The Real Estate Espresso Podcast

 I predict that this current generation of home buyers will be significantly delayed buying homes compared with previous generations. Many will be so late into the home buying cycle that they will become lifelong renters. In fact, the traditional early home buyers have consisted of the most educated in our population. After all, those with post secondary education make up the upper echelon of income earners.   If we go back to the 1980’s when I bought my first house, I came out of university with a good paying job and zero student debt. I was 23 years old. I was able to secure a high ratio insured loan to purchase my first house and only put 5% downpayment. I purchased a brand new home in 1987 and put down under $10,000 in cash. Within a couple of years, that home had appreciated sufficiently that I was able to sell it and move into a larger home. My downpayment had mushroomed from a mere $10,000 to about $40,000 for my second home. I was solidly on the ladder of home ownership.  My first home and my second home were easily affordable within my salary. But I had no other debts. I didn’t have car payments, or student loans to deal with. If I had other debts, my home affordability would have been far less.  The circumstances today are far different. The average student graduating from university with a bachelors degree has just under $40,000 in student debt. US Federal guidelines put borrowers on a 10 year track to repay their debt. But history has shown that the average bachelor's degree holder takes 21 years to pay off his or her loans.  Think about it. There are 44 million borrowers who collectively owe about $1.5 trillion dollars of student debt. Will people buy a home before they've paid off their student loans? The math doesn't add up. 

On today’s show we’re talking about automating systems in your business so that you the business owner can start to reap the benefits of the business.  We’re also going to explore the differences between earned income, passive income and residual income. These are words that sound remarkably similar. But their meanings are very different.  Businesses are all active businesses. There is no such thing as a passive business. Even though your local tax authority might classify income from an apartment building as a passive income, there is nothing passive about owning investment property. In an active business, the cash produced by that business is paid out to cover expenses, debt service, any preferred equity holders, and then finally the business owners. That final piece is called the residual cash, or the cash flow from the business.  When we’re talking about passive versus active, we need to distinguish the amount of involvement in time required to earn that cash. Too much effort, it starts to look like an earned income situation.  If there is too much owner intervention required in running a business, then it ceases to be a true business.  A business must meet one very important criteria in order to be worthy of that name. You have to be able to remove the business owner from the business and for a period of time, the business can run autonomously without their involvement. 

On today’s episode we’re talking about making sure your spouse or partner is on board with your business goals.  One of the greatest sources of stress in a relationship is when business goals are at odds with family goals.  How do I know about this? My wife is a marriage counselor and encounters situations like this on a regular basis.  I’ve seen several people make the transition from employee to real estate entrepreneur and lose their marriage in the process.  The greatest cause of this discord is the failure to align values between life partners.  The trailing spouse in business can translate into the trailing spouse in life. A trailing spouse in life can split a relationship apart.  That doesn’t mean that you need to go into business with your spouse. But you do need to take the time and make sure your spouse is sharing at least part of your journey of personal and professional growth.  In my case, My wife and I attend several conferences each year. That has been a great source of alignment between us.  Every year my wife and I plan which events we are going to attend together. The entrepreneurial life is a journey. Experiencing that journey together is so important. We’re strongly connected in other ways. By experiencing part of the business journey together keeps us connected in the one dimension that in reality is quite separate.

In order to be considered for book of the month, the book must meet a very simple criteria. It has to capable of changing you life, or your perspective on the world. Of course, whether it changes your life is up to you. You can consume the content, remark on how good it is and then continue your life without making any changes. In fact, that’s what most people do. If that’s what you do, you’re missing the point.  In fact, it’s entirely possible that many of you have read it. At the same time, I’ve received enough questions lately that tell me this book will make a difference for you. Even if you’ve read it before, this book is so fundamental, that it’s worth a refresh. The book is the E-Myth Revisited by Michael Gerber.  The E in the title stands for Entrepreneurship. The book is written as a narrative, as a fable. It’s the story of Sarah, a young lady who loves to bake pies. So much so that she decides she’s going to open a bakery.  This is so common a story. We’re told to pursue our passion and to turn our passion into a business.  There are two main characters in the story. There is Sarah, and there is the author of the book, who in this case is cast as a business consultant.   What I like about E-Myth is the clarity and simplicity of Michael Gerber’s model. It’s easy to identify when one of the players in your business is out of position. It’s easy to see when the business owner is wearing to many hats. It’s also easy to see where the structure is missing.

2018 saw a large number of unpredictable events. Many of them were politically originated, whether it’s a steel tariff, a partial government shutdown, a regulatory change. Any time there is a change, there are winners and losers. Some are positively affected and others are negatively affected by that change. I predict that 2019 will see an expansion of uncertainty. We will have more surprises to deal with than ever before.   I predict that once the economy shows signs of shakiness, central bankers the world over will return to the practice of stimulating the economy via printing money and lowering interest rates. I predict that Interest rates will peak in the first half of the year and then start to moderate in the second half of the year.  At the same time, there are boundless opportunities. The business world is an all-you-can-eat buffet of opportunity. That doesn’t mean that any strategy will work in any location. Effective business plans a highly specific. Specific to a location and specific to a point in time.  I predict that the new US opportunity zones will attract a lot of attention in the first half of the year as the investment world becomes educated on the rules and benefits of opportunity zone investment. 

Jack's company has added 400 properties under management and renovated over 100 homes in the past year. Doing this successfully requires a strong team and a disciplined approach to management. I loved this conversation about how to scale your business in a short time period.  

This episode was recorded live at the Family Office Summit in Miami with Adam Adams. Adam has hosted nearly 300 events in the past two years and is a huge believer in live events. This is an approach that has attracted a large following and a significant amount of capital for multi-family apartments. In this casual conversation Adam and I compare notes on investment strategy, due diligence, and live events.

 Today’s episode is about the resilience of real estate. This is the real life story of a vacant lot in what was once a bad area. I’m telling the story of a single property, but quite frankly this story has repeated itself numerous times, and I could give half a dozen examples. This story is a story about resilience, about what can happen if you know your market, and how you can recover a project that has run into trouble and ultimately profit from it.

 Today’s book is “The 12 week year” by Brian Moran and Micheal Lennington.  The 12 week year is a planning book on a new method for setting and achieving goals. The 12 week year redefines a year as being 12 weeks long and with each year you get a a fresh start. That’s very different from a quarter. Quarterly planning and execution operates within the context of a 12 month year and fosters the false belief that there is plenty of time to get things done.   The 12 week year establishes a framework for getting things done in 12 weeks or less. Much like I’ve been advocating, in 12 weeks you’re not going to get a dozen objectives completed. You’re only going to achieve one or two. So their tools are geared towards setting and accomplishing one or two goals, not more.

 On today’s show we’re talking about what to do during this holiday period. If you’re like most people, you are hitting the shops to take advantage of the post Christmas sales. But you’re not like most people, that’s why you listen to this podcast. You know that saving $2 on wrapping paper for next year isn’t your path to wealth. That’s small minded thinking.  For many, this time is sometimes used to catch up on reading. Taking the time to invest in yourself. Some people use it to set goals for the coming year. I definitely do this. I take the time to reflect on the past year. There are numerous goals that I had set for this year that were not achieved. I could feel bad about it. But that’s not the purpose of the retrospective.  The idea here is to learn, to improve. The first step is to check if you actually had written goals for 2018. Dig them out. Take the time to write the actual results. There will almost certainly be a gap between the goals you set and the actual results. What were the themes that ran through the year? Did you suffer a setback, or were you overly optimistic? Did you procrastinate or did you fail to plan? Whatever the root cause, that’s what you want to extract from this exercise. That’s where the gold is hidden, in understanding the reasons behind why things fell short. If you didn’t set goals, the question is “Why not?” Many people don’t set goals because they can’t handle the emotional upset of falling short. They’re going to fail anyway, so what’s the point of setting goals that you won’t achieve? There are two types of goals. The first type of goal is an attainment goal. This is where you set a big goal like “I’m going to climb Mount Kilimanjaro this year”. That’s an attainment goal. The second type of goal is a habit goal. This is something that becomes a daily practice. In my experience, it’s the second type of goal that is actually more powerful. For example, I set a goal in 2018 to create a new piece of quality content each day. You’re experiencing that with this podcast. If I had set a goal of launching a podcast and achieving, say, 100,000 downloads, I don’t believe the result would have been anywhere near as good. By making the focus of the goal the creation of quality content, I believe that I’ve accomplished far more than if I had set a big attainment goal. The feedback from the listeners has been awesome, and quite frankly, it was the commitment to a daily practice that caused the greatest improvement. If I had set a weekly goal, or a monthly goal, the result would not have been nearly as good.   I want you to think about the 6 roles in your life. In each of those roles you may have goals. Self Family Business Community Spirituality Friends One of the biggest and most frequent mistakes I see people make is setting too many goals. The key to achieving is focus.  When we talk about goal setting, people often think we’re talking solely about business. In my experience, creating a goal and achieving it in one area has a cascade effect on other areas of your life. Only a small percentage of people set goals. Of those, an even smaller percentage even look at them throughout the year. By the end of January, the vast majority of people have fallen off the wagon and abandoned their goals.  But here’s the beauty. When you set a habit goal, you have hundreds, thousands even, of opportunities to get on track. You can recommit to your goal on a daily basis.   Choose one or two goals, not more. Choose to commit to the practice of working on a daily goal.