than a lot of other fields and investment, industries that I’ve ever known of.
Alex Osenenko: But it’s also a gain.
Steve Rozenberg: Absolutely.
Alex Osenenko: Once you get-
Steve Rozenberg: it’s the thrill of the hunt.
Alex Osenenko: We spoke to Jay and we’re about to sort of J Scott, we’re about to announce like what this first series is going to be all about the first season I should say. But like the J Scott and I, he’s the thrill of the deal.
Steve Rozenberg: Oh yeah.
Alex Osenenko: he’s, well, he’s fine. He’s very happy like they, but like what are you going to do if you are not, if you’re not, if he is just sit there and enjoy me. I guess some people can go to the library and ski all day.
But the folks that will listen to the show, I think will find thrill of the deal. But also that, as you said, not just the deal thrill of the deal is like step one, but then it’s the day to day management.
Steve Rozenberg: Yeah. Yeah, absolutely.
Alex Osenenko: Of your portfolio. It’s-
Steve Rozenberg: It’s the all encompassing. It’s almost like you’re, you’re living not a mantra, but you’re living a lifestyle.
And we had a doctor, Dr. Steve on, right.
Alex Osenenko: Is an interesting-
Steve Rozenberg: [crosstalk 00:06:46] he’s a doctor and he owns a lot of real estate. Has no desire to quit being a doctor. Very successful. And so-
Alex Osenenko: wait, wait, no, no, no, no. He wanted to quit. That’s why the whole episode was about, don’t you remember? He actually-
Steve Rozenberg: I thought at the end he said he didn’t want to quit. So we got him there.
Alex Osenenko: But, so this is very interesting episode and look forward to that episode.
Steve Rozenberg: Yeah, that was a good episode.
Alex Osenenko: There’s the MD, like legit one of the best doctors- [crosstalk 00:07:09]
Steve Rozenberg: Put himself in medical school [crosstalk 00:07:10] on his own.
Alex Osenenko: Oh yeah, Oh yeah. Is this fascinating story. And what happens is he now wants to go real estate full time just because he loves-
Steve Rozenberg: he loves it.
Alex Osenenko: He loves the dynamic of it, he understood it. He is the kind of guy, like he went through the pilot school. He’s the kind of guy who put his mind to something and just get it done.
Steve Rozenberg: Did it.
Alex Osenenko: He’d be like a top 1%.
Steve Rozenberg: Yeah, absolutely.
Alex Osenenko: But he wants to quit MD and be… So eventually I think where we got with him, I’m not going to give too much away.
Steve Rozenberg: Don’t give too much.
Alex Osenenko: but there’s an opportunity for him to continue practicing medicine and a lot less intense way.
Steve Rozenberg: Yeah, because he doesn’t need the money. Cause he does it. He’s doing what he loves doing and money’s not a problem. And so that’s what you’re going to learn with a lot of these people. And what we’re trying to extract from the show with a lot of these guests is that you’re going to find, there’s a lot of people that have different work life balances that are very successful. Some that money is not the driver, but they are successful, but that doesn’t drive them.
And so it’s going to be a way that you as an investor or aspiring investor or experienced investor, whatever it is at your… Wherever you are in your stage of your career. You’re going to look at that and maybe do some self reflection and kind of go, Hmm, I wonder how this applies to me. I wonder if there’s some things that I could do better. I could do different. Maybe I can’t do any of these at all, but I think that you’re going to do some self reflection on that from these people that we talked to. I’m very unassuming but very successful and I think you’re going to get a lot of very good takeaways from that. Just like you and I did because you had a business, right? You owned a business, you removed yourself from that business and joined another company.
There a lot of self reflection that has to go on before you do something like that. Right?
Alex Osenenko: I mean it’s incredible. So let’s shift, let’s shift to that part of the conversation. By the way, those of you folks listening or watching, if you’re watching, thank you. You can just go into the next episode, if you want to get dig into the content and stuff. But Steve and I will talk about next is very quickly talk about how to actually get started. So I think those of you who have not, maybe you want to stick around a little bit, there’s a mental shift that has to happen. Like I didn’t use to believe in any of that Voodo sheesh, right? To me it was all, it was just like-
If you are smart enough if you work hard enough, you get there.
Steve Rozenberg: Right.
Alex Osenenko: You get there, you work hard enough. You’re smart enough, you’ll get there.
Steve Rozenberg: Yeah. It’s not always the case.
Alex Osenenko: No.
Steve Rozenberg: I know a lot of smart people that make [crosstalk 00:09:31] no money and they’re not happy either.
Alex Osenenko: It’s not even about money. Right? It’s like, you know what the doctor wanted to… Dr. Steve wanted to make a move. I think, I mean I clearly remember there’s a lot of administration stuff.
With his profession [crosstalk 00:09:46] that he just doesn’t… With real estate frees him up to do what he loves. With doctoring, he wants to cure people. He loves that.
Steve Rozenberg: He loves it. He loves… He was saying, he loved being there when a baby is born and even when somebody passes on, he feels like he’s a part of that. It’s something almost holistic. He said that you’re a part of this whole cycle of life.
But if you’re just sitting there trying to get a paycheck. You’re not even paying attention to that part of the job. Which is probably why you even got involved in being a doctor in the first place. Or you know, Jay Scott, right? He’s, got race horses, right? He spends so much time with his family. Brandon Turner, you’ve got all these people that we know that are just so focused on doing what they want to do. They can enjoy their family because they’ve taken those, I don’t even want to say calculated risks, but they’ve been so smart and understanding what their next steps are because they’ve watched shows like this. They’ve educated themselves. Sure, they’ve made mistakes. We’re all going to make mistakes.
You know, it’s not a failure unless you learn from it. If you learn from it, then it’s a lesson, right? I mean, but it’s just one of those things. And I think what we want to unpack in these shows is why these people are being successful and how you are just like these people. And you can be successful too. You’ve just maybe have to change your mindset and think a little bit differently. Would you agree?
Alex Osenenko: Yeah, I would agree and the passion plays into it. I’m just wondering like I want to first step this out or point 0.01 episode. I want to introduce our behind the scenes guy. Dan, I’m just curious, Dan, are you passionate about the video? I mean, you out there fill me-
Steve Rozenberg: You look passionate.
Alex Osenenko: You sipping on a Corona. You look a little passionate there Dan. Anyways, so Dan is our… You’ll see the quality of what we produced.
Steve Rozenberg: Yes, absolutely.
Alex Osenenko: That will be his top-notch quality.
Steve Rozenberg: It’s going to be top-notch quality. It’s going be the level of people we have, the thought processes we have, the access to educational levels that we’re going to be able to bring in. I mean, I think it’s going to be bar none, one of the best, if not the best shows that are out there with current constant education at a ground level. I think.
Alex Osenenko: Let’s talk about this. Let’s… we promise this, let’s talk about this. Let’s talk about your move that you made.
Steve Rozenberg: Why am I first.
Alex Osenenko: I don’t know cause I’m the one speaking.
Steve Rozenberg: Okay, fair enough you be first.
Alex Osenenko: I’m the one asking the question. And so you’ve made a significant move. So I’ll give a quick pre-story.
You’ve been an investor and I’m going to move out the chair for a second cause I want to grab your book. Oh, we’re using it as a coaster.
Steve Rozenberg: Yeah, They threw it on the floor. [crosstalk 00:12:16]. It was on the way and they threw it on the floor.
Alex Osenenko: So there was kind of-
Steve Rozenberg: A lot of respect-
Alex Osenenko: [crosstalk 00:12:21] to throw it in my face.
Steve Rozenberg: for my workings.
Alex Osenenko: Hey you sign my book, we’re not selling any books.
But the idea is, he was a failed investor, Steve, because it looked good on paper and they kept on buying it and when it didn’t work, you know what was a good idea?
Steve Rozenberg: Buy more of them. Buy more, why not?
Alex Osenenko: Buy more and so from there he said he couldn’t manage it. So started a management company, very successful Gouda company to 900 properties that can manage.
Steve Rozenberg: 900 doors. Yeah.
Alex Osenenko: In Houston and all of a sudden the things like he’s one of the fastest growing companies in Texas.
Got like 500s of five-star Google reviews. I mean, absolutely dominating. And guess what happened? Steve decided to make a move and partner with mine. So in other words, essentially sell his company to mine. In order for a chance to join and become host of this show. That was a big deal, wasn’t it?
Steve Rozenberg: Absolutely. It’s to me again… I’ve always learned in my life and this is something I think a lot of people can take away. What gets you here is not going to get you there. You and I have had these conversations and I think life and someone told this to me one time and it really resonated with me that life is like a book and you have chapters and there’s a chapter that could be a great chapter, but at some point that chapter ends and when that chapter ends, a new chapter begins and you don’t go back to that chapter again. And the company, Pete Neubig and I built and the team that we had. It was a great chapter and it got us to the next chapter and the next chapter is going to be better chapter.
And that’ll be a chapter after that. And I think that’s life. And I think that a lot of people never flip that page and they never move on to the next chapter. And maybe they slide backwards. And so I think the biggest challenge, the thing that I learned was this is just part of the growth cycle. It’s like leaving high school, right? We all know friends in high school that never left high school. They’re still, they’re mentally talking about the days of high school. They’ve never left there. And so a lot of people, same thing in business, some people just do not want to leave the comfort zone of their business. And look, you read these books, you do the audios and you hear like, you know what, you have to be comfortable being uncomfortable and that’s all well and good until you really are uncomfortable.
And now you’ve got, it’s like the rubber meets the road.
Alex Osenenko: That’s growth, that’s when the growth happens
Steve Rozenberg: It’s growth. You have to be okay. And at some point you’ve got to say, you know what? I’m going to trust the process. I’m going to trust my education. I’m going to trust everything I’m doing. I’m going to shut this chapter and I’m going to move onto the next. And that, that’s kind of what I did. I just… I trusted the process. I trusted you. The people at mind, everybody that was involved in helping us come over. I trusted it and I said, you know what? Based on educated calculated decisions based on everything that I think that mind will be able to provide for me and where the future is with mind. It was a no brainer. But there’s still that risk. You’re leaving your own company that’s doing fine. That’s very successful.
Alex Osenenko: No brainer. People say that in a rear view mirror, it’s no brainer. When you in the-
Steve Rozenberg: When you’re in the turn, it’s not as easy.
Alex Osenenko: Remember we talked about your role, so now you’re VP of investor education. We’ve talked about your role. We had a lot of back and forth. Those emotional moments. It’s difficult guys and girls it’s definitely difficult.
Steve Rozenberg: Not easy.
Alex Osenenko: Can I unpack something you said?
Steve Rozenberg: Sure.
Alex Osenenko: You said there’s a chapter. I love that, by the way. You always teach me new things. Oh, it’s mine now.
Steve Rozenberg: Dan quote that.
Alex Osenenko: So it chapters, how do you know this is, I sometimes have problems with this. How do you know when the chapter is coming to an end? Is it when you see a new opportunity, and it’s like, Whoa, you know, it’s it. Like how do you know when the chapters ending, how not to hold on for too long [inaudible 00:15:58].
Steve Rozenberg: You know, I think that’s different for everybody, but I think sometimes the chapter closes already and you don’t realize it. Like your chapter… you may have a chapter that’s already closed and you are just not accepting that it’s closed. Sometimes when we’re… When you’re in the heat of battle and you’re kind of in the weeds. And again, this chapter this… The books over the book, the movies over, right? The, the credits are rolling and you’re still sitting there not leaving the movie theater. Right. And so sometimes we may not want to it accept that that chapter is over in our life.
Alex Osenenko: Do you have an example, by any chance, can you think of an example of someone you know. You don’t have to name names. Or maybe yourself where you sort of overstayed your welcome per se? I mean-
Steve Rozenberg: I never overstayed my welcome.
Alex Osenenko: You wheeled in a bag today, your airline bag into my house
Steve Rozenberg: Yes, yes, yes to my house. And he said, are you staying here tonight?
Alex Osenenko: You did not tell me anything. Maybe we’ll cover that. But is there a chapter?
Steve Rozenberg: I don’t know that I have a chapter, I mean maybe I do that I don’t know about. But I think at… My thought… I’ve learned… I’ll give you a perfect example where I made a decision, a lot of indicators. So you know my, my being an airline pilot, right? So that chapter 9/11 that chapter ended, right? So for me now, I still stayed as an airline pilot, but after 9/11 there was a new chapter I didn’t want to… A lot of people did not want to accept it. So what did a lot of people do? They went down to South America to fly. They went over to Asia and they flew airplanes at a quarter of the income that you are making as a U S airline pilot. Why? Because they didn’t want to accept that things were changed and they didn’t make the decision to flip the page and start a new chapter.
I said, you know what, I love being a pilot. However, I’m not going to let this dictate me anymore and what I’m going to do is I’m going to take control of my future and start learning about real estate. A lot of other people said, I’m going to Korea. I’ll be there for three years flying small planes until this thing weeds itself out. To me, that’s not accepting that the chapter has ended. So that’s the best way I could describe how a chapter can change and you not accepting that it’s changed. Because all the indicators were that the airline industry as a whole will never be the same again.
Alex Osenenko: That’s very good.
Steve Rozenberg: So that, that’s how I would basically essentially say that’s how you know it, but enough about me. Let’s talk about you Alex.
Alex Osenenko: Dude, I can’t believe like, I can’t believe how like we’ve done podcasts in the past, but I can’t believe like how this is connected because I was just going to say, Dan, stop the recording for a second. Steve, why don’t you ask me about me now? We only have 20 minutes to this 0.01 episode. We want to be respectful to the audience. They don’t want… us yammer for 20 minutes. They want to get into the meat of what this is all about. Which is top-notch education validated with a couple of guys .
Steve Rozenberg: So based on this conversation, we’re talking about people making a decision and moving on and things happening, right? So you had a company, right? You had a very successful company, still do, still have the company and you made a decision to basically essentially remove yourself and join mine. Right? Essentially he’s my boss, so I got to be somewhat nice to him, I guess. But you know, basically you, you made a decision, right? And calculated or not the chapter ended, right? Some chapter ended and again, it’s not just you, right? You’ve got a wife, you’ve got children, there’s a whole trail behind you that are affected. There’s a ripple effect, right.
Alex Osenenko: There’s also people in the current, in the company I left
Steve Rozenberg: in the company left. Yeah. The allegiance going, Hey, where’s Alex? Alex, you know, and so there’s, maybe a guilt factor at some level to go, man, how do I do this? Am I doing the right thing? Am I being selfish? Am I being, am I doing the right thing for my family? How did you unpack all that and go through those iterations mentally?
Alex Osenenko: Definitely a lot of guilt. Definitely a lot of sort of second guessing yourself. That’s, I think that’s all normal. But like you will laugh. Maybe a stoicism is something that I am sort of investing in right now. My sort of mental resources and Tim Ferriss is my favorite podcaster and he’s big. He wrote this book, the Towel of Seneca and anyway, it’s very interesting philosophy on how to sort of deal with change. But the way I think about this is, one life. I think I learned it from you. Like you only have like 4,900 whatever however many-
Steve Rozenberg: 4,400 weeks is the average person lives.
Alex Osenenko: Yeah. 44 that’s it?
Steve Rozenberg: 4,400 weeks is the average person [inaudible 00:20:29].
Alex Osenenko: Blink of an eye baby. So yeah, if you not like take an action now. Like when opportunity came about Mynd CEO and I had a great podcast on my previous show, The Property Management podcast, and we connected really well.
We’ve sorted started talking and we will find out this company is going to crazy things. Somebody is going to figure out how to do… How to become like the South West of property management. Zappos of property-
Steve Rozenberg: There we go. I mean I don’t fly for Southwest so [crosstalk 00:20:59], but I get it. I get your point. The Google of the search engine how’s that.
Alex Osenenko: Yeah… I like to be… Yeah… Okay… So yeah… Not we work. Different, but too soon. Yes. Somebody is going to figure this out. I loved the team, I loved the direction. I loved the company. They have access to capital. Smart people. Smart boys and girls work with us. And look, Steve and I have a chance to create amazing things and my passion is to teach. I love teaching, running company is, I love it. But the creative part of directing the strategic… I guess direction of the company and teach and coach the team.
And our future customers or just listeners or just audience. So anyway, that’s why I’m passionate and so for me like just let me take a quick shortcut cause I could talk a lot about this. This was very difficult decision but, and I left a lot of people behind. I don’t necessarily feel great about everything that I’ve done, but I think, I think to me the important thing is no fear. You can’t, you’ve got to remove fear and being more deliberate about this. That’s number one. And number two, it’s a game. It’s a game. You get 4,400 weeks to play it.
Steve Rozenberg: That’s right. That’s it.
Alex Osenenko: I will make the moves that I need to make for my family. But as well as I’m not going to be 39 to 40 again.
Steve Rozenberg: Yeah. You can’t go backwards and you can’t be afraid to step off that ledge. You educate yourself and you learn how to step, but you cannot be afraid to take that step. Now you’re going to have, critics are going to have criticism. You’re going people that second guess you. You’re going to have all of that.
Alex Osenenko: Just the comments on the show. We’ll show that there’s a lot of people really unhappy with my decision. A lot of people that wished me well and very, very happy but-
Steve Rozenberg: Yeah, I think more the latter. I think a lot of people want to wish you well. I think all of us, I mean, I think, you know, there maybe there’s some people that kind of go, man, I kind of wish I did that. Deep down. I mean I think there’s a lot of that. So, I think just to kind of wrap this up, I think what we’re trying to get across as Alex and I are really going to dig deep in these shows with these investors. We’re going to ask them those questions-
Alex Osenenko: Hard questions.
Steve Rozenberg: Hard questions. We’re going to ask them some self-defining questions and we are going to have some definitely solid industry players that are here. Maybe not here in this studio, but in our studio. We, we’ve got some, some bigger pockets content. We’ve got a lot of stuff that’s really going to unpack and really asked people, how do you do it, why do you do it, how do you keep doing it and how are you getting better? And those are the kind of concepts that we’re going to go through.
Alex Osenenko: So until then, enjoy the rest of the season. We love to have you as a listener to drop us a line or comments to this show. We’re always happy to hear if you… There’s any specific thing learn what’s our Facebook group.
Steve Rozenberg: The Mastermind Real Estate Facebook group. Definitely join that. Cause there’s a lot of people in there.
Alex Osenenko: It’s a private group though. So you got to go through a little bit of a quick here interview questions. I need to ask questionnaire. We want to make sure like real people-
Steve Rozenberg: We want quality people. We don’t want people selling stuff in there. We want people to actually want to learn or want some resources to answer some real estate questions cause that, that’s what it’s about.
Alex Osenenko: And speaking of selling that one thing, you can be assured, we’re not selling anything yet. The beauty to be funded by a large company and growing and thriving company like Mynd, we don’t have to sell anything. Nobody is going to sell you crap on this show. Mark it now and enjoy the rest of the season. Thank you very much for tuning in.
Steve Rozenberg: Make sure you subscribe to our show and make sure you go to our landing page. We’re going to have shows dropping all the time on Fridays is when our shows are going to drop. Make sure you’re paying attention. Join the Facebook group and you’re going to get a lot of good content information from all different walks of life and all different types of investors. So again, make sure you subscribe it, write it on your hand, do what you got to do, but make sure that you know, our shows are coming out here.
Alex Osenenko: Write it on your hands.
Steve Rozenberg: We’ll see you guys.
Alex Osenenko: See you late
Alex Osenenko and Steve Rozenberg discuss real estate and technology with Chad Gallagher in Nashville while attending the Bigger Pockets Convention 2019.
Chad Gallagher is the Chief Investment Officer & Co-Founder of SlateHouse Group. Chad is originally from Lititz, PA. Chad graduated from the University of Virginia with a Systems Engineering Degree. He launched Advertising.com mobile, which is now a $100M global advertising business and helped it eventually get sold to Verizon.
Alex Osenenko: Boys and girls, welcome to another episode of The Mindful Investor podcast show, Steve Rozenberg, Alex Osenenko here for you, for you because we want to bring you the latest and most interesting, the most valid and fact-based information on investing in real estate so you can find your way in this wild and amazing world of real estate investing. Steve, who do we have on the show today?
Steve Rozenberg: So today, as you know, we’re still at the BiggerPockets Conference. We’ve got a lot of information. We got to sit down with Chad Gallagher, owns his own property management company. Guy’s grown his company exponentially fast to 4,000 properties.
Alex Osenenko: In two weeks.
Steve Rozenberg: Yeah, I mean it was amazing how quickly he did it. He’s got nine offices and you know, what you’re going to get out of this is how he understands that there needs to be less friction in the property management industry and use artificial intelligence, use technology to speed up the ease of use of owning a property and having it managed by a company. So he really gets a bigger picture stuff that a lot of people don’t see yet and you’re going to really be able to dig into what he thinks, how he thinks and understand his perspective of how he grew to 4,000 properties in a very, very fast time.
Alex Osenenko: Essentially he is the real estate investor who was just not happy with property management.
Steve Rozenberg: Exactly.
Alex Osenenko: What was available at the time. Let’s get into the show and find out what Chad thinks.
Steve Rozenberg: Hey Alex and Steve here. BiggerPockets man. What an amazing conference.
Alex Osenenko: It’s been good man.
Steve Rozenberg: It’s 2019, they haven’t done that one in seven years and here we are. I didn’t expect to have that kind of a show with 1200 people showing up. But also it’s the caliber of investors, caliber of people we meet. We can record a 43 podcasts.
Alex Osenenko: There’s some talent here. There’s some knowledge in this building.
Steve Rozenberg: Yeah, and I think our guest is one of the one of the most interesting people we’ve met.
Alex Osenenko: Yeah, he’s like under the radar too. Never heard of his company. Didn’t know anything about him.
Steve Rozenberg: Like imagine being in the property management world and not knowing you have a 4,000 unit company.
Alex Osenenko: [crosstalk 00:02:21] 4,000 units.
Steve Rozenberg: That’s quietly killing it in four States that we didn’t even know about. So Chad Gallagher, welcome to the show buddy.
Chad Gallagher: Oh man, this is awesome. I love the setup. For those of you on the audio waves were in this hotel room in a bat cave, side of the conference doing a podcast. But we have like lights and you guys…
Alex Osenenko: We’ve got a video guy. Doesn’t everybody have a video guy? You don’t bring your video guy with you when you go to a conference?
Chad Gallagher: [crosstalk 00:02:45] This is like a thing.
Steve Rozenberg: Yeah. It’s a thing. The beauty of a podcast is our audience gets exposed to this really kind of private conversation between sort of thought leaders or people who at least have a lot of knowledge and background.
Chad Gallagher: Or pretend to at the very least.
Steve Rozenberg: Or pretend to, correct. And then they get exposed to this. So this is interesting. Let’s jump right into the topics. So Chad, you’ve built this fantastic company in a very short period of time, probably 4,000 units under management.
Alex Osenenko: Five years?
Chad Gallagher: Yeah, we started from four and a half years ago. We opened up the doors.
Alex Osenenko: That’s insane, man.
Steve Rozenberg: Yeah.
Chad Gallagher: Yeah.
Steve Rozenberg: It’s called SlateHouse Group, by the way, those of you listening.
Chad Gallagher: Yeah, it’s called SlateHouse. My best friend growing up, we started investing actually in 2012. We both had full time jobs. He was a math teacher. I was heading up a mobile advertising business unit, traveling all over the world, talking to CMOs about mobile ad tech, which is a whole other story. We started to invest in 2012 acquired some units and honestly we needed a prime management company. So we interviewed a bunch, this is like 2014.
Alex Osenenko: How many times do you hear that story? We needed a management company so we started our own. That’s my story that’s yours, it’s so true.
Chad Gallagher: Yeah. And honestly, so I left those interviews, pissed off, I wasn’t excited, I was pissed. I was like, Nate…
Steve Rozenberg: Can you tell me why? What was some of the things?
Chad Gallagher: So look, I’ve got an engineering background and so for me it was, like in 2014 I was saying, the world of property management is going to be tech driven and if we’re going to try to scale, we need a partner who lives, eats and breathes tech and is into transparency and is also just passionate about, that’s what I wanted as a partner. And I went 0 for 3. I didn’t see any tech, no one believed in tech that we talked to.
On the transparency front, I thought prices were way higher. I mean I was hearing management fees of 9% to 10% of collected rent. I was like, that’s crazy. Your pricing hasn’t changed in the last 25 years. And then three, and I’m just a believer in this, I think you got to be passionate on what you do. And I saw a lot of people who were really grumpy.
Alex Osenenko: Just worn out.
Chad Gallagher: Yeah, just it seemed like they were running companies for the last 40 years. Some of them passed down through generations and they just seem to hate their life.
Alex Osenenko: I think a lot of property management companies, the property manager, the owner of the company, they identify themselves as property managers. They’re not business owners, so they don’t look at tech. They don’t look at ways to leverage. And this is just my opinion.
Steve Rozenberg: A few do, but most don’t.
Alex Osenenko: Very few do it. But the ones that, the majority, they identify, I’m a property manager, I go walk properties. I do, it’s all I, it’s not a, “Hey, what do we do as a company? How do we scale?”
Chad Gallagher: Yeah. And the problem with that is when the leader is in the trenches, they’re not excited about growing, number one. And they’re not set up to scale because it’s all based on them.
Alex Osenenko: And they’re really not giving good service to an investor because they’re not there. I’m going to say they’re being selfish in regard as far as if I was an investor, because they’re not up the world of technology of what could be. I’m limited by whatever the property management company is willing to invest in their own company. We don’t invest in technologies. So you don’t get technology. So as an investor I’m going, “Well that’s not fair. I mean if mine wasn’t in all the locations that they are, how do you go and invest in these other locations? Well you don’t. With mine, you would have to go with another company and that’s the challenge when you get these mom-and-pop operators as an investor, you’re stuck. What you went through is the same thing, man.
Steve Rozenberg: This is one of my friends. I’m kind of like, he’s invested, he’s a serial investors, buying properties. I buy based on the property manager relationship. I go into the town…
Alex Osenenko: Integral, man.
Steve Rozenberg: I would go into the town, I do my interviews, I find a company that I can trust. I do reviews. He has a whole matrix on how he does that and if he finds that company, he then puts the effort into researching it and start looking for houses.
Alex Osenenko: Which is ridiculous in real life.
Chad Gallagher: But that’s how it has to be.
Alex Osenenko: But it’s necessary.
Steve Rozenberg: So property management first absolutely is a smart investors’ mentality, by the way.
Chad Gallagher: It’s interesting there’s this phrase that you hear in real estate, which is you make your money on the day that transaction, right? If you buy at the right price. I don’t if I can swear, but that’s bullshit. Like I don’t agree with that. Right? I mean, yes that’s one approach, but the operator is really important. Really important. Especially if you’re trying to be at arms length and you’re trying to go out and just be the asset manager or you’re trying to actually grow a portfolio. I mean the operator, how that thing is operated is going to matter just as much as the price you buy it for.
Alex Osenenko: Yeah, I mean it’s funny, I always tell people, I’m like, “Anybody can get a good deal,” right? You can bargain with 200 owners and you could get a great deal.” Getting that return day after day, month after month, year after year, there’s no books that show you how to do that. They all show you how to get the deals. Like you see the Instagram, I made this much money on a purchase, but how do you get the 10%, 15% return?
Chad Gallagher: You have a property management relationship.
Alex Osenenko: You have to have somebody running the business.
Steve Rozenberg: So let’s pivot. Let’s pivot this conversation into now, what are the innovations that you are seeing your implementing and you’re looking to implement that’ll benefit investors, that benefit people that need this kind of help and transparency as you call it.
Chad Gallagher: I mean, look, I think it sounds kind of like an overkill, but I think it’s all about tech and with tech you can actually scale up processes and you can scale up across different geographies in a way that the experience feels the same. We have investors who will invest across a couple of different states and obviously the people who are doing the plumbing repair are different. But it doesn’t feel different. The reporting feels the same. The maintenance coordination feels the same. The way we handle leasings feels the same. Our company’s strategy and philosophy and how we treat owners, all that feels the same.
Alex Osenenko: [crosstalk 00:09:03] So the client and the client facing portion is the same for them. They may use different PVC piping and galvanized piping in there. That’s irrelevant, right? I mean it’s what the clients see, it’s the same experience. You’re selling the same experience basically, right?
Chad Gallagher: Yeah. And so I think that’s kind of interesting because, and we were talking about this a little earlier, is like as an investor, I mean the other thing I kind of run contrary to is everyone says like “Real estate is local, real estate is local.” And I just say, “Yeah, used to be.” I mean there’s still a local component or always will be, there’s always a building in the ground locally, but now you can actually invest across different areas. You can have teams spread out across different areas. I mean, our company, we’re four and a half years old and we cover four states. I mean, 10 years ago that didn’t exist. I mean not that I know of at least.
Steve Rozenberg: Five years ago it didn’t exist. I didn’t know anybody who scaled that fast to this day.
Alex Osenenko: I know, I don’t think I have either.
Steve Rozenberg: I’m very surprised to hear, well there are people that have operations, so the RentVest model is, you know, you put in a portfolio manager in the area and so you just throw some leads their way and until it grows out into something meaningful, it’s one manager. You actually guys have a physical whole operation set up?
Chad Gallagher: Yeah.
Steve Rozenberg: Or is it more of a virtual?
Chad Gallagher: No, we have eight or nine offices. So there’s an office and then there’s local property managers. And then one thing that we do is a little different, I think it’s really important and it comes with scale, I’ve got full time maintenance guys that are employees on with SlateHouse.
Steve Rozenberg: On staff?
Chad Gallagher: Yeah. And it’s not just carpenters, it’s carpenters and cleaners and roofers and HVAC. So you say like, “Why does that matter?” It’s a couple of things. One, if there’s a catastrophe, a big problem and I need someone out there tomorrow, I can get someone out tomorrow because this is my employee and I can tell him “I need you there tomorrow”, you know, or today, right? That you can only do that with scale. If you’re managing 50 units, you can’t have a full roofer.
Alex Osenenko: Right. Well let me ask you this is because we tried to go down this path and we weren’t big enough and so we backed out of it. But, what we realized is that’s another business. Did you actually have to create a… I mean maybe not entity wise, but it’s a different business model, business plan. I mean now you’ve got staffing and hourly to tag to a property. How do you do all that?
Chad Gallagher: Yeah, his name’s Nate Jones. Yes. So the other co-founder of the company, he heads up all of our just brutal blocking and tackling of really managing both our kind of day to day operations, but also our maintenance team and their teammates. And they’re employees of ours. And look, anyone who’s ever hired any maintenance tech to do anything, it knows that there’s days that’s not easy. I think there’s some things we do that are a little different. So we offer healthcare to these guys. We’re just rolling out 401k. Right. And so as an investor you say, “Why do I care?” What that creates is continuity with the team.
Alex Osenenko: Quality work done on your property.
Chad Gallagher: Yeah. And look, man, right now the market’s hot in a hot market, it is hard to retain contractors and find contractors. Right? And so it’s really nice to our investors to say, yes, like property owner, we’re happy to use a subcontractor if they want to use someone they like, Billy the plumber. We have this long list of subcontractors that we work with, but we also have full time maintenance guys are employees that have been employed with us for three, four years that I know I can trust to go fix a roof.
Alex Osenenko: You know their strengths and their weaknesses. So you know what, don’t send Joe because he sucks at that, send him to this job, send this one to that you know?
Chad Gallagher: Yeah. It’s hard. Yeah, I mean, I totally agree and I think it’s going to be really interesting. One thing I’m super passionate about is this, like what we’re calling like the next generation of real estate. So I didn’t come from a real estate family. Seven years ago I was a renter, my parents were school teachers, the co-founder of the company, his parents were a school teacher and a factory worker. But I think what tech and transparency enables is for people to get into real estate and invest in properties and create meaningful wealth who didn’t know anything about this before.
Alex Osenenko: You don’t have to learn how to frame a house now. Back in the day, as a kid, I mean my parents didn’t own real estate, but you know, you hear like, “Oh, I had to work on the properties with my parents.” That’s not as relevant now. Now, like you said, you can own something and what’s interesting is it’s not even around the country. You could own stuff in other parts of the world, you know? I know people that own stuff down in South America, they own stuff in Australia. So technology gives you that ability or people in Australia that own stuff in the US that never used to be the case.
Chad Gallagher: That’s what I’m excited about is that person who today has all of their money in a 401k somewhere making 4% a year, right? Can start to get in, I mean I’ve been posting on Facebook a lot about this is like just go buy one single family home. There’s a lot of talk about multifamily and we manage some multifamily and we love multifamily investors, but we don’t need to overcomplicated this thing. Go buy.
Alex Osenenko: [crosstalk 00:14:11] Keep it simple man.
Chad Gallagher: A hundred thousand dollar single family home and over the course of 20 years that thing gets paid off. You buy one of those a year that is literally life changing to the average American.
Alex Osenenko: It works, It just, it works. It’s simple and it works and it’s worked from the beginning of time and it’ll keep working. Everybody needs a roof over their head.
Chad Gallagher: Yeah. And I’ll tell you that. So something I’m passionate about is so my wife, her grandmother owns this portfolio in Florida and it’s a cool story. She started investing at the age of like 65, a baller by the way, all by herself. So and over the course of like 10 years built up a portfolio of like 50 units. Super cool story. But here’s the sad part. The sad part is it was all in Panama Beach, Florida and a hurricane came through and basically decimated her portfolio. And the point of that story that I tell investors is what technology enables is for you to truly diversify. And so I tell our investors, “Yeah, buy a property in Baltimore and then buy something in Virginia Beach and then buy something up in Lancaster, Pennsylvania and, and you can then own stuff in different economies, different states, different areas.” And man, that is really powerful because now when that big strong comes through and hits, it’s hit, you know, 5% of your assets, not 100%.
Alex Osenenko: It’s like similar to owning stock, right? You may have stock in tech, you may have stock somewhere else. It’s just stock. It’s a map. You know? And what I think a lot of people don’t understand, and I think why a lot of people think they need to invest locally is because they think because you live in a house, they equate that to owning a rental property. That’s the worst mistake. If it was a pizza shop, you wouldn’t equate to living in a pizza shop. You would know they have to pay rent. But when you live in a house, you go, “Well I live in a house, they live in a house, so I’m going to run it the way I would live in my house.” It’s like owning a stock. When you own stock, you don’t go and stick your head in the building of Chase and go, “Hey, what’s going on guys?”
Like why was the board of directors meeting going on today? No, you buy based on dividends, PE ratios, all that. And that’s the same thing in real estate.
Chad Gallagher: You wouldn’t just be, “So what’s your for retirement? I’m going to own Chase stock.”
Alex Osenenko: Yeah, exactly. Exactly.
Chad Gallagher: Like I live in New York and Chase’s headquarters are there.
Alex Osenenko: I can see the building. That’s where I’m going.
Chad Gallagher: That’s it. I’m just, people would say that’s crazy. Yet that’s what they do in real estate, right?
Alex Osenenko: Absolutely.
Steve Rozenberg: So that’s fantastic. So let me ask your opinion on something. So there is a tool, we here at Mind recently sort of merged with, acquired a company called HomeUnion and their tool is INVESTimate. It’s online marketplace for buying, selling investment properties. There’s Roofstock. There’s a population of these kinds of startups coming up. What are your thoughts around it? Have you thought about sort of plugging in into that ecosystem? You building something over your own? What are your thoughts?
Chad Gallagher: We’re not building our own, but we are starting to work with them. So I was actually here at this conference talking to Roofstock being one of their preferred property management companies. So that’s where I think we’ll do is, by the way, I put Zillow in that bucket too. I don’t know if they quite had the product there yet, but they will.
Alex Osenenko: They will. It’s just a matter of time.
Chad Gallagher: Right. So I think you’re going to see four to five of these things. And I’m totally a fan. Look, if you can buy a pair of socks online, you’re darn well should be able to also buy a piece of real estate.
Alex Osenenko: I love when people say…
Steve Rozenberg: I like your analogy though, “If you can buy a pair of socks, that’s complicated enough.” What, Alex?
Alex Osenenko: Whenever I hear somebody say they could never do it in this industry, that is the next thing coming.
Chad Gallagher: [crosstalk 00:17:41] That is the most awesome opportunity. That’s the unicorn right there.
Alex Osenenko: Yeah, exactly. Like really, you don’t think they could like Uber couldn’t have knocked out the taxi cab industry.
Chad Gallagher: I’ll tell you who’s in trouble. I’ll you who I would not want to be right now is a real estate agent who is not buying into tech and is not creating a differentiated value for him because in this world where people start buying things online the information flow is there. And so the value of the real estate agent drives diminishes greatly.
Steve Rozenberg: It’s a very powerful organization, real estate. A lot of people are taking chunks, try to bite out of this real estate industry. You know, us included. Let’s face it, like stodgy, you know I love property management. There’s a lot of players like you. And you guys are going to be great and many others, maybe 100, 150, 200, 300 others will be great, but most are just not interested in improving their.
Chad Gallagher: I actually don’t think there’s going to be 300 so I actually think if you…
Steve Rozenberg: Project management companies?
Chad Gallagher: If you look at what tech has done.
Steve Rozenberg: Interesting.
Chad Gallagher: So right now, how many project management companies are there? It’s like crazy, right? 40,000 or something?
Alex Osenenko: Yeah, there’s a lot.
Steve Rozenberg: 30,000 but realistically maybe 10,000.
Chad Gallagher: But you know what that sounds like to me? It sounds like there used to be a lot of taxi cab companies.
Steve Rozenberg: But there’s still a lot of taxi cab companies.
Chad Gallagher: I don’t know.
Steve Rozenberg: I mean, every town. Castro Valley. That’s my town has a freaking Castro.
Alex Osenenko: If you want to go out with your wife, would you take Uber or your taxi?
Steve Rozenberg: Well that’s not [crosstalk 00:19:07].
Alex Osenenko: That’s the point. That’s what technology has done. Right? They’d taken your…
Steve Rozenberg: I got it. I understand, so I want to hear your thinking.
Chad Gallagher: So I think that the days of it being every town has 30 property management companies. It’s just going to go away.
Alex Osenenko: I agree with that.
Chad Gallagher: There’s going to be, in every town, there’s going to be three to four.
Steve Rozenberg: But that’s like 50 major markets.
Chad Gallagher: But then we’re going to see is these scaled property management companies where country-wide, I mean this is just a hypothesis. I know, but I think it’s going to be like 50, 100.
Steve Rozenberg: 300 rather. That’s what I’m calling 300 in 10 years.
Chad Gallagher: Yeah.
Steve Rozenberg: But let’s take a step back for a second. That is an interesting aspect. However, there’s one other thing I hear a lot about and that is yes, we want tech, we want radical transparency, all those good stuff. Most investors will want that. But a lot of investors want personal service too. It’s important for people to get a call like Memphis Invest, get a call from your portfolio manager every month and say hello.
Chad Gallagher: So our style is, in with all of our tech, you still have a day to day property manager who’s your point of contact.
Steve Rozenberg: Relationship?
Chad Gallagher: Yeah. And that’s the person that you can ping, you can email. We actually, we prefer tickets. And I know it sounds crazy.
Steve Rozenberg: But we have to operate on tickets.
Chad Gallagher: You got to scale.
Steve Rozenberg: What is the number of properties that you expect a property manager to manage?
Chad Gallagher: It’s about 120.
Steve Rozenberg: We try to drive 500, right?
Chad Gallagher: That’s a lot.
Steve Rozenberg: Right? But there’s layers, right?
Alex Osenenko: But there’s supporting staff.
Steve Rozenberg: We have a hub, the asset, we go asset management. So they solve all these problems.
Chad Gallagher: [crosstalk 00:20:40] There’s different versions.
Steve Rozenberg: Yeah. But you can’t, like you can’t, and there’s property assistance and all that. But if you expect your PM, like realistic, if you expect your PM to be on call at any time, you’re not going to be able to scale.
Chad Gallagher: Here’s the bigger problem. The bigger problem, you think about today’s day and age, if you’re prime manager, you’re getting pinged through text message, you’re getting phone calls, you’re getting emails, you’re getting that random tenant who stops by the office.
Steve Rozenberg: Freaking walk-ins, yeah.
Chad Gallagher: I mean the passenger pigeons coming through pretty soon, right? And so the reality is…
Alex Osenenko: And how many of those are nice messages and phone calls.
Chad Gallagher: Most aren’t. The reality is even your best property manager to stay organized is so hard. So what we’re trying to do is say, “Look, let’s funnel all of that into a ticket” and the ticket is something very simple. The ticket might just say, “Hey I need a copy of my five leases because I’m about to do a refinance my building.” Okay, great! So it’s a ticket and then the property manager just resolves a ticket and when it’s done tickets closed out.
Steve Rozenberg: Well the team resolved the ticket but you’re right. But the customers not trained that way yet. They want to pick up the phone and call to Steve Rozenberg, Steve Freaking Rozenberg because his name was on the bill.
Alex Osenenko: I disagree though. I think that the reality nowadays, they don’t even want to have to make the call. If you can do it through a ticket or a non contacting way. And this is what we’ve seen where…
Steve Rozenberg: I’m just saying there’ll be subset of people who would still want the personal service, they will pay the premium and those property management companies, good ones are going to be an exist.
Alex Osenenko: But that’s not the bulk. The bulk are the people that they would much rather have it in a text message and say it’s done.
Steve Rozenberg: So the way I think it’s shaping up, in my opinion, initially yes, we’re going to start taking market share away from, we meaning tech enabled PM companies, market share away from these old people who don’t want to improve, these overpriced who just basically running the business as a cash cow and just don’t want to improve. Then we going to start taking some people who never hired a property manager right now. The bulk of investors don’t hire property managers. So we’re going to start taking some of those people away. And so that is going to be huge market. So right now 70% of people self-manage. So there’s going to be this, there’s going to be that. And there’s going to be a layer of boutiques that are going to do really well with an off the shelf technologies but also personalized service. That’s how I see it.
Chad Gallagher: It’s right. I mean the only thing is, we have clients who are Amish. I mean we have people who are not always tech enabled, older generation of folks. And what we tell them is they can actually call in and we’ll create the ticket for you. So look, I mean the reality is being tech enabled does not, I think there’s this, there’s this missing point that is being tech enabled does not mean you can’t be personal. It doesn’t mean you can’t solve problems and help different people out.
Steve Rozenberg: That’s interesting.
Chad Gallagher: All that means is if that guy calls in and I still want it turned into a ticket cause that’s how I know things get resolved.
Steve Rozenberg: Yeah, you could track it.
Alex Osenenko: It’s the old adage, you know, systematize 80% humanized 20 yeah. So you’re going to have that 20% humanization factor that every business has to have.
Chad Gallagher: Uber still as a person driving the car. Even though [crosstalk 00:23:43]
Steve Rozenberg: For now. For now.
Chad Gallagher: Sure. That driver, they do everything they can to get somebody who is awesome and does the above and beyond, has the little mints in the car.
Alex Osenenko: Yeah, I like the mints.
Chad Gallagher: Right. Aren’t the mints good?
Steve Rozenberg: I never had the mints.
Chad Gallagher: Oh, what!
Alex Osenenko: The mints and the water.
Chad Gallagher: It’s different. It’s a differentiation.
Alex Osenenko: It’s a different experience.
Steve Rozenberg: Yeah. Well so anyway that ranking system, I get it. But you know Uber is not really built for continuation of the human driving the car. Like that company’s going to make it based on automation, automating the driving.
Chad Gallagher: I look at project management the same way, right? Every year we take another task and we figure out a way to automate it.
Alex Osenenko: Systemize it.
Chad Gallagher: But it’s not all or nothing. You don’t go from zero to a hundred. You go every year we just take one more little piece and say, “How do I turn this into tech and code that will not screw up.”
Alex Osenenko: And if you are an investor or a property manager, property management company, and you were to look at this whole area 10 years ago and see how it’s changed, five years ago.
Steve Rozenberg: I was there 10 years. I was there 10 years ago.
Alex Osenenko: I mean, but think about it.
Steve Rozenberg: I was in the founding, well, I was employee what, 18 and AppFolio which changed the landscape like AppFolio single handedly changed the landscape of property management in my opinion, they went public. They’re doing really, really well.
Chad Gallagher: I’ve heard of them.
Steve Rozenberg: You know, because of that. Yeah, you’ve heard of them.
Chad Gallagher: We use them.
Steve Rozenberg: You use them. Yeah, exactly. Maybe now you can start thinking about replacing parts of AppFolio modules but back then [crosstalk 00:25:08].
Chad Gallagher: We just augment.
Steve Rozenberg: That’s smart.
Chad Gallagher: So we take AppFolio, but then we use a piece of tech called Property Meld for maintenance coordination.
Steve Rozenberg: Very familiar with that.
Chad Gallagher: We use ShowMojo to do online bookings, right? We have Freshdesk which has our tickets.
Alex Osenenko: I think the challenge is there’s all these third party widgets and apps. You think somebody would just kind of bring it up, and I don’t know if that’s possible. Maybe not because there’s different entities.
Steve Rozenberg: Well we’re growing in the house solution, right?
Alex Osenenko: There’s an in house solution.
Chad Gallagher: But that’s a challenge in itself.
Alex Osenenko: Everything is a widget in a gadget in a zap, zap it this and that.
Chad Gallagher: But I will say this from an owner perspective, all these tech we use, they don’t, to them it does actually pretty well melt together. They don’t need to know that when they submit a ticket it’s through Freshdesk.
Alex Osenenko: It’s the experience. The forward facing experience that they’re getting.
Steve Rozenberg: I get it. But it does add a little bit of a cost layer because you have to pay for the software. If you develop yourself like we’ll pay for dozens of engineers working on our stuff. There’s definitely a bank cost.
Chad Gallagher: I’ll say this, there’s also Mindshare of not when the code, you know someone has to make sure that code’s working and the tech working and the bugs and that kind of stuff. You know it’s nice that AppFolio just works. I don’t have to worry about QAing. I mean I’ve got enough problems with my plumbers and roofers.
Steve Rozenberg: Lets you run your business.
Chad Gallagher: Let me ask you this as we kind of wrap this up and we need to do another one with him cause I want to dig deeper into what he’s doing.
Steve Rozenberg: There’s a lot there. There a lot more Chad.
Chad Gallagher: Yeah, more Chad, we’re definitely going to have you back on but as we wrap this up what would you say in your opinion is going to be coming during 2020? Wat do you see is on the next frontier for the investor, for the property manager? What do you see is the next kind of like “Wow, didn’t see that one coming.” In your opinion.
That is a really good question? By the way I ask that question. I ask that question and close out most of my podcast is, what are you most excited about in the next 35 years? I don’t usually get asked that question. What I’m most excited about? The short answer is continuing to digitize things that still require the people element that just have flaws in them.
Alex Osenenko: And you think it’s going to be bit by bit. You don’t think it’s going to be a big, big grab.
Chad Gallagher: I do. I’ll give you a couple of things that I’m in the back of my head thinking about that are still very people driven. Showing an apartment, it is ridiculous how much time is spent getting someone to show an apartment. I’m just not convinced the average person really needs…
Alex Osenenko: There’s no value.
Chad Gallagher: Right?
Steve Rozenberg: What do you need somebody to tell you where the kitchen is. This is the kitchen.
Alex Osenenko: Let me open the door. Couldn’t have guessed that one.
Steve Rozenberg: Your kids could look out of this window. Well, thank you.
Alex Osenenko: Yeah, gee. Very enlightening.
Chad Gallagher: So right now at SlateHouse a tenant could go on their phone and they can book a showing time online, which is great. We are using some digital lockboxes and people can get in. But to me that experience gets a lot better when on their couch they can actually start to…
Steve Rozenberg: Like a 360 tour.
Chad Gallagher: Like start to actually walk through that unit without even going.
Steve Rozenberg: The Matterport and all that.
Chad Gallagher: I tell them the person at some point goes, but by the time they’ve gone…
Steve Rozenberg: They’re pre qualified.
Chad Gallagher: They know they’ve seen other phone, they’ve probably even applied before going. So now it’s like I’ve already applied, I’ve done the immersion tour and I’m calling offering some Facebook goggle headset or Oculus or.
Steve Rozenberg: I have that, I don’t know.
Chad Gallagher: You have an Oculus.
Steve Rozenberg: No I have PlayStation VR. It’s okay.
Chad Gallagher: But I think that’s really interesting to me because it just, it’s a time saver for everybody. And I think that the tech isn’t like, this isn’t Star Wars 20 years in the future tech. This is like, I mean, I think in the next year you’re going to see more and more people be able to have realistic showing experiences, apply online, and then when they go, they’re still going to go see it. But that point is almost a foregone conclusion as opposed to right now I might have to do 15-20 showings to get someone to actually book. That’s a lot of wasted time for everybody.
Alex Osenenko: Yeah. Well Chad, thanks so much man.
Chad Gallagher: Yeah man.
Alex Osenenko: It’s just been a flood of information.
Chad Gallagher: I think we touched some stuff.
Alex Osenenko: Yeah, we just barely touched.
Chad Gallagher: This was fun.
Alex Osenenko: Thanks for being on with us.
Chad Gallagher: By the way, if you’ve never been to BiggerPockets Conference, next year you got to go. This conference was awesome.
Alex Osenenko: 1200 people, it was legit. They did a good job.
Chad Gallagher: Super high caliber and we’re big fans of BiggerPockets so probably give a shout out there to those guys.
Alex Osenenko: Yeah, they did a good job.
Steve Rozenberg: Before you go, if people interested in more of what you have to say, how they find you?
Chad Gallagher: So my email address is Chad, C-H-A-D @slatehousegroup.com that’s S-L-A-T-E like a slate roof. And then we’ve a podcast called Real Estate Hackers where we really focus on a lot of we talked about here, which is the intersection of real estate in tech and people that are doing cool things and kind of where the world’s going. So they can check out our podcast Real Estate Hackers or email me.
Steve Rozenberg: Awesome. It’s great to have.
Alex Osenenko: Great. Thank you.
Chad Gallagher: Cool man. All right, see ya.
Steve Rozenberg: See you guys.
Alex Osenenko and Steve Rozenberg are joined by Chris Clothier from Memphis Invest at the Bigger Pockets Convention 2019 in Nashville and talk about the right investor for turnkey properties.
Alex Osenenko: Boys and girls. Alex here and Steve, the Mindful Investor Podcast show is on for episode number… I think we have official song. This wasn’t the song. This is [inaudible 00:00:11].
Steve Rozenberg: This was not the song, that was just your voice.
Alex Osenenko: This is the next episode and we’re still on tour in Nashville with BiggerPockets crowd, amazing conference, amazing show. We had some real, real talented people. We got a chance to interview. Today we’re going to introduce an amazing interview of Chris Clothier. What’d you learn from Chris?
Steve Rozenberg: Man, I’ll tell you what, Chris Clothier, he’s a co-founder of Memphis Invest, turnkey operation for people that don’t know. And if you don’t know the guy, you gotta look him up. Amazing guy, a true gentlemen. But basically what we learned is they basically are the people that, I’m going to say they’re kind of the godfathers of bringing the turnkey operation to the masses.
Alex Osenenko: And the turnkey is essentially, you just put the money down and they got-
Steve Rozenberg: It’s that, they have the house for you-
Alex Osenenko: All redone, remodeled. And what we found out is like, my courses were like, who is it for? Why isn’t everybody getting a turnkey? It turns out-
Steve Rozenberg: It’s not for everyone.
Alex Osenenko: … it fits a particular category of customers, and he knows his customers so intimately. And it’s very interesting, he talks about red flags. How do like if… Turnkey and turnkey could be different depending who’s who’s providing the service.
Steve Rozenberg: Absolutely. Reputation.
Alex Osenenko: Man, the information I got in this show is amazing. Why don’t we let you guys in on it. Let’s get into the show.
Steve Rozenberg: Hi everyone. So we’re here at BiggerPockets’ 2019, and there has been really some amazing people. One of the gentlemen that’s most amazing is right here with us. Pretty cool guy that we’ve gotten to know from your conference. And then, obviously amazing how paths cross.
Alex Osenenko: They do. And so Chris Clothier is a VP of sales and marketing. He’s also the owner of a company called Memphis Invest. I think you what? Top 5,500 units?
Chris Clothier: Yeah. We’ll end the year about 5,800.
Alex Osenenko: 58. And so one of the most spectacular family owned companies in this sphere of real estate investing. I think if you have never heard their name, you really haven’t been in real estate that long. Like you have probably come across and I think-
Steve Rozenberg: They may not have known that it was their company.
Alex Osenenko: This is like, I think of Memphis Invest as a spearhead for this whole kind of turnkey investment movement. And so a lot of people in your wake. But what I want to talk about today is some of the more harder questions that you may be getting, because I know a lot of investors, a lot of my friends are investors. Even conversations today, people seem to think that turnkey is for the beginners, turnkey is for the, somebody who just kind of really does not want to take the time to learn and have somebody else-
Steve Rozenberg: The lazy investor.
Alex Osenenko: … assume all the work. Right. The lazy investor. Like how do you combat that, Chris?
Chris Clothier: Well it’s, I guess, the easiest way to combat it is to look at our investor profile. The investors that we’ve worked with, and certainly some of them are new to the real estate game. They have a lack of depth when it comes to really deep understanding about how to invest-
Steve Rozenberg: Experience.
Chris Clothier: Yeah. Well, and they may not even necessarily always be experienced. They could be experienced with real estate and investing. It’s just the whole idea of-
Steve Rozenberg: Sure.
Chris Clothier: … doing it passively. They just don’t have a real deep knowledge of. But at the same time, many of our investors, especially with our company, they are experienced in life. These are not people that aren’t inquisitive. These aren’t people that are looking for an easy way out. They’re not people that say, I don’t understand this or I’m just going to go, dump my money into some poor man’s investment that it has a low chance of being successful. So this idea that these are new investors always and that they’re unsophisticated and they don’t know what they’re doing, so it’s the dummy’s investment that’s-
Steve Rozenberg: Not true.
Chris Clothier: It couldn’t be further from the truth. But those are the investors that say that are the investors that wouldn’t work with a company like [inaudible 00:04:26].
Steve Rozenberg: They’re not your profile.
Chris Clothier: Not even close.
Alex Osenenko: So let’s talk about the industry as a whole, because I don’t think anybody said that particularly about Memphis Invest, but people say that in general to the category. So the question is like, is Memphis Invest, are your customers different or do you think it’s a category kind of selection?
Chris Clothier: I think that us in particular, our particular client is different. Now there are, so as with any investment, not even with investment, with any business. There are those that choose it because it’s the easy path and it’s a lazy path. It’s the path of least resistance for them getting started. They’re also the ones that tend to go for a low price investment. So they’re looking for kind of their loss aversion. They don’t want to lose money, and they don’t want to learn either something to buy this really low pricing, inexpensive property. And there’s a lot of people that had been and will continue to be taken advantage of. And it’s interesting.
Steve Rozenberg: And that’s kind of to me, like people that do that. Like I think what’s great about in my opinion about turnkey is two things. Number one, people that value their time and they say, you know what, I don’t have the time to deal with this. I’d rather put people in place that know what they’re doing and they can do that. So it’s a time value. And number two, it’s a location value. So let’s say you’re in San Francisco and they’re in Memphis and Memphis is a better market for your goals. It’s easy, right? You don’t have to go there and find the contractors. You don’t have to go there and figure everything out. It’s in place.
Alex Osenenko: But you do pay the markup for people who do. Right?
Chris Clothier: Well, of course. And-
Steve Rozenberg: What’s your time worth?
Chris Clothier: Well, and it’s the age old question. And I will say that the investors that are the most successful at this particular strategy, that look, let’s be clear, it’s simply passive investing, is what it is. So it’s just investors that are passively investing. Turnkey becomes the marketing catch all word. So it catches the good and the bad.
Steve Rozenberg: Sure.
Chris Clothier: It catches the ones that are going to be successful and the ones that are going to fail. It catches all of the investors in the companies that are in that passive mode, if that makes sense. That it’s, you’re going to own the deed, you’re going to own the property, we’re going to do the work for you. But everyone uses the same word, turnkey to market their service. It’s the investor that spends the time that gets to know who they are investing with.
Steve Rozenberg: Absolutely.
Chris Clothier: And that really gets to know themselves because there’s two types of investors that you say don’t have time. The ones that have the time and they’re just… They’re not going to put it into it. They’re going to be busy doing maybe not even more productive things.
Steve Rozenberg: It’s just busy stuff.
Chris Clothier: Yeah. I’m not going to learn real estate. So I’m just going to go do this. And those that know that the value of my time and money is to leverage someone else’s knowledge and their time to [inaudible 00:07:14].
Steve Rozenberg: And they’re willing to pay for that.
Chris Clothier: You’re exactly right.
Alex Osenenko: Going back to unique abilities like, we had, Kara and Brit on the show-
Steve Rozenberg: Brittney.
Alex Osenenko: … and then these two wonderful ladies they’re doing their own fix and flips and they’re in there, they’re painting, they figured out the construction management. Like they actually are doing it, they’re loving it and they’re passionate about it. But like that’s their unique ability. They really wanted to do this and now they using Instagram as a vehicle to sort of promote that and really getting more successful.
Chris Clothier: Of course.
Alex Osenenko: But like for example, I’m a very busy executive. He’s a pilot. Presumably if you wanted to you can take more routes and just be like real estate wouldn’t be top of mind for you. So what you’re saying is turnkey sort of attracts this level of a professional who knows they need to invest their time if they’re to be successful, but they don’t just choose not to in real estate. They choose their time because-
Chris Clothier: You got it. You nailed it. They’re choosing to where they’re investing their time is what they do best, their unique ability. And then they’re taking whatever their revenues, whatever their money is, their investments, and they’re finding those that are best at their unique ability, which is building a portfolio and managing it properly and delivering, executing for that investor on the return and the investment that they want.
Steve Rozenberg: It’s like if you said, hey, I want to start buying real estate and I think I want to buy something, the numbers in the Midwest or in Tennessee look good. Would you have the time to go to Tennessee, find the deal, source the deal, find the vendors and the contractors, set it all up, get the flow going, or like you talked to Chris and go, hey, Chris goes, I got a deal. It’s ready to go. It’s turnkey and you’re going, you know what? I don’t have the time. Do it. Done. That’s who it’s for.
Alex Osenenko: So that’s very, very interesting.
Steve Rozenberg: Is that correct?
Chris Clothier: Absolutely. And those are the investors that are finding success. Those are the investors that kind of laugh behind the scenes when someone says, turnkey is for the beginners because they’re like… In your case, you’re not a beginner.
Steve Rozenberg: Right.
Chris Clothier: You know you’re a business builder, you’re an entrepreneur. You by no means would look at yourself in the mirror and say, I’m just this beginner. No. Not even close.
Alex Osenenko: But I wouldn’t, like I’ll be honest with you right now on the show and I want to make this admission like, I have no interest per se to dig and understand every single aspect about every single house that I’m about to sort of put money into-
Chris Clothier: Correct.
Alex Osenenko: … and try to get partners to do stuff with me-
Steve Rozenberg: Nor should you.
Alex Osenenko: … or for me or me trying to fly and like I have my kids, I have my job which I love, but it demands all of me. All of me. If I don’t give it all, it’s like, why bother? So for me it works. For me it works. For you maybe not as much, because you know your stuff, like you’ve done this.
Steve Rozenberg: But a perfect example, like I’m talking to some guys about doing something with some mobile home parks. Some guys here at BiggerPockets, and investing with them. I don’t want to learn mobile home parks, but I like the returns and I’m willing to go in on with them. So I’m just saying, I don’t have the time, but I’m willing to put the money into this thing. But I do have a question. What kind of… And you’re big into education, because you’re huge with BiggerPockets and everything.
Chris Clothier: Sure.
Steve Rozenberg: What kind of education do you give or do you suggest people take before getting into a turnkey? And do you have some kind of, not a curriculum, but is there something like setting expectations with them prior?
Chris Clothier: So with us, we try and be deliberate and we try and be, purposely slow. So we want to spend time getting to know the investor on the other side. And the very first thing that we want to get to know is, do they know the reason that they are investing in the first place? Why did they call us? Why are they looking for-
Steve Rozenberg: What’s their why?
Chris Clothier: That’s right. What’s this passive investment that they are looking for? We will oftentimes uncover that being a passive investor is not for them. And that’s what we want to do.
Steve Rozenberg: Absolutely.
Chris Clothier: We’re looking to-
Alex Osenenko: Proper discovery to qualify or disqualify.
Chris Clothier: Exactly. It has nothing to do with us. Everything to do with them.
Alex Osenenko: Can I ask a qualifying question there? Can we keep that thread? Just remember this thread. I do want to have because running a business-
Chris Clothier: Sure.
Alex Osenenko: … you have salespeople.
Chris Clothier: Sure.
Alex Osenenko: Salespeople are typically compensated on performance.
Chris Clothier: Right.
Alex Osenenko: So how do you deal with this balance where your job is to disqualify potentially a customer? How do you train Salesforce?
Chris Clothier: Well, because-
Alex Osenenko: This is a selfish question from me.
Chris Clothier: No. With us, so our repeat client, the client that comes back and is going to continue to build their portfolio. We know and we track this for going on at least five years at this point, that roughly 62% of our monthly sales go to an existing client building their portfolio. And so should you fail to qualify a purchaser on the front end and they do not continue to purchase down the line, you’ve taken money out of your own pocket. You’ve made your life more difficult and-
Steve Rozenberg: You got to go pay some more.
Alex Osenenko: So you pay your sales team on repeat transactions?
Chris Clothier: Of course. We continue-
Alex Osenenko: So it’s they’re recurrent, they’re building a book of business.
Chris Clothier: Their job is to continue to touch base with and discuss performance. How is the portfolio doing for you? When would you like to do a review? Would you like to speak again? What else have you been doing out there in your investment world? Are you ready to continue to build?
Alex Osenenko: They’re consultants. They’re not really salespeople.
Chris Clothier: No, absolutely.
Alex Osenenko: [inaudible 00:12:39].
Chris Clothier: Absolutely. They’re consultants. And now they are licensed real estate agents. So there’s no other licensing. They’re not giving any other financial advice.
Steve Rozenberg: They’re not CPAs or financial planner?
Chris Clothier: Not at all. Nor do they pretend to be.
Steve Rozenberg: They do more strategy sessions of saying, hey, you know you… And I love that because, whenever I talk to investors, I’m always like, “Look, nobody gets into real estate to own one property.” Never. You work for multiples, but what happens is it about number two to maybe three life starts happening and you slow down and you get busy and you lose sight of why you even got into it.
Chris Clothier: Well, you mentioned earlier that, and we do, we grabbed the mantle of being the leader of this industry with both hands. That’s what we set out to do. We take that seriously and we-
Steve Rozenberg: And you are.
Chris Clothier: We lead that way. One of the things that we’ve done is we will not sell an investor of one property. An investor comes in and says, “I’m ready to go. I’ll love your company. I’ve read everything, whatever. I’m ready to buy a house.” But they only have the ability to purchase one property. That is a losing proposition for them and us. What we found is that, that investor, and we’ve done that through the years, but we ended the practice because that investor that does not continue to build a portfolio, they put themselves on a roller coaster.
That when the property is occupied and they’re getting their monthly call from our customer service team, they’re happy. Everything’s great. But when a maintenance issue occurs, when there is a move out and we have a turnover and they’re not receiving the full rent, suddenly they go from being perfectly satisfied to, this is the worst investment I’ve ever made, because I just had to write a check for my mortgage and I didn’t have any income.
Steve Rozenberg: And they’re making it based on emotions because they’re emotionally tied to that.
Alex Osenenko: How is building a portfolio? Isn’t that so that I imagine there’s a piece for the diversification that, your four houses are rented, one is not, it’s not that big of a difference. Right? So you have a little bit of a cashflow-
Chris Clothier: Sure.
Alex Osenenko: … cushion, right?
Chris Clothier: Sure.
Alex Osenenko: But beyond that isn’t like you just getting from like isn’t getting worse with more houses? Like explain that to us.
Chris Clothier: Which part of it getting worse?
Alex Osenenko: Well, just the whole like you said-
Steve Rozenberg: If you have a dip.
Alex Osenenko: … you won’t let him buy one house. Like what’s the difference if I have six?
Chris Clothier: So the difference is the mentality of the investor on the front end. Number one, we simply choose to deal with investors that can and desire to build a portfolio. That’s a business decision. That’s a side that we know it makes it easier for us. We know that it builds in longevity. If you have a client that’s going to build a six property portfolio over the next three years, you have transactions built into your beginners.
Steve Rozenberg: You’d be customers.
Chris Clothier: So it’s a business decision number one that comes with size and ability. We’re able to make that decision. But number two, for the investor themselves, when you’re building a longterm relationship, which passive investing should be longterm, especially when you’re buying out-of-state, and you’re speaking with us like on a monthly basis, when there are issues that come up, two vacancies at the same time, three vacancies at the same time. A property is vacant and three other ones have maintenance issues. You built a relationship, you built a certain level of trust. If that occurs in month 39 down the road and you’ve got 38 months of-
Steve Rozenberg: Goodwill.
Chris Clothier: … how you build trust, then it’s an understanding that hey, this does happen. But we are going to take care of this for you. There’s a certain level of, again, ability to be able to step in and say, we’re going to handle this at cost. There’ll be no markup. Or we’re going to cover the price of that particular issue or we’re going to not charge you for the next resident if they didn’t fulfill their full lease. It gives you a lot of… I guess success gives you a lot of freedom to build and make those decisions and do those things.
When you have an investor that has six properties and you can say, these all six I’ve done perfect over time. You had a little issue here, a little issue there. Now we have this big hiccup, we have the ability to say, look, this is what we’ve already earned. We’ll get it back on track and get you back in that lane and-
Alex Osenenko: Got you. So Chris, to me it sounds like, there’s really distinctly like two, I’d say the biggest scattered two types of investors. There’s people who are like scrapping and they don’t really have… like we just had a medical doctor on the show, like the last show right. Now he’s definitely, because different income levels, different kind of a motivation for investing. It’s a lifestyle choice. It’s not a desperation.
So I guess what I’m hearing is like, a turnkey is really for some professionals who make significant income to be able to, well, let me just finish this statement. To be able to invest in real estate without dedicating their time, but having the ability to take care of any problems if the problems arise because real estate is not like a, it’s not just this flat line. As you say, there’s issues that come up. Like tenants move. Like it’s people in houses. And so you need wealthy people basically to work with you. You can’t have-
Steve Rozenberg: Well, that’s their target.
Alex Osenenko: You can’t have a college student that basic just scraped up the money for the down payment and they’re coming to you and say, here, Chris, take care of it now. Now I’m rich.
Chris Clothier: That is not what we’re built for you. You’ve nailed the concept of us as a company. That’s not what we’re built for. We want to help that particular college student invest his money in what we would call a wiser way. So possibly close to home, possibly something that he’s actively doing some other way to build a larger ability in a portfolio. So now you can actually, because one property far from home, is an expensive headache.
Steve Rozenberg: Absolutely.
Chris Clothier: It’s not, can it be an investment? Sure. But in our opinion [inaudible 00:18:21].
Steve Rozenberg: It’s not scalable.
Chris Clothier: No.
Steve Rozenberg: I think what he does with what I’m hearing is, is they’re very big on building the relationships with them, with the client. And I think the difference is from your person to their target is, is they’re explaining to the person, correct me if I’m wrong, basically they’re running a business. And in that business you’re going to have ups and downs, hills and valleys. And in that part of your business model is you’re going to have vacancies, you’re going to have maintenance. But because they’re building the relationship with the client on the front end is, they’ve got that Goodwill in the bank so that when that phone call does happen, and what I liked about what you said is every month you do like a check in.
Chris Clothier: Yes.
Steve Rozenberg: So every time, normally every time a phone call goes to a owner, it’s bad news. Well, now it’s peppered in with good news in the relationship building. So now it’s like, hey, how’s it going? Hey, we’ve got a challenge. We’re going to work through it. Just like you know, this is part of the business. This is part of the gig. My other question though is though, is that correct?
Chris Clothier: Yeah. And it’s often before you get that question it’s often peppered with, last time we talked, you said your grandson was coming to visit. How did that go? Was it good?
Steve Rozenberg: It’s relationship.
Chris Clothier: Or your wife was getting ready to start a new job and she enjoyed it. How’s that going? That’s great. We’ll call you next month and check in again. Let us know if we do anything for you. The vast majority of phone calls are, I have nothing to tell you. But I’m here, you’re there, your investments are good. Your money it’s just that-
Steve Rozenberg: The news is, there’s no news.
Chris Clothier: Yeah. The news is, there’s no news, but you can sleep well tonight because you know.
Steve Rozenberg: Absolutely.
Chris Clothier: Rather than being, there’s no phone call. I haven’t heard from my manager in six months. I think everything is good. Now it’s a case of every month, they’re there-
Steve Rozenberg: That’s great.
Chris Clothier: … everything’s good. And so when an issue occurs, it is much easier to let them know that, hey, this has occurred, but we haven’t handled.
Steve Rozenberg: Absolutely. Now my second question on a business marketing, was that a strategy to bring your client acquisition cost down? Because if you’re paying to get the client, but now the repeat business of them six times, now your acquisition cost goes down tremendously. Right?
Alex Osenenko: Well, the acquisition cost, I think the lifetime value of a client goes up and compare to it, the customer acquisition cost is probably, a lot smaller percentage. That’s how it works. But you guys spend a lot of time and effort, which are on education like I’m super passionate about.
Steve Rozenberg: They invest.
Alex Osenenko: So you have a huge, huge top of the funnel that people eventually trickle down into. And those on top of the funnel, you just help. Like if they never trickle down, you just help them.
Chris Clothier: I really want every person that comes into our funnel makes contact with us to say, I had a good conversation. I didn’t buy from them, but the conversation was helpful. They’re good people. They truly care. When and if someone ever says that I was completely sold by them, they just sold me from start to finish, that’ll be the day that whoever that was gets a readjustment on our side and possibly even out the door, because we are not here to sell anything. This is, we-
Alex Osenenko: And yet you are massively successful. Maybe that’s a lesson. There’s a lesson there’s somewhere.
Chris Clothier: Well, and many people would say that in actuality we’re selling constantly, and sure here at this event we’re selling, we’re selling our family. We’re selling the idea that-
Steve Rozenberg: The concept.
Chris Clothier: Yes, the concept of what we’re doing. The homes, the properties themselves are not the product. The product is the care and comfort that you will receive.
Alex Osenenko: The relationship [inaudible 00:21:55].
Steve Rozenberg: And the why in helping them find their why. Because look at the end of the day, four walls and a roof does nothing for you. It’s the business running in that four walls and the roof that actually is going to make or break your business and your future.
Chris Clothier: That is correct.
Steve Rozenberg: So they’re doing a great job building the relationships and the education and on BiggerPockets. And you said this at PM Grow and I looked after you said that, whenever they talk about Memphis Invest on BiggerPockets just as a reference, it’s all good because they’re there as an educate.
Alex Osenenko: [inaudible 00:22:28].
Steve Rozenberg: Because when you educate it’s about them, when you sell it’s about me. So they do such a good job of pushing that model out there. I mean-
Chris Clothier: I want to give, I’m going to take a moment here to make sure I get proper credit. That I do have partners. I’ve got, a brother, a younger brother. I’ve got an older brother that’s not, a partner in the business, but he certainly has been very influential on helping us develop the company. And then of course I’ve got my dad. Every business that my dad has ever started has been predicated on customer service. The experience that the client has. And every business. We’ve been in multiple different industries, but they’ve all been predicated on the experience that the client has because they will come back and they will tell others. And so-
Alex Osenenko: But so easy to say, it’s so hard to do. [inaudible 00:23:16] we’re trying to scale this property management thing and it’s like there’s so many hidden facets. You know the business intimately. But people who are listening, like there’s so many facets to property management, there’s so many different client types. There’s so many different housing types, like it’s crazy complicated.
And to deliver on that promise like the saying, it’s like, we’re a customer service company. Everybody says, but you guys have been delivering and which is fascinating to me. I’ll be honest with you. But I do want to poke at something. Not poke at something. But I want to understand, and maybe our listeners have this takeaway. I want you to be honest and talk about good turnkey and bad turnkey, because we see a lot of not so successful turnkey relationships, not with your company, but there’s a bunch of others. Can you give us a guideline or like how do people decide, like if it’s not Memphis Invest, let’s just say they have no appetite in Tennessee and Texas, wherever you are, four states, right?
Chris Clothier: Right.
Alex Osenenko: Let’s say they want to do Ohio.
Chris Clothier: Sure. I think there are red flags. And so-
Alex Osenenko: Let’s go through them.
Chris Clothier: Let’s touch the red flags. Number one. One of the issues that we all know is that, oftentimes it’s the sand states. It’s California, it’s New York or these places where wealth exists, that you see companies go to. And it’s a constant battle that you’re always promoting to the California investor to come invest in the heart land. And so you’re taking advantage.
Alex Osenenko: So those free seminars that we get advertised all the time.
Chris Clothier: Yes.
Alex Osenenko: Okay. Got it.
Chris Clothier: And so one of the things that happens is that when you are from an area where the cost of housing, the median price home might be four or $500,000 and it’s a three bedroom, two bath home, or one bath. It depends on where you’re at.
Steve Rozenberg: Depends on where you’re at.
Chris Clothier: There may not be a garage. There may not even be, just a sliver of yard that you have.
Alex Osenenko: You’re just describing my life.
Chris Clothier: All right, so there you are. So when you are presented with a very pretty picture of a three bedroom, two bath, fenced in yard, two car garage, beautiful little bungalow in wherever, middle America-
Alex Osenenko: Wherever.
Chris Clothier: … that costs $79,000 to get in, it automatically looks like a deal.
Alex Osenenko: It is to me like you painted the picture and I’m salivating right now because that’s-
Chris Clothier: It’s how quickly can I get started. And so I try and show people all the time that, that $79,000 deal to the investor that we just described, it looks like I need to get going and I need about 12 of these today. Where in reality that property, the real value of it, where it is might be $37,000 because there’s 27 more on the streets and half of them are boarded up or-
Alex Osenenko: Wasn’t that in your book? I read exactly [inaudible 00:26:07].
Steve Rozenberg: That’s story of my life. That was my life.
Alex Osenenko: If you guys want to read Steve’s book, he describes exactly what Chris did.
Chris Clothier: I love it. Well, that’s the issue that, to use the word turnkey, it’s easy. You can use the word turnkey. I made this very turnkey and easy. When in reality, as I talked yesterday on stage that, the red flags are that cheap is relative. Don’t buy cheap.
Alex Osenenko: So low priced, overpriced. That’s something to look into.
Chris Clothier: So it’s to aware of. So the house that costs $79,000 today, understand in middle America five years ago costs 29,000. And eight years ago it could be picked up for 4,000. In many scenarios.
Alex Osenenko: I can’t believe numbers like that existed. But keep going.
Chris Clothier: Well, you might have a company. I try to explain all the time that we’ve done real estate before. They’re just the economy. Economics doesn’t work with these low prices. It’s very difficult to make it work-
Steve Rozenberg: It’s tough.
Chris Clothier: … in this low cost properties in that it has been purchased, it has been renovated properly, with all the codes, all up to standards and proper, and that it’s going to function as a ongoing investment the way a passive investors should want, meaning headache free. I’m not going to have a lot of issues with these homes. And then at the same time to put profit in for the whoever is selling it and who did all the work and took the risk. I mean, there’s a lot of hands in that particular. And so the lower the price is, you got to start [inaudible 00:27:43]. There’s things that have been cut and no one’s going to do anything for free. So what’s been cut, it’s been the work.
Alex Osenenko: The quality.
Steve Rozenberg: The quality.
Chris Clothier: And then if you, let’s say the quality of the work hasn’t been cut but the price. So then the purchase price of whoever picked it up had to be cut. Well, not if you’re buying homes for four, $5,000. An investor has to think, why? Why was that home sold that inexpensive? Is there a lack of demand? Is there a lack of interest? There’s a lack of something, and who’s going to pay the price for that? Me. I’m owning the property in the backend. So really, really cheap is something that I think investors have to avoid. And price is all relative. Just because it’s way lower than what you’re accustomed to seeing where you live, that doesn’t mean it’s probably price for where it is.
Steve Rozenberg: The one thing I’ve always learned is, and someone taught this to me long time ago [inaudible 00:28:27] ever forget. The reason people fail is laziness or greed. And what you just said was the greed. You sit there and you say, you know what? I’m getting something and they’re not looking at it logically. They’re not doing their homework.
Alex Osenenko: It’s both. Laziness and not doing their homework. And you’re thinking, gosh, I could get-
Steve Rozenberg: [inaudible 00:28:44].
Alex Osenenko: … rich quick.
Chris Clothier: And here’s the third. I’ll offer a third to it. It’s loss aversion. If somebody comes in and says, this is too good to be true. So I’m probably going to lose money. But if I’m going to lose money, I’d rather lose a little bit. So I’m going to buy the thing that’s too good to be true because then my loss won’t be very big. Rather than buy say $150,000 a turnkey property, that is absolutely going to-
Steve Rozenberg: Man, that was my life.
Chris Clothier: … succeed.
Alex Osenenko: Perform.
Steve Rozenberg: You just described my life when I first got involved in investing.
Alex Osenenko: It’s fascinating.
Steve Rozenberg: That was it.
Chris Clothier: No, I don’t know if you mean that that’s what you bought.
Steve Rozenberg: That’s what I did.
Chris Clothier: I did.
Steve Rozenberg: That’s what I did.
Chris Clothier: I have 26 of them.
Steve Rozenberg: We had like 30 something, but same thing. We bought these low income properties and they killed us.
Chris Clothier: Yes. Before I understood that these basics, I made the same mistakes. I imagine you and I are the same way in that at this point I’m trying to operate, our family is trying to operate in a way that says, I don’t want other people to have these same mistakes-
Steve Rozenberg: Absolutely.
Chris Clothier: … nor do I want manage-
Steve Rozenberg: Exactly.
Chris Clothier: … those mistakes. So that’s number one. The other things to look for-
Alex Osenenko: So red flag number one is low price-
Steve Rozenberg: Too good to be true.
Alex Osenenko: … be aware.
Chris Clothier: Yes.
Alex Osenenko: Too good to be true. Be aware.
Chris Clothier: Yeah. Understand the economics. I mean, it’s hard to make low price properties actually operate the way you expect. Number two, this is a big one for me. It’s really length of time in business. You’re looking for a little gray hair. I told the story yesterday about the pilot. I don’t know if you heard it, where my father is really funny. If he gets on an airplane, he’s not turning right and walk into his seat, before he gets the chance to stick his head in the cockpit and just say hello to the pilots.
Steve Rozenberg: I didn’t hear that.
Chris Clothier: And he says, he’s like, “I’m looking for a little gray hair. I’m looking for the knowledge as I go sit down and I’m fine at 500 miles an hour or 30,000 feet that, should there be an issue, the person in front has the time and the wisdom and they’ve dealt with issues that they’re going to be able to safely handle whatever comes my way.” The same thing is true in real estate that if you’re dealing with a company, and you’re dealing with someone who says, “I’ve been extremely successful, I’ve had seven properties that I’ve owned and managed myself. Now I’ve decided to sell them to other investors. I’m managing 27 different properties now, so trust me, I know what I’m doing.”
You have to question that, when there is a correction, when there is some form of economic crisis or should there be another 2008, how are they going to handle my investment properties? Do they have the knowledge in business, not necessarily just in real estate, but in business in general? Have they been around the block a few times to know how to handle it when things get really hairy? And there’s just not enough.
Steve Rozenberg: And it’s funny is when I was doing a lot of the sales and stuff, I would tell people, I’d say, “That’s like going to a doctor that also does dry cleaning and he’s having a 50% off sale for surgeries today. What’d you go to that doctor? No.” So why would you trust your investment money, your life savings to go the cheapest way possible? Like does that make any sense?
Alex Osenenko: But people do that all the time.
Steve Rozenberg: They do it all the time.
Chris Clothier: And you just, you have to make sure and do a little investigation of who am I doing business with?
Steve Rozenberg: Laziness and greed.
Chris Clothier: What’s your background? Tell me what your successes have been. Ask the question. What’s going to happen if suddenly 50% of the portfolio that you’re managing goes vacant? How are we going to handle it? Have you ever been there before? And when there’s, don’t worry about that, that’s never going to happen. It’s never happened. Walk. I mean, because it has happened.
Steve Rozenberg: Well, and more importantly, my opinion is, is when you ask those questions, if they don’t know their numbers. What is your vacancy rate? What is your eviction rate? Those things like, what is your average rent price? If you have a property that’s $5,000 a month and they manage properties that are $800 a month, maybe not the quality you want.
Alex Osenenko: I have an idea. Do you guys have a document somewhere on how to interview a turnkey?
Chris Clothier: Yeah. I’ve published that multiple times.
Alex Osenenko: Can we please-
Chris Clothier: Of course.
Alex Osenenko: Can you please send us [crosstalk 00:32:37]. We’ll actually link it in the show notes-
Steve Rozenberg: That’d be good.
Alex Osenenko: … and have people because there’s probably a lot of different things.
Chris Clothier: I’m happy to do that. Happy to do that.
Alex Osenenko: Appreciate that.
Chris Clothier: I’ll give you two last red flags [crosstalk 00:32:47].
Alex Osenenko: So we have low price, length of time in business. So experience.
Steve Rozenberg: Gray hair.
Chris Clothier: Experience. Yes.
Alex Osenenko: Gray hair.
Chris Clothier: If you cannot purchase this property using the lender, if you must pay cash for a turnkey property, that is a major red flag.
Steve Rozenberg: Now, are you talking hard money too or?
Chris Clothier: I’m talking if the company says-
Steve Rozenberg: Cash only.
Chris Clothier: … you must pay cash.
Steve Rozenberg: Got it.
Chris Clothier: So they don’t care where the cash comes from, but you have to pay cash. Now what the typical explanation is that we’re moving too quickly. We don’t have time to wait on lenders. There’s high demand for what we do. So this has to go. It’s generally in my experience, a couple of things that you really have to have your red flag up for. It doesn’t mean it’s all bad. It doesn’t mean that there’s not somebody out there that operates that way that’s on the up and up. It just raises your risk as an investor because it generally means that the property, that there’s no opportunity for comparable sales. So it’s, I picked a price, a bank is going to say it’s worthless, but-
Steve Rozenberg: Were an encumbered title.
Chris Clothier: There could be-
Steve Rozenberg: You know.
Chris Clothier: There could be [inaudible 00:34:00]. I’ll say there can be good people doing this. [crosstalk 00:34:04].
Steve Rozenberg: I mean those are the things that you go, okay, I mean-
Chris Clothier: Why?
Steve Rozenberg: … why?
Chris Clothier: You lose the opportunity to have a disinterested third party that-
Steve Rozenberg: Look at this.
Chris Clothier: That is protecting their interest, review it for you to make sure that everything is-
Steve Rozenberg: Absolutely.
Chris Clothier: … proper. So that’s number one. The other thing about the cash transaction is that, it generally means it’s a low price property and so banks wouldn’t finance it anyway. So now you’re back to what we talked about earlier in price.
Alex Osenenko: Number one.
Chris Clothier: Now you’re back to, if there’s just reasons that a bank says no, we’re not touching that, maybe I as an investor should slow down. Because again, what we’re talking about here is risk. Is not necessarily good or bad, it’s that the more risk I have, certainly the worst, or the longer time I should spend before I make this mess.
Steve Rozenberg: And this is also barn that you, if you’re an out of state, now you don’t know the area. So you’re two dimensional basically because you’re not there.
Chris Clothier: Well, the vast majority of people that do purchase turnkey, they’re not local to the property themselves.
Steve Rozenberg: Correct.
Chris Clothier: And it’s that there’s various reasons for that. Some of them are absolutely personal and the investor just doesn’t want to see it. I don’t want to go and look at the property. I just want to make my investment.
Steve Rozenberg: It’s a mathematical equation.
Chris Clothier: Which is fine. Yes, exactly. But being that is the case, that is a big one. And the fourth one, the last red flag is just as big because we’re seeing more and more companies do this, where you can hire a third party inspection either. It comes with our certified-
Steve Rozenberg: Guaranteed.
Chris Clothier: … in the box, guaranteed. This is perfectly packaged up. We’ve done all the work for you. It’s almost like putting a big sign on that says trust us. And I say this all the time. I tell people about my own company. You can take nothing on faith.
Steve Rozenberg: Absolutely.
Chris Clothier: Make Memphis Invest earn-
Steve Rozenberg: Trust the verifier.
Chris Clothier: … the right for you to trust us. Exactly. And here’s the big thing about that. So we encourage the third party inspection and we use it as a check and balance against our own team, because we’re human. Our team makes mistakes every single day. When you’re doing 100 properties a month, we want to be perfect, but we’re not always perfect. There’s a certain number of properties every single month that we grade, the home inspections as average at best. And that’s not good enough. So we get these home [inaudible 00:36:32] back and we bring it back to our team as a number one, we fix everything. But number two it’s, how did we miss this?
Alex Osenenko: [crosstalk 00:36:40]. Is that [inaudible 00:36:40]?
Chris Clothier: 100%. That how we grade our team. They know that when you bring in a perfect home inspection where, and we’ve had these, when the inspector says, “I literally can’t find anything. The home is ready to go, there’s nothing that needs to be fixed.” I mean, you’re popping champagne in a party. That’s big for our team.
Alex Osenenko: [inaudible 00:37:00].
Chris Clothier: It’s rare. But like for us it might be, you’re talking about 1%, less than 1%. I mean, it is rare because they are really going through the home.
Steve Rozenberg: They’re looking for things. Their job is to find-
Chris Clothier: That’s right.
Steve Rozenberg: … what’s wrong.
Chris Clothier: So what is more likely is, here’s some very minor things that we found. And even though those are great and we reward our team for those, it’s still minor things had been found. We want to train our team up to be the inspector themselves. So when you are denied the ability to do a home inspection, that’s a-
Steve Rozenberg: Like, don’t look behind this wall. There’s nothing to see here.
Chris Clothier: That’s a major red flag. And I won’t put through this very much, but I will just say that, there are more and more, we’ll call them I buy companies. I think that’s what they’re calling themselves where you can buy across the internet and it’s dangerous. It’s dangerous when the company says, “You can’t inspect this property, that we began. We’ve done all the inspection for you, so you can’t look at the property,” and they’re using the word turnkey to [crosstalk 00:38:04].
So now this is going back to the turnkey is a marketing word, but I’m going to create a scenario where it’s been fully certified by me and you can’t look behind the curtains to see how it looks. These are things that, it’s a newer trend and it’s one of the reasons why I bring it up as a red flag. These are things that the investor has to watch out for and really kind of demand for their own good that we’re able to do this third party inspection, this disinterested in the sale. They’re just coming in to sure that, because even if the property has a few issues and on the front end, whoever’s selling it says look, “It’s as is.” At least now as an investor, you know.
Steve Rozenberg: You make those decisions.
Chris Clothier: So I have some CAPEX decisions that are down the road. This is minor, but without the ability to know that, you really are flying blind.
Steve Rozenberg: Now I have a question for people that are learning about the turnkey. You do all this stuff on the front end. Now the management side, is that part of it where it… because you do things where you’ll sell the property and not manage them or do you always manage them?
Chris Clothier: So it’s completely separate. That’s a good, it’s not really necessarily a red flag, but it’s a good point to bring up and understand. Are you able? Is it your property? Are you able to hire your own management company? Because if you’re not, there’s [inaudible 00:39:21].
Steve Rozenberg: There’s another chance.
Chris Clothier: There’s a problem somewhere. There’s a reason why you must use our management in order for it to perform and us to give you guarantees you have to use us. Well, that’s a red flag. I guess that’s another one [inaudible 00:39:33].
Steve Rozenberg: That’s another one.
Chris Clothier: So like on our side, you don’t have to use our property manager. These are two separate contracts. You purchase and then you hire a manager.
Steve Rozenberg: Then you want to earn their business as a management company.
Chris Clothier: In a vast majority. I’m talking as close to 100% they use our management company-
Steve Rozenberg: Absolutely.
Chris Clothier: … on the front end due to our experience and longevity. But it’s not required.
Steve Rozenberg: Got you.
Chris Clothier: What is required for performance.
Steve Rozenberg: I had a situation, in Houston, there was a lady reach out to me, she was in San Francisco and she says, “Can you help me? My parents live in Hong Kong and they bought this house and they haven’t gotten rent for nine months from the management company.” I’m like, “Yeah.” So I started doing some homework on it. I look up the tax records and basically the whole subdivision was people in China that owned the properties and bought it from a turnkey and basically they weren’t giving them the rent money.
Had been like two years on some people. They had not gotten any money. And they were in China and they didn’t know who to call or contact. And they went over there and did a dog and pony show over there in China. They placed their funds over here and it was a turn key.
Alex Osenenko: That’s a really bad apple though.
Steve Rozenberg: Absolutely.
Alex Osenenko: So let’s kind of, I think, let’s sort of wrap this up and say, look, if you want to learn more about Memphis Invest or at least how they do it, Chris, where would they go?
Chris Clothier: Right to our website, memphisinvest.com is probably the easiest and simplest way. There’s what I’m not sure what they’re called, buttons on the side where they can go and they can learn more about our company or they can learn more about turnkey in general, to be educated first. But they can schedule a, what we call a one to one consultation where one of our team members will take the time to sit down with them and get to know the investors, see if we’re the right fit for them and they’re the right fit for us.
Alex Osenenko: Sounds good. Well, I hope this was educational and helpful. It was for me. I think I have a good understanding how to at least look into it, and what is turnkey and the right way to do this. Chris, thank you very much for your time.
Chris Clothier: My pleasure. Absolutely.
Alex Osenenko: We appreciate it very much.
Steve Rozenberg: All right guys, we’ll see you next time. Thank you.
Alex Osenenko and Steve Rozenberg sit down with Dr. Charles Steve Shaffer and talk family, investing, and quitting one job for another.
Alex Osenenko: Boys and girls. Welcome to the next episode of the Mindful Investor Podcast Show.
Steve Rozenberg: Nice one.
Alex Osenenko: It’s pretty good. Today we have Dr. Steve Shaffer. Man, this one we teased out an [crosstalk 00:00:15] introductory episode. Yeah. Man, how exciting. This guy is an amazing personality. Like I’m talking about emotional, like if you watch this on video, his eyes light up. He’s so passionate about medical, he’s a doctor MD about curing people, and real estate. Equally, as passionate. And we talked about him potentially quitting. Actually, he’s really seriously considering quitting being a doctor in the interest of being real estate investor full time. Steve, you consider quitting your [pilot 00:00:44] so this was near and dear to you [crosstalk 00:00:46]. You took over this show.
Steve Rozenberg: We actually had some great conversations. And you know what you’re going to learn here is, putting himself through medical school, the guy bought a triplex, worked his way through and ended up leaving medical school debt free. How many people you know do that?
Alex Osenenko: That’s incredible.
Steve Rozenberg: That’s incredible. And the guy now he’s a doctor, and he just loves being a doctor, because he enjoys doing what doctors do. Bringing in life, being there when life ends, the full circle. He just enjoys what he’s doing and doesn’t have to worry about money. I mean, what a nice life that would be.
Alex Osenenko: It’s amazing. Let Dr. Shaffer save himself. Let’s get into the show guys. So we hear it, 2019 BiggerPockets Conference met a very interesting group of people, a lot of folks in different stages of real estate investment, adventure, career I should say, and this is what we’re going to talk about today is the adventure versus career. A lot of people get into real estate investing with a vision of passive income, with a vision of freedom for their families, for themselves, whatever the case is. But a lot of people who get into are professionals and today I’m blessed to have my co-host here, Steve Rosenberg, who’s an airline pilot, flies for United. And I have Steve-
Dr. Shaffer: Shaffer.
Alex Osenenko: Shaffer. That’s easy. I can pronounce that. Steve Shaffer who was a medical doctor. Both of them are successful real estate investors and have a little bit different paths. But at the end of the day, Steve Shaffer is going to talk today about the decision that he’s about to make. On whether to keep his day job, or transform it into something else. So, he can focus on real estate investing full time. This is fascinating topic and I’m sure many of you listening-
Steve Rozenberg: I think there’s a lot of people that either are in this boat or could be in this boat, like Steve and myself that you focus your whole life on one path. And all of a sudden for whatever reason and everyone has different reason, but their why changes and now they do a shift. And so, I’m curious to hear your story as to what happened and what caused you to, to actually even think of doing that shift, let alone doing the shift.
Dr. Shaffer: Sure, absolutely. No, that’s a great question. My story is probably a little nontraditional as far as the path of medicine, right? I don’t come from a long line of medical people. And my dad was a police officer and my mom’s a teacher and nobody medical in the family. And I grew up in West Virginia. And I wouldn’t at all say poor, like we were great. But I didn’t realize until I was much older that like, “Oh my goodness, like we had the nice house. And it costs, this house that we paid for forever, it costs half of what medical school costs.” So, I went to a private undergraduate institution in South Carolina for my undergrad. And it was kind of hoity toity, a lot of people there had some dollars. It was a private school.
Steve Rozenberg: [inaudible 00:04:08].
Dr. Shaffer: Yeah, they were doing great and I was not in that boat. And so I worked four jobs all the way through undergrad. And they were all food service. So, you know. And when I was a manager, when I was a cook, when I was a server. And was just grind-
Steve Rozenberg: Just scrapping and grinding.
Dr. Shaffer: Just grinding. And was able to graduate debt free, which is wonderful.
Steve Rozenberg: Oh wow.
Dr. Shaffer: And then again, looking up at the mountain of the med school debt. And so, I actually did an air force scholarship.
Steve Rozenberg: Okay.
Dr. Shaffer: And so I was a doctor for the air force for a while. But yeah, somewhere in there, into high school really. Even before I got to college, I read Rich Dad Poor Dad just like everybody else. [crosstalk 00:04:46]. Got bit. So, in medical school I bought a triplex, lived in the big unit, rented the other units to classmates. It pretty much covered the mortgage.
Steve Rozenberg: Based on that book? Based on what you’ve learned basically?
Dr. Shaffer: Yeah kind of, I mean just based on assets, liabilities.
Steve Rozenberg: Okay.
Dr. Shaffer: Right? Trying to wrap my head around that. Even at that stage where everybody’s just accumulating the student loans. And I accumulated some student loans that I shouldn’t have, especially in light of the air force scholarship. I’ve made a lot of mistakes along the way. But that was the first thing, that triplex looking up and being like, “Oh I live for free.”
Steve Rozenberg: Right?
Dr. Shaffer: Like the rent-slash-mortgage is covered. And that was in the good old days where I walked into a bank and they were like, “You’re in medical school?” And I was like, “Yeah.” They were like, “What’s your income?” I was like, “Absolutely nothing.” They were like, “Well sign here, we’ll give you a house. [crosstalk 00:05:31] Here’s your triplex.”
Steve Rozenberg: Yeah.
Dr. Shaffer: And then you know that shift, 2008 happened while I was in medical school. And so, when I came out I was on the back end of it. So, I bought a foreclosure for residency and did a live-in flip. And that was really the second deal. And then worked with the air force a little bit, got transitioned to a station in New Mexico.
Steve Rozenberg: Okay.
Dr. Shaffer: And did a flip down as well. And so like this, you know, primordial, starting with the single families and working my way up with the idea of always passive income.
Steve Rozenberg: Right.
Dr. Shaffer: So, I would say that the grind stuff for me, that shift was… It’s old.
Steve Rozenberg: So, now were you actually… You started doing real estate as a doctor?
Dr. Shaffer: Yeah.
Steve Rozenberg: It wasn’t a doctor first and then real estate.
Dr. Shaffer: Correct.
Steve Rozenberg: It was both running parallel.
Dr. Shaffer: Absolutely. And I mean I think it’s valuable the way that it worked out for me. So, like I house hacked in medical school. So, this time where some people were starting to eye the BMW and stuff, I was able to pull the reins back on that and be like, “Hey listen, you know, if we live for free, we can get out of this thing and not really have a lot of debt.”
Steve Rozenberg: Yeah. That’s some huge insight. I mean that that alone, just to think that way is, I mean talk about contrarian, I mean your complete opposite of what society thinks.
Dr. Shaffer: Sure.
Steve Rozenberg: Which is probably where you are today because of it.
Dr. Shaffer: Yeah, a little, I mean I have to be careful because that’s my thing, right? Is that contrarian side and that chip on my shoulder.
Steve Rozenberg: Right.
Dr. Shaffer: And so when I was in undergrad, I am sure that it was not actually as bad as it is in my mind. Where these guys, all of these rich guys, making fun of me for smelling like French fries. It probably wasn’t that bad at all.
Steve Rozenberg: Sure.
Dr. Shaffer: But that’s the way I remember it. That like that was-
Steve Rozenberg: So, that’s how it was.
Dr. Shaffer: Yeah.
Steve Rozenberg: If that’s what you think that’s what it was.
Dr. Shaffer: Right, right. But that was my chip. That’s what kept me going. And so I could not afford the Kaplan course to study for the MCAT, this admissions test to medical school. I couldn’t afford it. And there was no possible way I could afford it. Well, everyone else went and I remember showing up to the MCAT, a lot of them rode together too, and I wasn’t invited.
Steve Rozenberg: [inaudible 00:07:45]
Dr. Shaffer: That’s in the back of my head. Yeah. And so I showed up and it was me and a pencil. Because, that’s what you needed to take the test. It’s not a big deal, right? These guys had the layers that they teach you to wear in case the room is cold. They had the salty snack. They had Gatorade. They had like a system-
Steve Rozenberg: They’re in teams.
Dr. Shaffer: And they looked at me and I mean that was the one memory that I’m pretty clear on. That actually happened and they gave me a really hard time about it.
Steve Rozenberg: Really?
Dr. Shaffer: Yeah. And then I ended up doing quite well on the exam and got accepted to medical school first. And that was my thing, I was just like all right, well.
Steve Rozenberg: That’s awesome.
Alex Osenenko: That’s a pretty cool story. So, that sounds like you are basically putting… You’re scrappy, right? You’re entrepreneurial.
Dr. Shaffer: Yeah.
Alex Osenenko: That’s what it is. And you don’t see a lot of entrepreneurial doctors, nor pilots per se.
Steve Rozenberg: No.
Alex Osenenko: It’s interesting. So, let’s explore that a little bit. For those who are listening. Maybe they’re maybe an accountant, maybe it’s some other job.
Steve Rozenberg: Engineer.
Alex Osenenko: Engineer. So, your passion from what I understand, your passion for real estate is not really for real estate. Your passion is for independence. Is it building that-
Dr. Shaffer: Yeah, exactly.
Alex Osenenko: Building that wealth? And real estate is just a vehicle or you actually are passionate about real estate?
Dr. Shaffer: It is both. So, it is definitely in that financial independence, retire early mindset. And I consume a lot of content in that space. I love that stuff. I love thinking that way. I’m more of that… If you’ve talked to many of these people, the [fat fire 00:09:15], like I don’t want to be extremely frugal. I want to be able to enjoy my life. But yeah, it’s freedom. That is the driver. Real estate is an excellent vehicle. And heard other people say this so I don’t get credit at all. But like it’s not get rich quick. It’s get rich for sure. And especially in the market that I’m in.
Alex Osenenko: [crosstalk 00:09:29] I haven’t heard that before.
Dr. Shaffer: Yeah. So, the market that I’m in. Fargo, North Dakota, 2008. They didn’t know that it happened.
Steve Rozenberg: Yeah.
Dr. Shaffer: Because, every year you’re going to get that 2 or 3% plod. You’re never going to get 30% appreciation.
Steve Rozenberg: It didn’t swing far, so it didn’t swing far the other way.
Dr. Shaffer: It never went up a ton. It never went down a ton. It just, it just plods along and the population increases. You have a diversified employment base, like those kinds of things. So, I don’t know if he’s been on this podcast yet, he’d be an excellent guest? Neal Bawa offers a lot of insight into demographics and those kinds of things in areas as a multi-family guy. And like that is the part of real estate that I love.
Steve Rozenberg: So, you like the data, you like the data side of it or?
Dr. Shaffer: I like the data side, but it’s just really, yeah, I actually really liked the nitty gritty, but the multi-family reposition.
Steve Rozenberg: Okay.
Dr. Shaffer: So, this building is a small business.
Steve Rozenberg: Absolutely.
Dr. Shaffer: And it’s failing and I can fix it. So like Shark Tank, The Profit, those kinds of shows. That’s my jam-
Alex Osenenko: I love those too.
Dr. Shaffer: Yeah, right. [crosstalk 00:10:33].
Alex Osenenko: In Shark Tank-
Dr. Shaffer: Oh man.
Alex Osenenko: Every episode, every time. There’s not enough of these shows out there.
Dr. Shaffer: Yeah, sure. And the funny thing is they’re quite popular, you know? And so, Shark Tank’s doing great. But yeah, I mean Marcus Lemonis goes into this business and people, process, product. And fixes it, that is fascinating. And I don’t know enough about the [small 00:10:53] business.
Alex Osenenko: [crosstalk 00:10:54] Major dumpster fire.
Steve Rozenberg: [crosstalk 00:10:57] I’d like to backup.
Dr. Shaffer: Yeah, yeah. Sure.
Steve Rozenberg: So what I’m curious… Especially for people watching. How do you think differently today? Because, I want to go to where you are today.
Dr. Shaffer: Yeah.
Steve Rozenberg: But for people that are thinking of doing this, how do you think that you were able to change your mindset from what you thought of back in med school, right? You were on that path, but how do you think you are different today than you were then? And if you were talking to yourself, what advice would you give yourself back in the day?
Dr. Shaffer: Yeah, that’s an excellent question. I would say the reason I led in that way. The reason I laid that groundwork was I didn’t change that much. And so I think that if somebody is coming to this kind of a podcast from the medical community or whatever, they may have a bigger mountain to climb as far as mindset.
Steve Rozenberg: Yeah.
Dr. Shaffer: Because I was there mindset-wise, the things that I would do differently… I mean this is very candid, very personal stuff. But I used to gamble too much and I didn’t have money because the [macro 00:12:00] I was excellent in. You know what I mean? Like, “I’m not paying for a house. My car costs $3,000 and it’s great.” I’m doing all these different things to start revenue streams and all this stuff that’s smart. And then you go and give money away to the house.
Alex Osenenko: You have to live with little though too. Right?
Dr. Shaffer: You got to live a little.
Alex Osenenko: I was going to ask you-
Dr. Shaffer: Yeah.
Alex Osenenko: This is my question. When you had four jobs.
Dr. Shaffer: Sure.
Alex Osenenko: You went through medical school.
Dr. Shaffer: Yep.
Alex Osenenko: Air force scholarship. What do you do for fun? That was my question.
Steve Rozenberg: Gamble.
Dr. Shaffer: Not anymore.
Alex Osenenko: I guess there’s a little bit of a life has to be left. So, when people are listening, they might be wondering like, “Hey man, I can’t do that.” I mean Steve Shaffer is a monster. Like he’s smart, he learns stuff. He passes the tests, you know, without layers, what have you. But how do you blow off steam? How do you actually mentally get back on?
Dr. Shaffer: Yeah, I think, I’m glad you brought that up, I think that is a glaring weakness of mine. I’m not good at it because I had that chip on my shoulder still. You know what I mean? I’m the kid from West Virginia, I moved, the nobody believes in this thing or whatever. It’s really a lot of artificial now. But that’s what drives me and I’m not good at it. I’m not good at relaxing. I’m not good at unwinding and I actually have to work on it.
It takes work for me to be like, “Okay, I’m going to do nothing for a few days.” And I read, I mean, I really enjoy that. And so some people might get on me for that, “Hey, well that’s not really taking time off.” Or whatever. Like you’re still the… I love reading and I don’t get a lot of time to like sit and read. I consume a lot of content via audio because I commute. Back and forth [crosstalk 00:13:44]
Alex Osenenko: Yeah. We all are the same. I’m an avid podcast listener, and audio books.
Dr. Shaffer: Right.
Steve Rozenberg: But I will say much like him… And so I did a, over the summer, I did a mastermind with the BiggerPockets people.
Dr. Shaffer: Awesome.
Steve Rozenberg: Some very high successful people in this mastermind. And the biggest thing I got out of it was that I never celebrate my wins.
Dr. Shaffer: Yeah.
Steve Rozenberg: I’m always any win I get, it’s in the rear view and I’m looking at the next thing.
Dr. Shaffer: Yep.
Steve Rozenberg: It’s a fault, I think, of mine because I never, I mean, airline pilot, real estate, built a business. I never stop and enjoy any of it. Anything I do it maybe a dinner, but that’s it. And it’s moving on to the next.
Dr. Shaffer: Yeah.
Alex Osenenko: Yeah. I agree with that. So, celebration, let’s put a pin in this because this is an interesting topic. But you have a hobby. You ride a Harley, don’t you?
Steve Rozenberg: I do, yes.
Alex Osenenko: I fish. Fishing for me is that.
Steve Rozenberg: Clears your head.
Alex Osenenko: I’ll listen to a book. Like I wait. I’m not one of those OCD bass fisherman. I sit there and let them come to me. I like set it all up. What do you do? Do you have a hobby?
Dr. Shaffer: Yeah, kind of. I mean I actually really enjoy, I don’t know if this is obvi or not, it’s more work I guess, but I really enjoy working on the properties. So my-
Alex Osenenko: That can be therapeutic.
Dr. Shaffer: It’s really cathartic. And so, I have outsourced much. I have learned a lot. I held on to too many things for too long. But painting? Painting is mine. Painting is catharsis. And so, man, cutting in those lines and it’s so transformative in such a short amount of time for just [crosstalk 00:00:15:18]-
Steve Rozenberg: You’re seeing [crosstalk 00:15:19] You’re reaping the rewards of you’ve done.
Dr. Shaffer: Yeah you step back, and you’re like, “Oh.”
Steve Rozenberg: “I did that.”
Dr. Shaffer: “That’s pretty.” Yeah. And so, I really enjoy painting, but like painting houses. I wish I could paint people. That’d be awesome. I can’t-
Steve Rozenberg: You can [crosstalk 00:15:32].
Dr. Shaffer: No, absolutely not. Like I, yeah, I go to the painting classes. I really enjoy those.
Alex Osenenko: You do that? Wow.
Dr. Shaffer: Yeah, I really enjoy those. Those are fantastic. So, that kind of stuff. Like I, I want to do things. And so like the painting classes, the cooking classes, learning new things that is my relaxation. Like I love learning juicy stuff.
Steve Rozenberg: Do you tinker with stuff?
Dr. Shaffer: Yeah, some.
Alex Osenenko: Do you, let’s shift gears a little bit, let’s talk about your decision to now forgo or mostly forgo this hard earned profession that you’ve built a career-
Dr. Shaffer: Sure.
Alex Osenenko: You’ve built this, there’s progression, there’s opportunity where you are, right? And is a medical doctor.
Dr. Shaffer: Yep.
Alex Osenenko: Talk us through that decision. When was that initial thought occurred in your brain and how you developed it?
Dr. Shaffer: Yeah, I mean again, I have always been looking down the barrel of freedom. You know what I mean? From the get go. And so I took a step back and I was like, “Okay, science, I like people, how do I make money?” And then that’s how I ended up in medicine. Which is really difficult to put out there in the universe because that’s judged pretty harshly, right?
Steve Rozenberg: Sure, there’s a stigma to it.
Dr. Shaffer: Yeah, right. The answer in the interview is to help people and it absolutely is to help people. And the things that medicine has afforded me have just been outstanding. I mean, fabulous. And being there when babies are born and being there when people die and this amazing profession. I love it. And I think that’s an important point to make is that I don’t dislike medicine. I don’t hate my job.
And there’s a lot of doctors who do, they’re burned out. And that might be some of this audience, they’re burned out. They’re tired. Paperwork, insurance companies, their staff, billing. There’s so many things in medicine that that can cause you problems. And just like anything else, I selected my job on purpose. And so the job that I’m currently doing is perfect for me. Like schedule wise and the pay’s great. And the people that I work with.
Alex Osenenko: So, how do you leave that?
Dr. Shaffer: Well and that’s the question, right? So, I mean I am not-
Steve Rozenberg: You’re not like pushing to go, “I got to get out, I got to get out.”
Dr. Shaffer: Exactly. I am not leaving out of a sense of frustration or bitterness or anything like that. I’m leaving out of the ability to do so.
Alex Osenenko: Yeah, it’s intentional. I get it Steve. But what I’m trying to get to is why?
Dr. Shaffer: That’s all right, let’s get there. Yeah.
Alex Osenenko: Right? So, are you… The opportunity costs, right? So you leave that, you leave your professional behind, the opportunity cost is significant. Like what are you going to do with that time?
Dr. Shaffer: Right. Excellent. And I think that, to throw it back on you would be, why not? And like you bring up opportunity costs. And I would counter with sunk cost fallacy.
Alex Osenenko: [inaudible 00:18:31].
Dr. Shaffer: So, like 11 years of my life, so four of undergrad, four of medical school, three of residency. And I did this air force scholarship, which genuinely… I mean I’m entrepreneurial. The military is a bad place for entrepreneurial people as Steve made out. So, I did not have a good military experience and most of that, almost all of that was entirely my fault. And so there’s a lot of lessons that I learned there. But you have this massive cost in the rear view mirror and now you have this great salary. And honestly, the hardest part for me in the fire discussion is 401k, 457 some of these tax deferral vehicles for that income. I don’t need it. So, I think that-
Alex Osenenko: Hold on, let’s just take a second here.
Dr. Shaffer: That’s okay, yeah.
Alex Osenenko: That’s really interesting. So, your aspiration is not to make more money, but then this is where I’m confused. You are an incredibly driven person. I think a rare breed I’ve met, top the top 1% of people I met. And I meet some high powered people.
Dr. Shaffer: Sure.
Alex Osenenko: Very driven. Where is that drive going to go? I’m wondering like, okay, it’s not the money necessarily. You’re not going to all of a sudden start making 10 times as much in a year or so. But-
Steve Rozenberg: I think what you’re asking is, is you’re asking destinations [crosstalk 00:19:56] and I think he’s saying he’s doing it for the ride.
Dr. Shaffer: Yep.
Steve Rozenberg: And I think that’s a bit of the difference because I’ll tell you very similar, just like an airline with airline pilots, I fly with guys all the time that are miserable. And they would be miserable if they were sitting on their couch flying from home. They would still, whether it’s the company screwing them over, or the union, or this, and it’s just nonstop. And whenever I hear that, I’m sure, just like with doctors, I always think of the Guns and Roses story, right? Guns and Roses was at the top of the world and they broke up because basically they didn’t get along. And you’re thinking these guys were on top of the world. They were making the money, they were living the life. But to us they were living the life. To them they were miserable and unhappy.
So, the fact that like I… Same thing with flying and maybe the same thing in your position. I love going to work because I don’t need it. I go to work and fly, but I don’t need to be there. So when I hear people bitching and moaning all the time, I’m thinking to myself, you can complain or you could change your environment. You’re choosing to be unhappy. You could do what I did. You could buy real estate. You could do these things you choose not to. So, this is the environment you’re in and you go to work and it’s like, “Oh, did you hear about the union? Did you hear about this?” And I’m like, “No, I didn’t hear anything.” I don’t get any of those emails. I don’t get anything. Because I want to go to work and I just want to fly and enjoy it. And is that similar?
Dr. Shaffer: It’s very similar. And we can get into… I have some questions for you with that too, that Alex kind of clued me in on. Because you kind of hacked your job.
Steve Rozenberg: Yeah.
Dr. Shaffer: You’re doing the what? This two route thing, right?
Steve Rozenberg: Yeah. Two times a month.
Dr. Shaffer: That’s awesome. That’s amazing. And like it exists out there for a certain number of pilots. And some of these guys are grinding it out and they’re miserable. Charlotte to Dallas and you’re like, “Listen man, switch gears. That’s all you have to do.”
Steve Rozenberg: Just change your perception.
Dr. Shaffer: Yeah. And so, I was a primary care physician. I’m family medicine trained. And so I was a primary care physician and I loved primary care, you have this sense of ownership and these are your patients. And you get to see the progress because they’re coming back. I really enjoyed it. There’s also a lot of challenges in primary care. It’s not extremely well compensated. There’s tons of paperwork, there’s a lot of frustration. There’s frustration around noncompliance. And so, it gets into this huge ball of bitterness where you spent 11 years of your life to like help people. And you have lost it.
Steve Rozenberg: [inaudible 00:22:16].
Dr. Shaffer: You have 0% of it. Now, you hate these patients. Some people. You know what I mean? They’re coming in and you hate it or whatever.
Steve Rozenberg: And that feeds upon itself.
Dr. Shaffer: How did we get here? It’s 100% the wrong way. And so I have been very fortunate where I’ve been offered opportunities in my life, and been able to take advantage of them. But I started moonlighting at this, [inaudible 00:22:44]. I’ve got a second job. Because the job that I’m currently doing now, I started as a moonlighting position. And I’m a hospitalist.
And what that means is when the ER calls to admit somebody to the hospital, I’m that guy. So I go down to the ER, I admit the person at the hospital and then I’d take care of the people that are in the hospital overnight. Overnight only. I only work nights. And there’s a couple of reasons for that. But that was one of my conditions when I came on to that position. That position had never existed before. But several of the doctors that were there didn’t want to work nights. They don’t like it, you know?
Steve Rozenberg: Right. They probably want to be with their families.
Dr. Shaffer: Yeah. They’ve got families. That’s great. And so I love it. And so it’s, it’s seven on, seven off, 12 hour shifts. I have half my time off to myself. 12 hour shifts if I am not busy, I get to sleep.
Steve Rozenberg: Now is some of that because you don’t have to be around other doctors? And you can just do what you want to do, which is take care of people.
Dr. Shaffer: Absolutely. And then the cool thing with that is, I mean I’m really hesitant to put this out on a podcast just in case it ever goes anywhere. But I had an administrator from the hospital the other day literally run into me like physically in the hallway and he’s, “Oh excuse me.” Because, I was in this kind of employee stairwell. He’s like, “Hey, are you lost? I can get you back to the main area or whatever.” And I was like, “I work here.”
Steve Rozenberg: “I work here.”
Dr. Shaffer: Yeah. He’s like, “Oh cool. What do you do for us?” I was like, “I’m a physician.” And he’s like, “Oh neat man. Did you just come on?” I was like, “I’ve been here two years.” But that was the secret sauce to me.
Steve Rozenberg: Absolutely.
Dr. Shaffer: I don’t go to a meeting.
Alex Osenenko: Are you thinking then, this is going to be your gig moving forward?
Dr. Shaffer: No, no. So, this is the gig that I’m potentially hanging up and it’s great. It’s wonderful. I love it. But just like the flying two routes or whatever, it is wonderful to know that you can lay it down.
Steve Rozenberg: Yeah. It’s funny, you know, I did a trip one time where I was about three, four years ago. I was going down to Rio de Janeiro and we had the chief pilot with us and we’re flying down to Rio and he’s like, “Stevie, how long have you been here for?” And I said, “About 15 years.” And he’s like, “Really?” He’s like, “I’ve never met you.” And I said, no offense, “I don’t want to meet you.” Because that’s the 10% that are always in trouble. And I said, “Do you know what’s even more funny?”
I said, “When I was based in Guam, you are the chief pilot in Guam. And I never met you there either.” He’s like, “I get it.” He’s like, “I get it.” But that’s, again, I don’t want to be in that crowd. I go to work, I love what I do because I love to fly. And then I love to go home and I leave it all there. And so, a lot of people they take that home with them. And that’s when it starts eating them up and it eats them up from the inside and then they’re miserable at home. Then they’re complaining, then they’re this and that’s the challenge.
Dr. Shaffer: Yeah. And I think the one thing that, and Alex was probably going there, but like pilot and doctor. And you mentioned engineer earlier.
Steve Rozenberg: Yep.
Dr. Shaffer: It’s interesting to me because like I have met so many engineers in real estate investing. And several of them that have gone full time and now they’re realtors and there’s a lot of that. I have, and I’m sure their family gave him grief or whatever, that doesn’t seem as big a deal. But if you are a doctor and you said that you were going to quit medicine to be a real estate investor, everyone thinks you are. [crosstalk 00:25:46].
Steve Rozenberg: You got on the podcast.
Dr. Shaffer: Yeah. Right. I got on this podcast, they were like, “This guy’s an idiot.”
Steve Rozenberg: “What is he thinking?”
Dr. Shaffer: Absolutely. Because it’s this massive income and you’re potentially landed down for something that is perceived as risky.
Steve Rozenberg: Sure.
Dr. Shaffer: But the thing with pilot and medicine and engineer and a couple other professions, it is so woven into your identity.
Steve Rozenberg: Absolutely.
Dr. Shaffer: And I mean you are a pilot. You have a thing-
Steve Rozenberg: It’s who you are. [crosstalk 00:26:13].
Dr. Shaffer: You have the cool hat.
Steve Rozenberg: I got the hat.
Dr. Shaffer: I got the white-
Steve Rozenberg: I should wear the hat from now on.
Dr. Shaffer: You should wear the hat from now on. Be the captain. I’ve got a white coat. I’ve got a stethoscope.
Steve Rozenberg: Yeah. That’s the identity.
Dr. Shaffer: That’s it. That is your identity. You know what I mean? And so laying that down, that is, I think the climb that most people in medicine would really have a hard time with. You are-
Steve Rozenberg: You have to change who you are.
Dr. Shaffer: Sure.
Steve Rozenberg: Yeah, absolutely.
Dr. Shaffer: And it’s not even the people who like, correct you when you say Mr. because those people are a special breed. “Dr. If you please.”
Steve Rozenberg: “It’s doctor.”
Dr. Shaffer: Yeah. You don’t like those people. But not even just those people. I mean you’re a doctor. It’s a lot of work. It’s, it’s one of the hardest paths there is, right?
Alex Osenenko: So let’s sort of take it all the way.
Dr. Shaffer: Yeah man.
Alex Osenenko: I still am struggling to understand why.
Dr. Shaffer: That’s okay. Yeah.
Alex Osenenko: I want to get that. I want to leave here-
Dr. Shaffer: Sure.
Alex Osenenko: And the audience with understanding. All right, what’s next for Steve Shaffer? What is that next thing? Is it more freedom?
Dr. Shaffer: Yeah.
Alex Osenenko: More freedom to do what you want. Because you’re a driven guy you’re going to do stuff.
Dr. Shaffer: Yeah I know.
Alex Osenenko: You’re not going to paint.
Dr. Shaffer: Oh, yes I will. To your point the… When you asked about relaxation earlier, that is actually the part right now that I am figuring it out. And that’s the part that scares me. Because if I get to the point where I’m satisfied with my passive income and I don’t have a full time job anymore. But I mean I have three kids and absolutely love them. I love chasing them around and occasionally I catch one of them.
Alex Osenenko: You have three kids? There’s new things-
Steve Rozenberg: Keep popping up.
Dr. Shaffer: Yeah. Yeah, no.
Alex Osenenko: 24 hours a day. Do you have more?
Dr. Shaffer: Yeah, no.
Alex Osenenko: Do they teach you more than school? [crosstalk 00:27:57].
Steve Rozenberg: Time travel.
Alex Osenenko: Time [hockey 00:00:27:59].
Dr. Shaffer: Yeah. The same amount of time. But I, to answer your question directly, I am scared about what’s next. Because I’m not good at taking my foot off the gas. I’m just not good at it. And I am sure that it will pivot into something. Like you asked the tinkering question I wanted to like take off on this whole, like I got a grant for this STEM education thing that I came up with.
There’s stuff in my head that I haven’t had time to act on, but like I am genuinely… Us three at the table. I would love to go to culinary school. Why? Because I don’t-
Steve Rozenberg: Why not?
Dr. Shaffer: Because I don’t know how to do it yet. You know what I mean?
Steve Rozenberg: So, you’re a problem solver. You like to solve problems.
Dr. Shaffer: Love solving problems.
Steve Rozenberg: Puzzles?
Dr. Shaffer: Yeah, absolutely. My daughter inherited it. We did an escape room for her birthday the other day and it’s… She is the best. So my daughter is-
Steve Rozenberg: I’d love to go to a game night at your house.
Dr. Shaffer: Oh my gosh, my daughter… Oh, no you wouldn’t.
Steve Rozenberg: It’s probably pretty intense.
Dr. Shaffer: It’s cut throat. Yeah. So, my daughter is a testable, verifiable genius. Like literal genius. People call, they want to put her into programs. Like she is off the charts smart. I hope she never hears this. She’s off the charts smart. And I love that kid so much because she doesn’t know it yet.
Steve Rozenberg: Right.
Dr. Shaffer: And she’s still very grounded. And so, we walk into this escape room thing. And it is minimum four people per team because of the size of the rooms. And it’s her and I. And like she is below the age limit, everything. And the guy was like, “Hey man, well come on in and have a good time.” But whatever, we got out.
Steve Rozenberg: No kidding.
Dr. Shaffer: Oh yeah, absolutely she got out. That kid is so awesome at solving problems and whatever. And like seeing that, I mean that’s what’s next.
Steve Rozenberg: So, I have a question. Quick side note, kids.
Dr. Shaffer: Yeah, yeah, go for it.
Steve Rozenberg: How are you going to and are you going to instill this freedom mindset? Because I think what you’re asking and what he’s done. And like myself what you’re actually doing is it’s not necessarily… I don’t know if it’s necessarily a destination. I think what you’re doing is you’re buying your freedom or you’re getting your freedom. You’re getting the ability to make a decision on what you want to do.
And that is very hard. When you’re a pilot, when you’re a doctor, when you’re any of those things, you’re very conformed. And you can’t move out of these huge organizational structures. And now with him, he could do what he wants. He could say, you know what, tomorrow-
Alex Osenenko: He hasn’t done it yet so-
Steve Rozenberg: But he has the ability to say, “You know what, I’ve got real estate. I’m going to punch out. I don’t need this.” And so my question is are you going to instill that in your kids? And if so, how?
Dr. Shaffer: Yeah, excellent question. Absolutely. I don’t know how yet. I mean, exactly. And the, the interesting thing for me, I might get a little emotional. I’m going to try not to. My daughter, verifiable testable genus. My son, my middle son, so my daughter’s the oldest she’s 12, my middle son that that kid is awesome. I just really enjoy him. He is so fun. He’s 10 and he is perfectly normal, like upper tier of normal but normal. And then my youngest is six and he’s autistic. And so like you take those three kids somewhere and try to keep everybody busy for a minute, good luck.
And so, it’s been fascinating to find the things that they can all enjoy. And so solving problems, building, that kind of stuff, that’s one of those things. And so there’s these… That’s kind of where the STEM education concept was born when I was working on that. A little more full. Like you can take them to these places, these Lego STEM kind of plays where they build things. There you go. The smart ones over here like, you know, constructing a skyscraper. And then my little guys like patterns, and so. But, you can keep everybody busy. And so my thing is I don’t have a book. I don’t have a program. They’re going to be very individualized. So, my daughter has already read Rich Dad Poor Dad.
Alex Osenenko: So, that’s an interesting. How old is she? 12?
Dr. Shaffer: She’s 12. And so the Rich Dad Poor Dad thing for me is interesting because I love that book very much. I read it every year. And there’s a lot of problems with it, holes in it, and people poke holes in it all the time now. But that inspirational piece is invaluable.
Steve Rozenberg: It’s a mindset shift.
Dr. Shaffer: It’s a mindset shift. It’s a great mindset book. And the cool thing for me is I am both, I’ve done both. I’ve climbed the academic mountain and I’m willing to lay it down to be the poor dad. Because he wasn’t the poor dad, right?
Steve Rozenberg: He wasn’t.
Dr. Shaffer: He wasn’t. And that, and that mindset shift, I want my kids to always be empowered to quit. Yeah.
Steve Rozenberg: Yeah. To have the freedom to make a decision.
Dr. Shaffer: Absolutely. I want them to be monsters that are absolutely persistent and never quit and like work so hard, until they should quit. And I want it to be their decision.
Steve Rozenberg: So one of the parts of that book, and I believe it was that book where he talks about minding your own business.
Dr. Shaffer: Yeah.
Steve Rozenberg: And basically you know where you work your job, but you mind your business. Meaning you run your business at nighttime and on the weekends to build up that empire basically.
Dr. Shaffer: Sure.
Steve Rozenberg: So, that’s obviously… So, I’d like to go into where you’re at now. So, that’s kind of what you did. You basically minded your own business.
Dr. Shaffer: I did.
Steve Rozenberg: You ran your real estate up. So, take everyone to where you are today in this cycle, and what you’re doing and where you want this to go.
Dr. Shaffer: Excellent question. Thanks.
Steve Rozenberg: You notice I get the excellent questions, he hasn’t said that about you.
Alex Osenenko: I’m just fascinated processing.
Dr. Shaffer: It’s because excellence’s not a good enough word for you Alex.
Steve Rozenberg: Oh wow.
Dr. Shaffer: We need a better superlative. [crosstalk 00:33:41]. Right now I am at 42 units. If I close, what’s in front of me, we’ll be at 61 by the end of the year. I say we a lot, it’s just me. And so I own 100% of the equity right now. I used my own money up until this year.
Steve Rozenberg: Okay.
Dr. Shaffer: And I have started taking in some outside money but as debt.
Steve Rozenberg: Sure.
Dr. Shaffer: And so just saying, “Hey listen, I’m going to give you a return on your money and I’m using that for down payments and renovation.”
Steve Rozenberg: And there’s nothing wrong with that.
Dr. Shaffer: No, no, no. And the thing for me is like the only deals that I’m doing right now are grand slams.
Steve Rozenberg: Right.
Dr. Shaffer: And so, I’m able to be a little choosy. I’ve closed on a couple of decent multi-families. And in Fargo, North Dakota, there’s probably 50 people that trade everything. It’s just-
Steve Rozenberg: It’s a small community to begin with. And then you get-
Dr. Shaffer: Sure. So, if something’s coming up, I’m on the list of people who get called, you know what I mean? And so, that transition. That shift is enormous. And so, and I don’t know if you guys have experienced it yet, in your businesses and stuff. But I mean, yeah, you get to that point where people start bringing you deals. And then it’s picking gold up off the beach.
Right now my baby is a 15 unit building. I love it. It’s gorgeous. I’m so excited about it. But it is my problem solving just masterpiece. So, the thing in multi-family is you buy on [actuals 00:35:00], right? You do not buy in [proforma 00:35:00] period. Understood, this building, the actuals were horrible and no one bought it because no one went to look at it with their eyeballs. And so I walked in and did this massive renovation. It was ready. It was a release project.
Steve Rozenberg: Oh wow.
Dr. Shaffer: Yeah. And I mean management wasn’t where it needed to be and all this stuff. So I mean, I just stumbled into it and it’s awesome. So, by the time we closed that… When I bought… When I put it under contract, there were 40 units that were full out of this building. You know. So, when I closed there were nine, now we’re full a couple of months later.
Steve Rozenberg: Nice.
Dr. Shaffer: Yeah. But they have this massive attic space upstairs that is an attic. That’s what it is. It’s going to be a three bed, two bath showpiece.
Steve Rozenberg: A penthouse type?
Dr. Shaffer: Oh, it’s going to be great.
Steve Rozenberg: Nice.
Dr. Shaffer: And so, like that kind of stuff. There’s this massive boiler that fed the building, but it’s been decommissioned for 30 years. I found a gentleman, an enterprising gentleman with a sledgehammer and a [settling 00:35:53] torch and now the boiler’s gone. So, there’s going to be a unit in the boiler room.
Steve Rozenberg: Nice.
Dr. Shaffer: And-
Steve Rozenberg: So, you’re seeing opportunity where other people don’t.
Dr. Shaffer: Oh man, the multi-family reposition stuff, juice in the [NOI 00:36:03], getting to where it needs to be and then how that translates into the value of the building. I love that.
Steve Rozenberg: Now when you’re taking in capital, what’s the exit strategy on those deals? Or is there an exit strategy?
Dr. Shaffer: Yeah, it’s a great question.
Steve Rozenberg: Great question again.
Dr. Shaffer: He got it again. Yeah, no. So I been refining out-
Steve Rozenberg: Okay.
Dr. Shaffer: All this stuff has enough meat on the bone, right? I’m coming out like 70/30 paying everybody back.
Steve Rozenberg: Nice.
Dr. Shaffer: Yeah. And it’s, yeah, it’s been pretty great.
Steve Rozenberg: That’s awesome.
Dr. Shaffer: Yeah.
Alex Osenenko: So guys, I feel like two of you can sort of sit on a plane, fly to what’s the furthest destination? Is it Sydney?
Steve Rozenberg: Sydney, Australia.
Alex Osenenko: 17 and a half hours. Talk one way. Talk to the other way and just like barely get to know each other. So, so why don’t we, why don’t we call this? It’s been a fascinating experience-
Steve Rozenberg: Yeah, great story man. Awesome.
Dr. Shaffer: Thanks for having me.
Alex Osenenko: I think the underline here is like the is the passion. You have the drive and the passion for all these things you do. So, I think in this people have this term for something like this, whatever you touch turns to gold. Because you have full attention and intent and focus behind it, which is quite fascinating.
Steve Rozenberg: Yeah.
Alex Osenenko: But let’s see how this story develops. So Steve, I’d love to have you on the show maybe what six months from now. Do you think that-
Steve Rozenberg: Will evolve by then?
Alex Osenenko: The job will come to an end.
Dr. Shaffer: So, we didn’t get into specifics. The job, what I’m looking at. I signed a couple of sign on bonuses when I came on and there’s really no reason for me to pay a penalty. I love my job. So 20 months.
Alex Osenenko: 20 months.
Dr. Shaffer: 20 months is what it is right now. There’s a step off point. So it’s basically, is it going to be one year or two years? There’s a step off point in nine months.
Steve Rozenberg: That’s when we need to talk to him, is in nine months.
Dr. Shaffer: Yeah, eight, nine months.
Steve Rozenberg: Yeah.
Dr. Shaffer: So eight, nine months I’ll be at a decision point.
Steve Rozenberg: That’s-
Alex Osenenko: That’d be a good show.
Steve Rozenberg: That would be a good [crosstalk 00:37:48].
Alex Osenenko: Let’s have a conversation then. And I’m so fortunate to go to this conference and meet people like you. Steve it was incredible.
Steve Rozenberg: Yeah it was awesome.
Alex Osenenko: Thank you for your time.
Dr. Shaffer: Thanks a lot fellas.
Steve Rozenberg: See you next time guys.