Latest / Financial Survival Network / Passive Real Estate Investing -- Taylor Loht #5862

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Passive Real Estate Investing -- Taylor Loht #5862 · Financial Survival Network

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The way they think about money and wealth. Real estate investors have much more
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of a cash flow focus than the accumulation model that you know, kind of
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we're all taught when it comes to investing in your stocks, bonds, index
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funds, all that kind of a thing. It's that is more based around
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building up enough of a pile of assets so that when you're eventually ready to
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retire, your pile will be big enough so that you can sell pieces of
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it off gradually and pay your bills. You're listening to Carrie Lets's Financial Survival
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Network, where you get valuable information you just can't find anywhere else to thrive
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Go to Financial Survival Network dot com and get your free newsletter and gift.
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Financial Survival Network now more than ever, And welcome. You aren't listening
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to watching the Financial Survival Network, I'm your host, Carrie Lutz. Well,
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you know we're always looking at different investment classes and different investment categories.
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Well, the show started, I definitely was a precious metals investor still am
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to this day. Have not given up faith or hope in it at all,
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and I've done quite well in it, but I've done well in other
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asset classes as well. So the point is you have to everybody's different,
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Your situation is different, and you need to look at the overall scheme of
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things when you're deciding where to allocate your scarce capital. Well, we have
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a new guest on for you. He started out investing in the market,
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Teller lot. In twenty fifteen he had an epiphany and at that point he
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switched his investing over to real estate, to both the multi family and storage
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facilities. Tellor, it's great to have you on the show. So in
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twenty fifteen had this epiphany. How did this come about? Well around that
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time, thinking back, it's been a little while now. There was the
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big price crash in oil, which didn't hammer my portfolio, but it pointed
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out to me. It showed me how much the performance of my investments was
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out of my hands. And in the investing world that's always the case to
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some extent. But when we buy real estate, we're really buying a business
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that we can run and operate and have fundamental control over, which completely changes
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the what aspect of it is within and without of our control. If that
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makes sense. It was really noticing how much of it was out of my
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control, and just I was kind of tired of the volatility of Wall Street
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and also seeing that when we invest in like publicly traded securities as compared to
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real estate, we can't control what happens with those big businesses when we buy
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a stock out there. But when we buy a piece of real estate,
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we're in the driver's seat, right We're making decisions about not only the property
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that we buy, but what renovations do we make to the property, and
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how do we handle evictions, what property manager do we have in place?
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Everything around that is just completely a different ball game from buying stocks and bonds.
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Okay, so I get that you wanted more control over your future.
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And look, Wall Street exists first and foremost to feed Wall Street, to
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feed the interests of Wall Street, and the client is always coming behind the
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interest of the broker or advisor or whomever. Yes, there are plenty of
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well intended financial planners out there who aren't getting paid by every other company that
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they put you into. But look, even when you go into an ETF,
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you got point two or five percent expense ratio. You go into mutual
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funds, annuities and things like that, the UF fees can be far higher.
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Doesn't sound like a lot, but when you factor that in over ten
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twenty thirty years, you see that Wall Street gets the lion share of the
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profits and you come in second always. So, how has it worked out
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for you? Having this epiphany tailor? Oh it's going great. One of
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the things that you learn once you get into the real estate investing world is
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how differently successful real estate investors think about money and think about wealth. So,
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first off, thinking about money, successful real estate investors have a successful
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mindset. They have an abundance mindset. They don't have this scarcity mentality.
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Even though we aim to invest in scarce assets where the supply is limited and
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demand exceeds to supply and everything around that, As far as the amount of
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success that is out there to be had, we don't see it as a
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limited function. Right, There's enough out there for everybody and who's willing to
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go and get it. But going beyond that, the way they think about
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money and wealth, real estate investors have much more of a cash flow focus
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than the accumulation model that you know, kind of we're all taught. When
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it comes to investing in your stocks, bonds, index funds, all that
5:26
kind of a thing. It's that is more based around building up enough of
5:30
a pile of assets so that when you're eventually ready to retire, your pile
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will be big enough so that you can sell pieces of it off gradually and
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pay your bills until hopefully you die and you have at least some of your
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pile left, rather than running out before you pass away. Whereas for real
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estate investors, the goal is much more focused around building it up enough cash
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flow to cover your expenses or massively exceed your expenses once you get it to
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that point, so that when you're in a phase where you want to retire
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or get out of the get out of the hustle, whatever your household is,
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that your income, your cash flow from your real estate investments covers or
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exceeds your expenses. And if you have to sell something off, it's because
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you choose to it's the right time, rather than I need to sell this
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off to pay my bills. That's not to say that can't happen. That
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certainly can happen, but real estate investors generally speaking would consider that not to
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plan right. We want to have our cash flow cover our expenses rather than
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the other way around, and that that model of investing. I have a
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rich dad, poor dad behind me. Many of your listeners might be familiar
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with that classic book, you know. He talks about that quite a lot
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in that book as well, but very common mentality and real estate. All
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right, So what's the worst deal you've ever done in real estate? So
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it was my first one, actually, So the first deal that I invested
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in. I started as a passive investor in multi family properties because I had
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built up this nest egg in Wall Street and it had done well. But
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I decided to make this pivot. So I had capital ready to go.
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Spend some time researching how do I want to invest in real estate? And
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the thing that stuck out to me right away was multi family properties is what
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I still invest in today. So spend some time networking and meeting with operators,
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learning about the asset classes, and met this operator that I thought,
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Okay, I'd like to invest with this guy and this team, and so
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I invested in a deal that was two apartment complexes in Atlanta. That was
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in twenty sixteen, I think late twenty sixteen, if I remember correctly,
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invested in the deal, and long story short, the property manager ended up
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stealing some money from us, and normally that's not great rights, that's a
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problem in its own. This was complicated by the fact that the owner of
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the property management company had general partnership shares in these so he was part of
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the operator team essentially, and as soon as the main person who was running
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the deal found this misbehavior on the part of the property manager, they were
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terminated. He did all the right things, but the kind of muddied waters
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of who owned what and how he had general partnership shares led to a couple
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of years worth of legal battles and arbitration, so that, you know,
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we lost out on quite a lot of cash flow. Fortunately, we were
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saved by the market, to be honest with you, Even though the deal
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went sideways, the market continued to appreciate, so we got out profitably,
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but it was a lot less than we'd really expected, and a lot less
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than I think would have been possible if there hadn't been this huge distraction,
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legal battle and all the associated you know, bills and headaches around the behavior
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of the property misbehavior excuse me, of the property manager. So that really
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hammered home to me very early the importance of, you know, having the
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right people on the team. All right, So I'm going to tell you
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first lesson of business according to my father, and that Let's first rule of
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business. Anytime you go into a new business, you pay for lessons.
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That's true. And what you're describing your virgin deal, you paid for lessons,
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right, and hey, you didn't lose money, so actually you got
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paid to learn, although the profit wasn't as big. So I just look
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at it from what you should have made to what you actually made. That
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was tuition educational expense. And you could have written it off, right,
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I mean, because I assume you didn't make that mistake again, certainly not.
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No. That informs you know, the way we do deals today,
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what I invest in today. And you know, hey, one of the
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upsides is that I get to tell folks like your listeners about what happened and
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spread the knowledge. And with that comes you know, and it has value
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to somebody out there, all right. My first love of business, Kerry
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Lets's first love of business is you will spend in business the majority of your
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time doing the things you like to do the least at least when you're starting
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out, that is a guarantee, whether it's invoicing or customer handholding, whatever
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it is that you hate doing the most, that is what you will be
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left doing until you create the systems that enable you to free you from that
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slavery. That is a great point, and that's something that Yeah, there
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were a lot of things that I was doing years ago that I didn't like
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to do because they need to get done. And as I've grown and reinvested
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in my business, I've started I've hired people to handle those things, and
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I've constantly looked for what is the next thing that I'm doing that I could
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hand to somebody, I could hire somebody for I could give to my current
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team, Or what is the next thing that we're not doing that I don't
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want to do, I'm not going to do consistently on a day to day
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basis because I have other higher value distractions. So it's a great point,
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totally true. And hiring and building my team has been a key part of
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growth that I've had in multi family and the way that you avoid not doing
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the things or avoid doing the things that you don't want to be doing that
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aren't the best use of your talent, because if it was a great use
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of your talent, you didn't like it so much. But you see,
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the value is the first thing you need to do. How much am I
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worth an hour? All right? Is it ten dollars twenty five fifty one
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hundred? You know, at one point in my life is worth probably two
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three thousand dollars an hour? And then it's like this job that I really
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don't like doing, how much if I was in the market, would I
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get paid to do that job? And if it's less than what you are
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worth, then you are basically doing a job that you shouldn't be doing because
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it's beneath your pay scale, and you should always be asking now would look,
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if you're starting out, you don't have any money, you don't have
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adequate finances, that's one thing. But if you have the money and you're
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just being cheap, you're just stealing from yourself. I'll give you For instance,
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good friend of mine content producer, and got into YouTube's and he was
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complaining to me, I just spent eight hours putting together this video. And
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I said to him, hey, look, I know what you're worth here,
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we're doing work together. You're worth somewhere between two fifty to five hundred
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an hour. All right, so that means you spend eight hours putting together
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a video. I know you did a great job. I still don't think
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he did as good as someone else who's a pro. But I know you
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did a great job. But it cost you somewhere between two to four thousand
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dollars to do that. It would have cost you a three to five hundred
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to pay a professional editor. And honestly, I said, hey, you
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know, people actually go to school to learn how to do video editing,
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and they'll do it much faster than you as well, because I got templates,
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they got all the tricks. So I persuaded him, said hey,
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so you shouldn't be doing it. And then like two weeks later I found
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a video editor, the guy who was a real pro, and he said,
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carry you're like so one hundred percent right. I said, now you
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have to look at the other stuff that you're doing and get somebody else to
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do that too, because you're blowing a lot of time. Time Really important.
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A question for you, teller, how do you find deals? So
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early on it was really hard. I had a really hard time. Now
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we have a network that has been built up over years of basically folks who
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bring deals to us. We build up these relationships, get to know people
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that people do deals with them, and then over time you just build up
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a deal flow. But it's really hard at the beginning, especially in the
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commercial space. A lot of that has to do with Okay, if you've
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never done a deal before, then it's hard to go to a commercial broker
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and demonstrate to them that you're able to close on a commercial deal. Why
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is that important? That is important because commercial real estate brokers control eighty to
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ninety percent of the deal flow, particularly in multi family. In any given
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market, there's a handful of brokers who will control that deal flow. Now
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you can certainly go off market, it's going to be a big hustle to
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find a deal and get a deal done. These brokers really specialize in that
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and that's what they're paid for. So it's hard at the beginning. But
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building up your network over time, putting in the work, you can make
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it happen, but it takes it takes a while, and it's a slog
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there at the beginning. So networking really essential. So I asked you your
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worst deal, What is your best deal. Let's see. So I'm in
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a deal right now a sell storage property in Texas that is going to be
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sold soon within the next couple of months, and my capital is probably going
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to once I get back out. I'm not sure if the exact percentage return,
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but what we're expecting is probably two and a half maybe three x.
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That deal was done back in twenty nineteen, so we've held it a little
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while here and it's done pretty well. There's quite a lot of value add
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done on the deal. Really a healthy timing, good location between two major
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markets, So that'll probably be the best deal we'll see. I mean,
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we're holding a few others now that have been acquired more much more recently that
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won't be sold for a few years, so only time will tell on those.
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But you know it really it's boiled down to, you know, having
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the right people in the right place, investing in the right location at the
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right time, with the right strategy, all those pieces being in order,
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and then just you know, buying real estate and waiting. Honestly, okay,
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and so let's look at obviously real estate, it's really thousands of markets
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across the United States and different sectors. So the least favored real estate market
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now office buildings. Is there any way to make money off of that type
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of commercial real estate? That is a good question, and frankly, I'm
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probably not the best person to ask because it's so far outside of my strategy,
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you know, kind of going back to what we talked about earlier,
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is I invest in scarce assets that have high demand, and the problem with
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offices is that that equation is flipped right. Many markets have too many assets
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and very little man. I would like to see and I'd like to find
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someone who is doing office to multi family conversions. I believe in my heart
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of hearts that that is a viable business strategy if you get the building at
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the right price. I think, you know that's there's just so many markets
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that are ready for that strategy to work. But again, you have to
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get the properties at the right price, which might mean some pain for today's
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office investors and taking a big haircut on their investment. But personally, it's
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it's not what I invest in because you know, we can survive without offices.
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It's been years of folks working from home. I know some people have
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different feelings about that, but you know, I think we're in a different
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era now. Okay, So number two of the disfavored real estate shopping centers,
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malls, particularly strip centers still doing well, right, supermarkets still doing
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well. But malls, closed malls or even outdoor malls, if they haven't
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repositioned into entertainment centers, they're basically shuddering, absolutely true. And that's a
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shifting a matter of shifting consumer demand. So I live in Richmond, Virginia.
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We have one mall here that has been converted to add multi family essentially
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attached to it. And I think, frankly, that's the change that is
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going to need to happen to keep some of these malls just as viable properties
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that have any value. Because you know, I'm a millennial. They say,
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how awful we are. I mean, I'm in my mid thirties,
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right, I'm married, I'm an adult. We're adults now, right,
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and we are not going to malls. We don't go to malls. We
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shop online. So those assets need to transform, is my opinion. Okay,
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And you see the repositioning where, like you say, where there's actually
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shopping centers with residential above it, there's an outfit. They're in Austin but
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I think they're around the country remain and that's what they do, very chic
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looking shopping spaces with like an Apple store in the mix and other restaurants and
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clubs and that type of thing. And then you got that there, so
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that's interesting. Obviously can't be done everywhere. The only place retails are really
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doing well is in the South, you know, the malls Florida. But
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even here we've got some duds that have to where I live, that have
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to be repositioned. So then we get into like trailer parks. Now,
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those have been like a real popular very you know, it's attracted a lot
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of capital, particularly from hedge funds because these large cash on cash returns.
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I know we were talking prequel, you said you haven't gotten into any of
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them at this point. You think if the other markets you're in dry up,
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you might look at one. I think possible, you know, never
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say never. There are several different segments in the mobile home park space.
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There's the kind of older properties that you know, we're kind of more a
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tune to looking for right kind of the classic what you might think of as
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a trailer park, and then there are newer assets that are oftentimes like retirement
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communities that are brand new that have you know, just essentially detached mobile homes
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on them that folks want retired to. I understand. I think there's a
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few of those that have gone up over the years in Florida and other more
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coastal markets. You know, personally there I see a lot of still fragmentation
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in that market, a lot of mom and pop owned assets. But you
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know, many areas, many municipalities have you know, they really have it
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in for these mobile home parks, and there are a few reasons for that.
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There's a perception. Of course, we've all many of us have probably
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seen the show Trailer Park Boys, great funny show, and I got to
20:56
check it out. It's it's a great show. It's very funny set in
20:59
Canada, but it applies to the US. So there's the perception of say
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crime, and then on the other hand of that, you could just look
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at it financially, mobile home parks they generally have low tax assessment values.
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They don't bring in a ton of revenue to these municipalities, so there's the
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financial incentive to for municipalities to kind of try to squeeze those mobile home parks
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out and have them redeveloped. So there's a few problems with it. I'm
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not saying I'm opposed to it, but any business plan has to make sense
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with those realities in mind. Yeah, they're like low revenue, high services,
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particularly police department. That's the stereotype there for sure, and it does
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apply to some, not all by any stretch. There's certainly within the city
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that I live in, there's a couple of them, but they're like they're
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high end. The you know, a unit there, it's more modular,
21:52
I guess than trailer but you know, unit there go for half a million
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bucks. I mean, that's not you, not your redheaded step child's trailer
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park, you know. So interesting. So but you've gotten into storage,
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all right. I like storage. You don't need a lot of management there
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and basically the money just comes in and when they stop then you call it
22:22
in the guys from storage wars and they sell it off there. If you
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do, you have like regular sales in you in your storage areas, your
22:33
storage properties, where you wind up selling off abandoned lockers. So I'm fortunate
22:40
that with my in like our investment model, I get to stay out of
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the day to day that was one of my big goals because going back to
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your your comment about the value of your time in terms of dollars per hour,
22:52
I think that's a big mistake that a lot of folks make, generally
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more on the residential side, buying single families and trying it self manage.
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And you know, we all know like doctors who un rental properties and self
23:03
manage, Like my friend, your time is valued at hundreds or potentially thousands
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of dollars per hour, why would you go self manager rental property? And
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I've applied that to my own real estate investment model as well, So honestly,
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I couldn't tell you how often you know we're having to auction units off.
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I'm certain it's happening. In reality, it's a lot less exciting than
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in storage wars. You know, people often just kind of keep junk in
23:30
these units. But you know it's not just predominantly junk. There are businesses
23:33
that often you know, take advantage in many areas of climate controlled storage.
23:37
So you know, there's a pretty diverse demand base for self storage out there.
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What kind of returns are you getting on your self storage properties? So
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I would be kind of generic about what I might want to say publicly if
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we tax return, if I looked at a deal that was below like the
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teams, I would not be interested in it personally. But I don't know
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if I want to get any more specific than that. That's cool, Hey,
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risk in storage properties? What are the biggest risk factors that you face
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in a buying one an existing one and building one from scratch. I didn't
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even ask you if you actually develop them or not. That's part of the
24:19
model generally. What we invest in though, is existing properties with expansion potential,
24:26
where there's demand in the market and there's also empty space on the lot
24:30
that we can build into. I perceive the biggest risk and sell storage generally
24:37
that many markets, especially primary markets, are overbuilt and have been overbuilt over
24:44
the recent years, and that you know, it's relatively cheap to put these
24:48
properties up, so there was a lot of money going into putting those properties
24:52
up, kind of irrespective of the amount of supply and demand. So buying
24:59
a property an area that is overbuilt in self storage, I think as I
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see as a much higher risk than in say multi family, where most major
25:08
metropolitan areas, even secondary and tertiary don't have enough housing right, you still
25:14
have to quantify that when you're doing an investment, but that's just kind of
25:18
the reality as most areas are undersuppled and multifamily, where self storage some are
25:22
oversupplied, and the demand dynamics are so different in that self storage is more
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dominated by in terms of demand drivers by drive RADII like basically how far do
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you have to go from the property and how much population do you have in
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that area. Generally folks will talk about and we'll focus on one, three
25:44
and five mile drive RADII, which you can map out pretty easily. There's
25:48
also some advanced tools that will look at drive times, which is a bit
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different from drive distances you know, five, ten, fifteen minute type of
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things. But supply and demand, I see is really the biggest risk self
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storage so therefore really more so than a multi family, calls for a pretty
26:07
serious market analysis before you pull the trigger. And then you want to look
26:11
for a value add where you can increase the existing number of units there because
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like you said, the construction costs relatively low. Yeah, and if you
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can't do that expansion right away, you want to be able to you know,
26:23
cover your debt and everything. You don't want you don't want to be
26:26
in a position where you have to do that expansion in order to keep the
26:30
property, right, that's not a good situation. That's a no no,
26:34
because you've got to get approvals. And a lot of towns are unfavorably disposed
26:41
to storage properties even though they are, like on the amount of services that
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they require from the government, they're really at the low end, aren't they.
26:51
Yeah, I think probably the i'd say mobile home parks is still less
26:56
favorable. And then self storage in terms of you know, government preferences,
27:00
but yees, storage is not generally high on the on the list of what
27:04
they want to see developed. Yeah, so you got obstacles, But it
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all depends whether you're dealing with municipalities, counties and all that, right,
27:14
Right, so it's specific to the jurisdiction. All right, Well, now
27:18
business friendly area and all that. Yeah, exactly. So Texas areas,
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lesser developed areas of Texas, they're probably more favorably disposed than coming into Miami
27:30
Beach. But you know, prices are so high, so the market really
27:36
determines the appropriateness of the use, right All right, Hey, well we
27:41
really appreciate you coming on. I know you are You've got a site to
27:47
Passive Wealth Strategy dot com. Is that the best place for people to find
27:52
you? Or where else can they connect with you? Yeah? Absolutely,
27:56
that's my podcast website, The Passive Wealth Strategy Show, new episod every Monday,
28:00
Tuesday, and Thursday. Go there to learn more about the podcast,
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potentially investing with us, you know, or get in touch. All right,
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Hey, if you got a question for Taylor myself, shoot me an
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email kl atcarry Lutz dot com. We'll get you an answer quick. And
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while you're at the site, you can find the Financial Survival Network dot com
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show notes to this interview. We've got a link to Taylor's site right there,
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and while you're there, sign up for your free newsletter Teller a pleasure.
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Really appreciate you coming on and perhaps we'll talk to you again in the
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future. Sounds great. Thanks for having me, Thanks for listening to carry
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Lutz's Financial Survival Network, your solution to today's trying times. For the latest,
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go to Financial Survival Network dot com. Financial Survival Network now more than ever