The Real Estate Espresso Podcast

A milestone date is just another day, or is it? As we enter 2020, the only thing that’s different is that we are a day older, either more tired, or better rested, depending on what you did in the past 24 hours. It’s part of the social dialog to set New Year Resolutions. The fact is, less than 4% of the population actually set goals, and then the subset who do usually don’t meet their goals. So against those troubling statistics, it’s tempting to give up. I’ve discovered that the secret is to setting habit goals and putting those at the forefront of your daily practice. Habits govern the thousands of micro-decisions that make up your day, your month and ultimately your life. The result of doing is doing. The result of not doing is not doing. The result of trying is trying. The result of wanting is wanting. The only thing that counts is the decision to do or not do. As you go into 2020, take the time today, before the phones start ringing, before the laundry needs to be done to map out 3 habits that you decide (not want) to make part of your daily practice. You might be thinking, it’s already past the start of the year, and you’ve missed the opportunity to set goals. It’s too late. If that’s what you’re thinking, let me be the first to suggest that you let go of that story. That’s an arbitrary story that originated in your own mind. Today is a day, like any other. But you could choose to make today different. It could be the day you decide to establish some new habits. You might be looking to establish a new work habit. Perhaps you will turn off your phone for two hours every day, early in the day to make sure you have time with no interruptions to get focus work done. You might decide to confine your meetings to the afternoons only and make sure you have productive time in the mornings. You might be looking to establish a health goal. Maybe you want to get into a new sleep routine, or a new eating routine. You might be looking to establish a health goal. Maybe you want to get into a new sleep routine, or a new eating routine. You might have a family goal to spend more one on one time without interruptions each day. Being present with your family is a gift. I see so many people in restaurants having dinner together, but separately. They’re facing each other, but looking down onto a screen. The problem isn’t the electronics. It’s a decision to prioritize the stimulation of an electronic device and avoid the vulnerability of a face to face, eye to eye conversation. Everyone can carve out 30 minutes, or 60 minutes without an electronic device causing distractions. Ultimately it’s those personal connections that make the difference in the quality of your daily life. If you’re experiencing stress on a daily basis, it means that you’re spending too much of your day doing things that are not in alignment with your core values. If you allow your day to get filled up with things that are not in alignment with your most closely held values, then you will be unhappy. It means that you’re living your day, your life for someone else’s values, but not yours. Maybe it’s fear of disappointment that’s driving you, maybe it’s fear of looking bad against some measure that’s only serving your ego. Whatever it is, bringing your values into alignment with your daily decisions is the secret. If you spend enough of your day feeding your true core values, you can’t possibly be unhappy. Don’t wait for a milestone date to make the decision. Start living your life for you, authentically, purposefully, decisively. I wish for your all the health, happiness, and success in 2020 and the coming decade. Today is just another day, maybe the day you decide to integrate new habits into your life. Go make some great things happen.

The Real Estate Espresso Podcast is your morning shot of what's new in the world of real estate investing.  

Today’s book is in a completely different track from books we’ve reviewed in the past. Today’s book is called “The Body: A Guide For Occupants”. By Bill Bryson. Bill Bryson was born in Des Moines, Iowa. For twenty years he lived in England, where he worked for the Times and the Independent, and wrote for most major British and American publications. Bill Bryson has written more than 20 books and his works have been published in multiple languages. His latest book has achieved New York Times BestSeller status. On this day, I made the decision to fall prey to the marketing and choose a book off the New York Times Best Seller list. Had the book not achieved best-seller status, I probably would not have chosen to read it. The Body is truly a book about how to take care of this vessel that we use and abuse on a daily basis, expecting so much from it. It rarely breaks, requires surprisingly little in the way of maintenance or spare parts. You never have to change the oil or the spark plugs. This mushy miracle we call our body is pretty much taken for granted on a daily basis. The makeup of the body is billions of cells, bacteria and elements. If you were to purchase the individual components it would cost under $20 to make a human out of raw elements. The books is written like a user’s guide, much like you might get when you purchase a new barbecue or a new car. It shows you all the different systems, how to interpret the different warning signals on the dash board, and how to check your tire pressure. Some drivers know how to use the windshield wipers, but they don’t know how to refill the washer fluid. This book goes into all the different parts of the body and give you a tour of the various systems. The books is organized into 23 chapters with each section dealing with different part of the system. There is an entire chapter devoted to bacteria and microbes. There is an entire chapter devoted to sleep. There is a chapter devoted to nerves and pain. There is an entire chapter dedicated to the alimentary system. We swallow nearly 2,000 times a day, about once every thirty seconds, fully unaware of the 50 muscles involved in the intricate dance required to force food or drink from your throat down into the stomach. Why do we choose to chew some foods for a long time, and yet allow others to slide down our throat with hardly any grinding contact with our teeth? Why do some parts of our body itch, and others not? Why do you scratch your head, but not your spleen? Even in the late 19th century, it was thought that the male or female decision was not the result of chemistry, but by external factors like diet or temperature, perhaps a woman’s mood during the first trimester of pregnancy. For a little over a century it was believed that the X and Y chromosome were responsible for choosing sex during the gestation process. In fact, it was not until 1990 that two teams in London identified the sex determining region of the Y chromosome. We had sent men to the moon and back, but still didn’t know where boys and girls came from. How many of you know the difference between a tendon and a ligament? Do you know that the human body is made up of a roughly equal number of body cells and bacteria? Apart from the dozens of trivia like facts about the body, perhaps useful for a party trick, I found myself appreciating the various systems hard at work, mindful of what they do because of what I do on a daily basis and despite what I do on a daily basis. If you want to learn more about this thing we live in called a human body that we take for granted, check out The Body: “A Guide For Occupants”. By Bill Bryson.

Today is New Year’s Eve and it also marks the end of a decade. On today’s show, we’re taking a look at the decade in review. A decade ago we were in a post-911 world where many western countries were embroiled in conflicts in Iraq and Afghanistan. There was the genocide in Syria and the collapse of the society in Venezuela and numerous other conflicts like the Ukraine have been a blemish on our humanity as a species. In this past decade we all gave up a lot of personal privacy in the name of security. There is more tracking and surveillance than at any time in human history. This past decade was the decade of social media where it was once a peripheral distraction for early adopters and now has seen widespread adoption by almost the entire western society. Ten years ago it was 2010, the Great Recession was in full force and real estate prices were falling in many areas of the country. Borrowing was extremely difficult and the only buyers were cash buyers. Loan defaults were making headlines on a daily basis.  The next two years would see millions of foreclosures in the United States. Many of the defaults were the so-called maturity defaults where the borrower had made every single loan payment on time. But the loan came up for renewal at the end of a 5 or 7 year term and the bank then required an injection of cash in order to fix the loan to value ratio. Values had dropped so much during those two years that the banks didn’t have enough security. In many cases, properties were under water where the current value of the property was worth less than the loan. That seems like a distant memory. I remember attending real estate meetups in those days when you could buy properties for about 30% of the construction cost.  I had people telling me not to invest in real estate because it was too risky. We established the core of our “buy-on-the-line, move-the-line” strategy that proved extremely effective and scalable. By honing in on a repeatable process, I was able to build a sustainable development business. I somehow managed to attract incredible people into my life over the past decade. I also attracted a few of the wrong people. Learning the difference and acting to eliminate those who were not a fit was the most important thing for me to do. In this decade, I wrote two books, I learned how to communicate with the media and had hundred of media appearances and public speaking engagements. I took a leadership role in our local real estate investors organization and helped it grow to roughly double in size. Ten years ago I was listening to podcasts. These were mostly lectures and interviews with people from Silicon Valley. Little did I know that I would venture into this world only a short time later. In the past decade, I had successful development projects, and I learned to manage success, as well as how to manage failure, delays, and setbacks. There were times when I felt stuck, like I wasn’t making progress fast enough. It was like pushing a rock uphill. I learned that persistence was the key to ultimately achieving success. I watched my wife grow her family therapy practice from a single practitioner to having a staff of 9. I’m so proud of her. Within my family, all of my children grew up and transitioned from being teenagers to young adults and living on their own. As a parent, I wish the best for my children. It gratifying to see them chase their dreams and at times it’s difficult to watch them make choices that I not would have made. But that’s what makes them unique. They have to live their life for themselves. Above all, I’m committed to savouring the journey, to personal growth, and making each new day better than the one before. As we start the new decade, let me be the first to say, hindsight may be 2020, but 2020 is in your future. Have an awesome New Year and New Decade celebration

On today’s show we are looking back on 2019. The year in retrospect. 2019 is notable as much for what happened as for what didn’t. For me personally, it was a year of mixed results. We completed construction on two projects. We completed the refinance on two apartment buildings. We sold three assets for a good number. We have a major assisted living project finally get into construction after months of value engineering. We were working really hard in order to achieve an acceptable construction budget. We completed several acquisitions including securing a new development site for a high rise project. But not everything went according to plan. The podcast has been very successful this year on many levels. My goal from the beginning was to produce one piece of quality content each day. It didn’t matter where in the world I was located, I always found an internet connection to upload a show. If I happened to be at sea for a few days, I would upload a few shows in advance so that they would publish on schedule. I truly appreciate the feedback from you the loyal listeners. It makes me happy to know that the show is having an impact. You have downloaded more than 500,000 episodes and counting. That’s awesome and I recognize that your time is valuable. My wife and I ran an experiment of what it would be like to live on board a boat for 3 months of the year. It was not a vacation, just a different living arrangement. There were mixed results. My work productivity definitely suffered during those months. I learned a lot about myself, and my own habits during those months in Europe. I lost about 15 pounds, managed to eat healthy, and exercised pretty much every day. Once back at home, I struggled to establish my desired habits on a consistent basis. I wasn’t getting to the gym regularly. My daily meditation practice was not consistent throughout the year. Over the year I managed to successfully complete a number of projects. I put a few projects on the back burner, and brought laser focus to the ones that remained. The purpose in conducting a retrospective is to extract the lessons from what happened in the past year and to express gratitude. There are so many memories of the past year. It’s a little like mining for gold. The gold consists of those lessons that are hidden in all those memories. Like mining for gold, you need to sift through tons of rock and silt. Buried in the tailings from the mining operations are tons of things that serve no useful purpose. These are the emotional baggage that comes with emotions like regret, shame, fear. You can choose to hang onto the tailings, or you can choose to hang onto the gold. As you think back on 2019, run your own retrospective on what work, what didn’t, and what did you learn.

Steffany Boldrini entered the world of real estate investing from a technology background in Silicon Valley. She is also the host of the Commercial Real Estate Investing From A to Z Podcast. She can be reached at www.montecarlorei.com.

On today's show I'm asking George how to set expectations with myself and stakeholders when projects are running late and I'm carrying some of my 2019 goals into 2020. Love his practical no-nonsense approach.

On today’s show we’re looking at the efforts to disrupt the traditional real estate markets. British company Purple Bricks announced earlier this year that they are pulling out of the US market. The company is one of several fixed fee brokerage companies that have tried to penetrate and disrupt the traditional residential real estate brokerage industry. The heavy use of software, combined with minimal services was supposed to lower the cost base for consumers. Purple Bricks charges homeowners a fixed fee for listing a property on the MLS, whether or not a property is sold. Purple Bricks tried to differentiate by offering exclusive territories to its agents based on postal code. Part of the argument in favour of fixed price listing services is that in a hot market when any property listed will sell, often over asking price. The listing agent isn’t doing much work to earn their commission. The buyer agent has to take their clients on multiple showings, and draft multiple offers, the majority of which are rejected. It’s the buy agent that does all the heavy lifting. In a buyer’s market, during a downturn, the roles are reversed and the listing agent does the heavy lifting. In the traditional model, the seller pays the entire commission which is split between the buyer agent and the seller agent. The fixed fee model charges a fixed fee for listing a property. The fee paid to a buyer agent is in addition to the fee paid for the listing. The traditional brokerage commission in the US is 6% of the selling price. This is usually split between the buyer and seller agent. In some hot Canadian markets like Toronto, listing agents have fought back against the flat fee offerings by discounting the listing service. The still pay the full 2.5% commission to the buyer agent, while discounting the sell side commission to 1.5%, or in some cases as low as 1%. In 2018 Canada’s Comfree was purchased by UK based Purple Bricks for $51 million dollars. Under ownership of Yellow Pages, the company didn’t experience a lot of growth, as evidenced by the fact that they sold the business basically for what they paid for it two years later. Purplebricks Group Plc‘s stock climbed after the online estate agent said it was pulling out of the U.S. The company shares had lost 75% of their value since it ventured across into the US market in September 2017. The investment in the US expansion was bleeding the company of its resources and profitability was too far off in the future for investors and the board to accept. The stock has regained some value since the decision to focus on its more-established U.K. and Canada businesses. Purplebricks CEO said a “significant opportunity to disrupt the U.S. market,” remains, but it would take “substantially more management time and resources than the company is able to commit at this time.” The Solihull, England-based company reported a full-year operating loss in the country of 34.1 million pounds ($42.9 million), wider than the 16.8-million pound loss a year earlier. According to the national association of realtors, flat fee transactions accounted for about 2% of home sales in the United States in 2018. Another California startup called Reali set up shop in San Francisco. They’re offering a flat fee listing service at just under $5,000 for the service. Paying the buyer agent’s commission, if there is a buyer agent would be on top of the flat fee. The problem with discount brokerages is that they assume a high volume of transactions in order to pay for the overhead associated with the business. In a market downturn when sales volumes drop, the cost of carrying the fixed overhead doesn’t change. We’ve seen many large discount brokerages fail in market downturns which is why they don’t survive in my opinion.

Whitney from Phoenix asks. How many apartment units do you think I would need to retire comfortably if I’m just relying on the monthly cash flow. I’m finding it hard to project the cash flow into the future and properly model for inflation. Any thoughts on how I can analyze and plan would be helpful. Thanks. Well Whitney, this is a great question. I’m not sure how many years you have until retirement. But let’s talk about the process of investing through the entire lifecycle of a property portfolio. When you’re starting out, chances are good that you’re going to be relying on other people’s money to help you buy the property. That’s true if you’re going to be using bank money and even more true if you’re going to be bringing equity investors along for the ride. Let’s start with a simple example just to make the numbers really clear. Let’s say that your goal is to generate $10,000 a month in cash flow from real estate. If you are borrowing funds from the bank at something approaching 80% loan to value, you’re going to be producing only a small amount of cash flow each month. This might be no more than $100-$200 per month. If you’re like most people, the loan is going to be amortized over 25 years. So you’re going to be facing very low cash flow per unit for the next 25 years. That’s a long time to wait for the property to be paid off. Let’s say the property is generating $100 a month in cash flow. You would need at least 100 units to generate that cash flow. In the real world, with reserves for long term maintenance, your actual cash flow can end up being even lower. You could need even 200 units to generate that amount of cash flow. If you have equity investors and you are sharing the ownership with partners, you then only own a fraction of the portfolio. If you own 50% of the portfolio then you would need 400 units to achieve that $100,000 a year in income. If you own 25%, that’s 800 units. I know what you’re thinking, that’s a lot of units and it’s going to take me a long time to amass that many units. You could wait the 25 years, at the end of which you own the 200 units free and clear. The fact is, properties that carry no debt generate a tremendous amount of cash flow. If you owned those 200 units free and clear, you could easily expect about $800 a month in positive cash flow per unit. That’s 160,000 a month in cash flow. But you’ve got to wait 25 years to get that cash flow. In the meantime, you’re barely squeezing by. Not only that, you’ve got to build a huge portfolio and manage it for 25 years in order to achieve an incredible monthly cash flow. What if you don’t want to wait 25 years. What if you’re in your early 50’s and you only have 15 years until retirement. You’re worried that you’re running out of time. Well, there is a shortcut that can help you dramatically. If you’re facing a 25 year amortization, you will pay off 30% of that loan balance in the first 10 year. Let’s say that you buy one property of 50 units each year for 4 years. At the end of 4 years you own those 200 units. Let’s say that you hold them for 10 years and at the end of 10 years you decide to sell 75% of the portfolio. You’re now left with 50 units. You may have some capital gains, and you decide you will pay the capital gains tax on the properties you sold. So you may have some additional equity apart from the principal pay down on your loan. Remember, the principal pay down over those 10 years was paid out of after-tax income, so the equity you accumulated in principal pay down is already in after-tax dollars. So after 10 years you decide to take the cash proceeds from the sale of the 150 units and fully pay off the remaining loan on the 50 units that you are still holding. Now you have 50 units that you hold free and clear. Those 50 units will generate 40,000 a month in positive cash flow. That’s more than enough to meet your retirement objectives.

Thank you to all the loyal listeners. Producing a show each day has turned into a labor of love for me. I truly appreciate the letters and emails that I receive from you. I’d like to read a message I received earlier this week from Dr. Kevin Hsu in NYC. He writes, Dear Victor. My main reason to contact you was just to say thanks for sharing your insights. I just found your podcast in the past couple weeks. I appreciate your message about the 5 principles and there is a correlation with my field. My Patients’ compliance is affected by how much trust, and relationship there is. The idea of never “selling” my patients any procedure is dear to my heart. Treat them how I treat my mom. If I educate them properly they will come to me when they decide they need the procedure. After reading Rich Dad Poor Dad maybe 15 yrs ago during residency. I admit I didn’t really put it into practice. I only recently started listening again after a friend approached me about a syndication. Since I didn’t know much about it I wanted to educate myself. First place I went was Kiyosaki’s podcast/YouTube. First one I heard was your interview on Assisted living. Then went to your Real Estate Espresso podcast and heard your interview with Josh McCallen on work family balance. I thought it was so relevant and positive. Thankfully I have a wife who is practical and keeps me grounded. :) Then I listened to your interview with Dr. Jeff Anzelone, and another light bulb went off in my head. I thought Wow! Jeff is describing what I’be been through. Med school loans. Pay them off and now what? So I contacted him and we had a great phone chat last week. In summary as I embark on a rejuvenation to learning principles of cash flow, just wanted to say I can’t thank you enough for your teaching, and being an example of a businessman who is a family man. I’m also glad I didn’t just google “real estate” or something and end up on some random scammer site but rather got plugged into podcasts of trustworthy investors like yourself. Thank you so much and Merry Christmas to you and your family! Thank you Kevin for the kind words and it makes me happy to know that the show is having an impact. Congratulations on continuing your own personal and professional growth. I know so many professionals who worked really hard in University, and then once they got into the workforce, they stopped learning. I truly believe that personal growth is one of those fundamental daily needs like food, water, love, and oxygen. As business people, as entrepreneurs, there are only a few genuine places where these conversations are happening. I’m glad that the podcast is starting a conversation. As much as the podcast exists online, the real world is offline. Finding like minded people is truly where the journey starts for me. I like that you didn’t consume the podcast passively. You took action and reached out to one of my guests. Very few people do that. It’s easy to think of a book as an inanimate object, or a youtube video as a piece of content. A podcast is just a show. I don’t think of it that way. In fact, as I look at the bookshelf in my office, it turns out that 3/4 of the books on the shelf, I know the author personally. That’s pretty unusual. Many of the books are signed by the author. Even though I have read the books, I can’t seem to part with them. The signature on the inside jacket represents a personal connection with the author. There is an endless supply of learning. I spent this morning reading and incorporating the learning into myself. It’s amazing how these little steps, one by one, little by little, add up over an extended period of time to move you. Darren Hardy talks about this in his book the Compound Effect.