The way they think about money and wealth. Real estate investors have much more
of a cash flow focus than the accumulation model that you know, kind of
we're all taught when it comes to investing in your stocks, bonds, index
funds, all that kind of a thing. It's that is more based around
building up enough of a pile of assets so that when you're eventually ready to
retire, your pile will be big enough so that you can sell pieces of
it off gradually and pay your bills. You're listening to Carrie Lets's Financial Survival
Network, where you get valuable information you just can't find anywhere else to thrive
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Financial Survival Network now more than ever, And welcome. You aren't listening
to watching the Financial Survival Network, I'm your host, Carrie Lutz. Well,
you know we're always looking at different investment classes and different investment categories.
Well, the show started, I definitely was a precious metals investor still am
to this day. Have not given up faith or hope in it at all,
and I've done quite well in it, but I've done well in other
asset classes as well. So the point is you have to everybody's different,
Your situation is different, and you need to look at the overall scheme of
things when you're deciding where to allocate your scarce capital. Well, we have
a new guest on for you. He started out investing in the market,
Teller lot. In twenty fifteen he had an epiphany and at that point he
switched his investing over to real estate, to both the multi family and storage
facilities. Tellor, it's great to have you on the show. So in
twenty fifteen had this epiphany. How did this come about? Well around that
time, thinking back, it's been a little while now. There was the
big price crash in oil, which didn't hammer my portfolio, but it pointed
out to me. It showed me how much the performance of my investments was
out of my hands. And in the investing world that's always the case to
some extent. But when we buy real estate, we're really buying a business
that we can run and operate and have fundamental control over, which completely changes
the what aspect of it is within and without of our control. If that
makes sense. It was really noticing how much of it was out of my
control, and just I was kind of tired of the volatility of Wall Street
and also seeing that when we invest in like publicly traded securities as compared to
real estate, we can't control what happens with those big businesses when we buy
a stock out there. But when we buy a piece of real estate,
we're in the driver's seat, right We're making decisions about not only the property
that we buy, but what renovations do we make to the property, and
how do we handle evictions, what property manager do we have in place?
Everything around that is just completely a different ball game from buying stocks and bonds.
Okay, so I get that you wanted more control over your future.
And look, Wall Street exists first and foremost to feed Wall Street, to
feed the interests of Wall Street, and the client is always coming behind the
interest of the broker or advisor or whomever. Yes, there are plenty of
well intended financial planners out there who aren't getting paid by every other company that
they put you into. But look, even when you go into an ETF,
you got point two or five percent expense ratio. You go into mutual
funds, annuities and things like that, the UF fees can be far higher.
Doesn't sound like a lot, but when you factor that in over ten
twenty thirty years, you see that Wall Street gets the lion share of the
profits and you come in second always. So, how has it worked out
for you? Having this epiphany tailor? Oh it's going great. One of
the things that you learn once you get into the real estate investing world is
how differently successful real estate investors think about money and think about wealth. So,
first off, thinking about money, successful real estate investors have a successful
mindset. They have an abundance mindset. They don't have this scarcity mentality.
Even though we aim to invest in scarce assets where the supply is limited and
demand exceeds to supply and everything around that, As far as the amount of
success that is out there to be had, we don't see it as a
limited function. Right, There's enough out there for everybody and who's willing to
go and get it. But going beyond that, the way they think about
money and wealth, real estate investors have much more of a cash flow focus
than the accumulation model that you know, kind of we're all taught. When
it comes to investing in your stocks, bonds, index funds, all that
kind of a thing. It's that is more based around building up enough of
a pile of assets so that when you're eventually ready to retire, your pile
will be big enough so that you can sell pieces of it off gradually and
pay your bills until hopefully you die and you have at least some of your
pile left, rather than running out before you pass away. Whereas for real
estate investors, the goal is much more focused around building it up enough cash
flow to cover your expenses or massively exceed your expenses once you get it to
that point, so that when you're in a phase where you want to retire
or get out of the get out of the hustle, whatever your household is,
that your income, your cash flow from your real estate investments covers or
exceeds your expenses. And if you have to sell something off, it's because
you choose to it's the right time, rather than I need to sell this
off to pay my bills. That's not to say that can't happen. That
certainly can happen, but real estate investors generally speaking would consider that not to
plan right. We want to have our cash flow cover our expenses rather than
the other way around, and that that model of investing. I have a
rich dad, poor dad behind me. Many of your listeners might be familiar
with that classic book, you know. He talks about that quite a lot
in that book as well, but very common mentality and real estate. All
right, So what's the worst deal you've ever done in real estate? So
it was my first one, actually, So the first deal that I invested
in. I started as a passive investor in multi family properties because I had
built up this nest egg in Wall Street and it had done well. But
I decided to make this pivot. So I had capital ready to go.
Spend some time researching how do I want to invest in real estate? And
the thing that stuck out to me right away was multi family properties is what
I still invest in today. So spend some time networking and meeting with operators,
learning about the asset classes, and met this operator that I thought,
Okay, I'd like to invest with this guy and this team, and so
I invested in a deal that was two apartment complexes in Atlanta. That was
in twenty sixteen, I think late twenty sixteen, if I remember correctly,
invested in the deal, and long story short, the property manager ended up
stealing some money from us, and normally that's not great rights, that's a
problem in its own. This was complicated by the fact that the owner of
the property management company had general partnership shares in these so he was part of
the operator team essentially, and as soon as the main person who was running
the deal found this misbehavior on the part of the property manager, they were
terminated. He did all the right things, but the kind of muddied waters
of who owned what and how he had general partnership shares led to a couple
of years worth of legal battles and arbitration, so that, you know,
we lost out on quite a lot of cash flow. Fortunately, we were
saved by the market, to be honest with you, Even though the deal
went sideways, the market continued to appreciate, so we got out profitably,
but it was a lot less than we'd really expected, and a lot less
than I think would have been possible if there hadn't been this huge distraction,
legal battle and all the associated you know, bills and headaches around the behavior
of the property misbehavior excuse me, of the property manager. So that really
hammered home to me very early the importance of, you know, having the
right people on the team. All right, So I'm going to tell you
first lesson of business according to my father, and that Let's first rule of
business. Anytime you go into a new business, you pay for lessons.
That's true. And what you're describing your virgin deal, you paid for lessons,
right, and hey, you didn't lose money, so actually you got
paid to learn, although the profit wasn't as big. So I just look
at it from what you should have made to what you actually made. That
was tuition educational expense. And you could have written it off, right,
I mean, because I assume you didn't make that mistake again, certainly not.
No. That informs you know, the way we do deals today,
what I invest in today. And you know, hey, one of the
upsides is that I get to tell folks like your listeners about what happened and
spread the knowledge. And with that comes you know, and it has value
to somebody out there, all right. My first love of business, Kerry
Lets's first love of business is you will spend in business the majority of your
time doing the things you like to do the least at least when you're starting
out, that is a guarantee, whether it's invoicing or customer handholding, whatever
it is that you hate doing the most, that is what you will be
left doing until you create the systems that enable you to free you from that
slavery. That is a great point, and that's something that Yeah, there
were a lot of things that I was doing years ago that I didn't like
to do because they need to get done. And as I've grown and reinvested
in my business, I've started I've hired people to handle those things, and
I've constantly looked for what is the next thing that I'm doing that I could
hand to somebody, I could hire somebody for I could give to my current
team, Or what is the next thing that we're not doing that I don't
want to do, I'm not going to do consistently on a day to day
basis because I have other higher value distractions. So it's a great point,
totally true. And hiring and building my team has been a key part of
growth that I've had in multi family and the way that you avoid not doing
the things or avoid doing the things that you don't want to be doing that
aren't the best use of your talent, because if it was a great use
of your talent, you didn't like it so much. But you see,
the value is the first thing you need to do. How much am I
worth an hour? All right? Is it ten dollars twenty five fifty one
hundred? You know, at one point in my life is worth probably two
three thousand dollars an hour? And then it's like this job that I really
don't like doing, how much if I was in the market, would I
get paid to do that job? And if it's less than what you are
worth, then you are basically doing a job that you shouldn't be doing because
it's beneath your pay scale, and you should always be asking now would look,
if you're starting out, you don't have any money, you don't have
adequate finances, that's one thing. But if you have the money and you're
just being cheap, you're just stealing from yourself. I'll give you For instance,
good friend of mine content producer, and got into YouTube's and he was
complaining to me, I just spent eight hours putting together this video. And
I said to him, hey, look, I know what you're worth here,
we're doing work together. You're worth somewhere between two fifty to five hundred
an hour. All right, so that means you spend eight hours putting together
a video. I know you did a great job. I still don't think
he did as good as someone else who's a pro. But I know you
did a great job. But it cost you somewhere between two to four thousand
dollars to do that. It would have cost you a three to five hundred
to pay a professional editor. And honestly, I said, hey, you
know, people actually go to school to learn how to do video editing,
and they'll do it much faster than you as well, because I got templates,
they got all the tricks. So I persuaded him, said hey,
so you shouldn't be doing it. And then like two weeks later I found
a video editor, the guy who was a real pro, and he said,
carry you're like so one hundred percent right. I said, now you
have to look at the other stuff that you're doing and get somebody else to
do that too, because you're blowing a lot of time. Time Really important.
A question for you, teller, how do you find deals? So
early on it was really hard. I had a really hard time. Now
we have a network that has been built up over years of basically folks who
bring deals to us. We build up these relationships, get to know people
that people do deals with them, and then over time you just build up
a deal flow. But it's really hard at the beginning, especially in the
commercial space. A lot of that has to do with Okay, if you've
never done a deal before, then it's hard to go to a commercial broker
and demonstrate to them that you're able to close on a commercial deal. Why
is that important? That is important because commercial real estate brokers control eighty to
ninety percent of the deal flow, particularly in multi family. In any given
market, there's a handful of brokers who will control that deal flow. Now
you can certainly go off market, it's going to be a big hustle to
find a deal and get a deal done. These brokers really specialize in that
and that's what they're paid for. So it's hard at the beginning. But
building up your network over time, putting in the work, you can make
it happen, but it takes it takes a while, and it's a slog
there at the beginning. So networking really essential. So I asked you your
worst deal, What is your best deal. Let's see. So I'm in
a deal right now a sell storage property in Texas that is going to be
sold soon within the next couple of months, and my capital is probably going
to once I get back out. I'm not sure if the exact percentage return,
but what we're expecting is probably two and a half maybe three x.
That deal was done back in twenty nineteen, so we've held it a little
while here and it's done pretty well. There's quite a lot of value add
done on the deal. Really a healthy timing, good location between two major
markets, So that'll probably be the best deal we'll see. I mean,
we're holding a few others now that have been acquired more much more recently that
won't be sold for a few years, so only time will tell on those.
But you know it really it's boiled down to, you know, having
the right people in the right place, investing in the right location at the
right time, with the right strategy, all those pieces being in order,
and then just you know, buying real estate and waiting. Honestly, okay,
and so let's look at obviously real estate, it's really thousands of markets
across the United States and different sectors. So the least favored real estate market
now office buildings. Is there any way to make money off of that type
of commercial real estate? That is a good question, and frankly, I'm
probably not the best person to ask because it's so far outside of my strategy,
you know, kind of going back to what we talked about earlier,
is I invest in scarce assets that have high demand, and the problem with
offices is that that equation is flipped right. Many markets have too many assets
and very little man. I would like to see and I'd like to find
someone who is doing office to multi family conversions. I believe in my heart
of hearts that that is a viable business strategy if you get the building at
the right price. I think, you know that's there's just so many markets
that are ready for that strategy to work. But again, you have to
get the properties at the right price, which might mean some pain for today's
office investors and taking a big haircut on their investment. But personally, it's
it's not what I invest in because you know, we can survive without offices.
It's been years of folks working from home. I know some people have
different feelings about that, but you know, I think we're in a different
era now. Okay, So number two of the disfavored real estate shopping centers,
malls, particularly strip centers still doing well, right, supermarkets still doing
well. But malls, closed malls or even outdoor malls, if they haven't
repositioned into entertainment centers, they're basically shuddering, absolutely true. And that's a
shifting a matter of shifting consumer demand. So I live in Richmond, Virginia.
We have one mall here that has been converted to add multi family essentially
attached to it. And I think, frankly, that's the change that is
going to need to happen to keep some of these malls just as viable properties
that have any value. Because you know, I'm a millennial. They say,
how awful we are. I mean, I'm in my mid thirties,
right, I'm married, I'm an adult. We're adults now, right,
and we are not going to malls. We don't go to malls. We
shop online. So those assets need to transform, is my opinion. Okay,
And you see the repositioning where, like you say, where there's actually
shopping centers with residential above it, there's an outfit. They're in Austin but
I think they're around the country remain and that's what they do, very chic
looking shopping spaces with like an Apple store in the mix and other restaurants and
clubs and that type of thing. And then you got that there, so
that's interesting. Obviously can't be done everywhere. The only place retails are really
doing well is in the South, you know, the malls Florida. But
even here we've got some duds that have to where I live, that have
to be repositioned. So then we get into like trailer parks. Now,
those have been like a real popular very you know, it's attracted a lot
of capital, particularly from hedge funds because these large cash on cash returns.
I know we were talking prequel, you said you haven't gotten into any of
them at this point. You think if the other markets you're in dry up,
you might look at one. I think possible, you know, never
say never. There are several different segments in the mobile home park space.
There's the kind of older properties that you know, we're kind of more a
tune to looking for right kind of the classic what you might think of as
a trailer park, and then there are newer assets that are oftentimes like retirement
communities that are brand new that have you know, just essentially detached mobile homes
on them that folks want retired to. I understand. I think there's a
few of those that have gone up over the years in Florida and other more
coastal markets. You know, personally there I see a lot of still fragmentation
in that market, a lot of mom and pop owned assets. But you
know, many areas, many municipalities have you know, they really have it
in for these mobile home parks, and there are a few reasons for that.
There's a perception. Of course, we've all many of us have probably
seen the show Trailer Park Boys, great funny show, and I got to
check it out. It's it's a great show. It's very funny set in
Canada, but it applies to the US. So there's the perception of say
crime, and then on the other hand of that, you could just look
at it financially, mobile home parks they generally have low tax assessment values.
They don't bring in a ton of revenue to these municipalities, so there's the
financial incentive to for municipalities to kind of try to squeeze those mobile home parks
out and have them redeveloped. So there's a few problems with it. I'm
not saying I'm opposed to it, but any business plan has to make sense
with those realities in mind. Yeah, they're like low revenue, high services,
particularly police department. That's the stereotype there for sure, and it does
apply to some, not all by any stretch. There's certainly within the city
that I live in, there's a couple of them, but they're like they're
high end. The you know, a unit there, it's more modular,
I guess than trailer but you know, unit there go for half a million
bucks. I mean, that's not you, not your redheaded step child's trailer
park, you know. So interesting. So but you've gotten into storage,
all right. I like storage. You don't need a lot of management there
and basically the money just comes in and when they stop then you call it
in the guys from storage wars and they sell it off there. If you
do, you have like regular sales in you in your storage areas, your
storage properties, where you wind up selling off abandoned lockers. So I'm fortunate
that with my in like our investment model, I get to stay out of
the day to day that was one of my big goals because going back to
your your comment about the value of your time in terms of dollars per hour,
I think that's a big mistake that a lot of folks make, generally
more on the residential side, buying single families and trying it self manage.
And you know, we all know like doctors who un rental properties and self
manage, Like my friend, your time is valued at hundreds or potentially thousands
of dollars per hour, why would you go self manager rental property? And
I've applied that to my own real estate investment model as well, So honestly,
I couldn't tell you how often you know we're having to auction units off.
I'm certain it's happening. In reality, it's a lot less exciting than
in storage wars. You know, people often just kind of keep junk in
these units. But you know it's not just predominantly junk. There are businesses
that often you know, take advantage in many areas of climate controlled storage.
So you know, there's a pretty diverse demand base for self storage out there.
What kind of returns are you getting on your self storage properties? So
I would be kind of generic about what I might want to say publicly if
we tax return, if I looked at a deal that was below like the
teams, I would not be interested in it personally. But I don't know
if I want to get any more specific than that. That's cool, Hey,
risk in storage properties? What are the biggest risk factors that you face
in a buying one an existing one and building one from scratch. I didn't
even ask you if you actually develop them or not. That's part of the
model generally. What we invest in though, is existing properties with expansion potential,
where there's demand in the market and there's also empty space on the lot
that we can build into. I perceive the biggest risk and sell storage generally
that many markets, especially primary markets, are overbuilt and have been overbuilt over
the recent years, and that you know, it's relatively cheap to put these
properties up, so there was a lot of money going into putting those properties
up, kind of irrespective of the amount of supply and demand. So buying
a property an area that is overbuilt in self storage, I think as I
see as a much higher risk than in say multi family, where most major
metropolitan areas, even secondary and tertiary don't have enough housing right, you still
have to quantify that when you're doing an investment, but that's just kind of
the reality as most areas are undersuppled and multifamily, where self storage some are
oversupplied, and the demand dynamics are so different in that self storage is more
dominated by in terms of demand drivers by drive RADII like basically how far do
you have to go from the property and how much population do you have in
that area. Generally folks will talk about and we'll focus on one, three
and five mile drive RADII, which you can map out pretty easily. There's
also some advanced tools that will look at drive times, which is a bit
different from drive distances you know, five, ten, fifteen minute type of
things. But supply and demand, I see is really the biggest risk self
storage so therefore really more so than a multi family, calls for a pretty
serious market analysis before you pull the trigger. And then you want to look
for a value add where you can increase the existing number of units there because
like you said, the construction costs relatively low. Yeah, and if you
can't do that expansion right away, you want to be able to you know,
cover your debt and everything. You don't want you don't want to be
in a position where you have to do that expansion in order to keep the
property, right, that's not a good situation. That's a no no,
because you've got to get approvals. And a lot of towns are unfavorably disposed
to storage properties even though they are, like on the amount of services that
they require from the government, they're really at the low end, aren't they.
Yeah, I think probably the i'd say mobile home parks is still less
favorable. And then self storage in terms of you know, government preferences,
but yees, storage is not generally high on the on the list of what
they want to see developed. Yeah, so you got obstacles, But it
all depends whether you're dealing with municipalities, counties and all that, right,
Right, so it's specific to the jurisdiction. All right, Well, now
business friendly area and all that. Yeah, exactly. So Texas areas,
lesser developed areas of Texas, they're probably more favorably disposed than coming into Miami
Beach. But you know, prices are so high, so the market really
determines the appropriateness of the use, right All right, Hey, well we
really appreciate you coming on. I know you are You've got a site to
Passive Wealth Strategy dot com. Is that the best place for people to find
you? Or where else can they connect with you? Yeah? Absolutely,
that's my podcast website, The Passive Wealth Strategy Show, new episod every Monday,
Tuesday, and Thursday. Go there to learn more about the podcast,
potentially investing with us, you know, or get in touch. All right,
Hey, if you got a question for Taylor myself, shoot me an
email kl atcarry Lutz dot com. We'll get you an answer quick. And
while you're at the site, you can find the Financial Survival Network dot com
show notes to this interview. We've got a link to Taylor's site right there,
and while you're there, sign up for your free newsletter Teller a pleasure.
Really appreciate you coming on and perhaps we'll talk to you again in the
future. Sounds great. Thanks for having me, Thanks for listening to carry
Lutz's Financial Survival Network, your solution to today's trying times. For the latest,
go to Financial Survival Network dot com. Financial Survival Network now more than ever