Lifestyle Investing for Passive Income with Justin Donald

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Welcome back to Bacon Wrap Business. This is Brad Costanzo and today we're talking about investing. One of my favorite topics and hopefully one of yours. I mean, I know a lot of entrepreneurs and business owners, even executives listen to the show and one of the main reasons folks listen to this podcast is learn really innovative ideas to grow their business and to make more revenue and profit, et cetera. But at the end of the day, what you do with that profit, what you do with that money that you're making is one of the most critical things that oftentimes get overlooked by a lot of us entrepreneurs who we just get into go, go, go mode. And then the more we grow our business, sometimes we look at our bank account and we have a lot less in there. And one of my former guests on the show, Mike Michalowicz, who calls that entrepreneurial poverty. Make a lot of money, but it's gone. And I've always been fascinated since I was a child with investing, working with my dad and studying finance and economics and then being a financial advisor with the general stock markets, et cetera. For I was in that business for about seven or eight years and that was before I got into entrepreneurship and building a business. But it's never been far from what I'm passionate about. And I've got a lot of different types of investments, a lot of alternative investments. I'm always looking for more insight and following people who are doing it in a really effective way. One of my other close friends, former guest on the show, Mike Koenigs, introduced me to today's guest, Justin Donald and said that Justin completely changed his paradigm about investing and the way he thinks about managing his assets. So I asked him to come on the show today to talk about concept he calls lifestyle investing. Entrepreneur magazine calls Justin the Warren Buffett of lifestyle investing because he's a master of low risk cash flow investing that specializes in complex financial strategies, structuring deals, and disciplined investment systems that consistently produce profitable results. And his whole ethos is how to create wealth without creating a job. And I would love to welcome Justin to Bacon Wrapped Business. Thanks for having me. Hey Brad, thanks for coming on.

Hey thanks for having me, Brad. It's great to be here. I'm looking forward to spending some time together.

Yeah, my pleasure, my pleasure. As I said, I've seen some of your stuff, I've talked to Mike about what you're doing and I've even seen one of your presentations in the past. So I'm going to end up going back into the basics for the folks who are just listening to go. Who's this Justin Donald fella and what can he teach me? But let's talk about your approach to investing in just a moment. But first let's talk about you. Tell me about your history in business and investing. What's your pedigree there?

Sure, yeah. I mean, I got started at a young age in seventh grade, at least in the world of sales, with an idea of business. I was selling newspaper subscriptions door to door and my parents said, hey, you need a job. If you want money, you need a job. So seventh grade I was working hard, knocking on doors, selling subscriptions all the way through my senior year of high school. I did the same thing, except that during that time develop my own crew that I would take out and I learned how to manage people to do the sales so that I could eventually graduate from doing the sales and have a team that did it. So that was pretty fun. And then the only reason I left that is because I heard about this company called Cutco Vector Marketing, Cutco Cutlery. And that sounded really intriguing and I knew someone that made really good money doing it. So I was like, all right, well, I like anything where you're paid based on how hard you work and not being capped at an hourly amount. At least for me that was the path. And so I did that during my college years, paid for my college education at the University of Illinois and then really grew with that company and created one of the largest recruiting and sales kind of back end offices under their banner. So, you know, it was a great experience. And that was kind of like my first taste with entrepreneurship and hiring employees and having receptionists and really like having at least a half to 75% of the framework of what your own business would look like.

Right? Oh, that's fantastic. So then, then when did you really start getting into investing the money you made?

Yeah, I've invested really since I was 18. I invested in the stock market. I invested in some different qualified plans like Roth IRAs. I just, I knew that I wanted to at least get some exposure to some of my money every year to some sort of return. I really started Investing, you know, heavily into real estate as, I guess as I became a little bit more, I knew, I always knew I wanted to do it. I had a fear really, of getting into real estate because I didn't have the money at the time. Right. So when I go back in time, one of, one of the things I wish that I had known is that you didn't have to have money because when you have good deals, you'll find money. I didn't know that then. So I procrastinated for quite some time to get into it. But that really was the first thing I did is I started investing in real estate. I bought my own residence that I moved out of, three months later, rented out. And then my first big investment was in a mobile home park. And that was a very lucrative investment.

So good things about those, I've never gone deep into understanding it. I've got a very, like, I don't know, tip of the iceberg knowledge. But yeah, I've heard good things about mobile home parks.

Yeah, they're great because they're generally like low maintenance. It doesn't take a lot of time to run them. But the cap rates are really good. So, you know, I'm buying parks. You know, my first park, I bought it at 12 cap and it was below market. So I added some value, raised some rents, and within no time it was a 14 cap.

So tell my, tell my listeners who aren't familiar with the cap rate, what.

That means when you say cap rate. Yeah, cap rate is a capitalization rate. What that means, the best way, like this is what I teach my students, is imagine that you bought an asset, a property, for 100% cash. If you did that, the cap rate is the return that you would earn on that investment. That's probably the easiest way to simplify a cap rate. And so generally in real estate, you're buying at cap rates of like 4 to 7%. That's, you know, depends on the asset class. It could be less than that, it could be more than that. But traditionally, mobile home parks have sold at a higher cap rate. You'll find some of the more desirable ones selling in that 4, 5, 6 cap rate. But you'll also find a lot of mom and pop owners of mobile home parks that will, you know, you know, they don't know. Either their park's not in a high enough demand location or they don't know the full value of what it's worth. And they just really, more than anything, want to retire. You know, baby boomers just wanting to be done. And so you can get a good deal, they feel good because they've made some cash. And you feel good because you got a good deal.

Yeah, absolutely. And, you know, a lot of the investments we're talking about right now, I mean, most people think investments, they just think the stock and bond market.

Right.

Mutual funds, etc. And that's not really what we're talking about here. We're talking more alternative and real hard asset investing. Right?

Yeah. Most of the investments I do really stem around alternative investments. It's not that I don't believe in the other ones. I just believe that the stock market in general is a little riskier than what most people seem to think or what conventional wisdom seems to say. I think if you're looking to invest for the long term and you're not looking to take money out based on emotions and you literally buy and hold, I think you're gonna do pretty well. Most people can't do that. So when there's just market crashes, people want to pull their money out. And then when the market's really hot, people want to put their money in. And to me, I would rather cover my lifestyle expenses before I even have the exposure of the stock market. To me, I want cash flow first. Live my life, feel comfortable then with the cash flow. I want to invest in the stock market, specifically in index funds, because those are your lowest feed vehicle. So I pay the least amount of Feees. And they're 95% of the time. And this is the stat based on 2019 numbers. 95% of the time, they outperform professionally managed money.

Yeah, exactly. So let me tell you where I want this conversation to go. First of all, I want to talk a little bit about this. This concept of lifestyle investing and some of the principles behind it. Cause I think those are going to be really foundational to when we get into the actual types of investments you do in those vehicles. Right. So we'll go through a couple of examples of that. And then I want to get into, you know, finding, getting into the deal flow and the mechanics of. Okay, this is what lifestyle investing is about. These are the types of things we do. Like, what is the lifestyle of a lifestyle investor kind of look like?

Right.

So let's talk about lifestyle investing in general. What is that all about? What does that mean?

So I coined this term basically because I wanted to have a focus on lifestyle first. And that doesn't mean it has to be extravagant. What it means is it needs to cover the lifestyle. I want investment income that covers the lifestyle that I currently live, or even what I want in the future to live. But at a bare minimum, I needed to cover at least what it cost me to survive so that I don't have to work, I get to work. I can choose to do what I want to do. I can choose how I want to spend time. So the whole idea is buy your time back. So that way I just didn't want to be a slave to the money that I made. And it was two different ways, right? I mean, at one point in time it could be like I could say I'm a slave to the money that I made under someone else's company. Then I started my own company and that took off. But then I was a slave to the money that I made in my own company, right. I didn't even see it happening. But pretty soon it was like, man, in order to scale, it took all these hours. And now in order to afford the lifestyle that I have, I've got to keep putting this output to yield the results that I want, right?

One of the catch 22s I've always found, because it was distilled in me from a young age with my dad. It's like, you can work for your money or you can have your money work for you. That's one of those things where it sounds really good in theory, but executing that and pulling that off is hard because most people, the easy investments that are available to them, like we mentioned, are like mutual funds in the stock market. It's incredibly hard to produce major returns in the market. One of the richest men in the world, the actual Warren Buffett, I think, what is it like 1920, like the long term return is about like between 19 and 22% or something of that nature. And he's the best in the world at this stuff. Most people get half that if they're really lucky. So getting to the point where you're accumulated enough assets to actually pay for your lifestyle, just doing traditional investments like mutual funds and things like that is super duper hard. So I think a lot of people, myself included for a very long time was just, you know, work, make more money, make more money and like, okay, I'll get to those investments someday. And it's not until you really kind of find some of these higher yield alternative assets and then structure deals so that they're not necessarily high return, high risk. Right. And I think that's one of the, one of also your goals that I want to get to. I love this concept though, of doing enough getting real Passive income to pay for. Like that's your first nut is like, let's say I've got a $10,000 a month nut, for instance, and I want my assets to get up to the point where my investments are paying me $10,000. I guess ideally that would be after tax. So maybe it's like, I don't know, an $18,000 gross. Do you have people do that in the beginning when you're working with them as a start with that number of what is your monthly nut, and then let's try to reverse engineer a way to get there. Or is that not the way you would approach it first?

Yeah, I think that's exactly the way that you approach it. But I also think that to build confidence, you know, if someone doesn't have any cash flow coming in, that's a big leap to go from 0 to 10,000. So what does it actually cost you to survive? What it costs you to survive is probably going to be half as much. You know, what's your mortgage or rent, what's your transportation? How much does it cost you to eat? Not eating out, just like eating, buying food that you're going to eat on and cook at home.

And the bottom of Maslow's hierarchy of needs, right, Safety and shelter and food.

That's right. And whatever that costs. Most people don't break down what that costs, first and foremost. Secondly, they don't break down what it costs on a monthly basis. What most people experience is that it doesn't cost them as much to live as what they actually think it does. So monthly, when you break that down and you say, oh, it's only X amount, people feel like they can do that, you know, and so then you've got some traction because now your mindset has shifted. The mindset was, I gotta do this, I gotta collect this nest egg that's gonna be so huge. But people don't realize the tax drag and all the fees that advisors get and really just the uncertainty with the markets and that, you know, you could have a crash the day that you retire and then what are you gonna do? You're screwed. You know, so people don't think about that, but they're stuck in that mindset of like, this is the mode. Because this is what conventional wisdom is. And I've never thought about it any other way, really. So once people can actually believe, like, oh, my expenses are this per month, I actually could see how I could get there. Let me reverse engineer. How much does it cost me to actually afford? $3,500 a month to live and okay, I can do that. I could actually work hard this year. I, I'll save more than I have in the past. I'll get started at least with a little bit, maybe for a little while. I've just got $1,000 a month coming in and I'll just work hard to keep adding to that. And so my income is just supplemental, but eventually I don't need my income.

Yeah. So let's just use a smaller nut than 10,000, let's say 5,000. And this is a little bit of a, it depends and loaded question. But you know, a lot of it depends where you start. If you've got a million dollars in the bank, it's easier to get there than it is if you've got $10,000 in the bank. But in order for somebody to get, let's just say a passive investment based income of about $5,000 using some of the strategies you're going to share shortly, what kind of nest egg should they be starting with to have a realistic shot of this to say let's maybe get it in a year?

Well, I mean, if you can get a return of around 10%, then you're at 50,000 invested. I think 10% is pretty reasonable depending on what investments you do now, you're not going to get 10% investing in the stock market. And also more importantly than that, you're just not going to get cash flow. And even the things that you get cash flow from, like REITs and real estate investment trusts, different real estate, publicly traded real estate, it's a little less consistent. Generally you're going to reinvest that probably anyway, so it's harder to rely on that. So to me, if you're going to really kind of get that 10% return and you could get more and you could get less, but real estate to me is always a good place to start because there's intrinsic value in real estate. It's not going to go to zero, doll. So I like that. The risk side is like if everything goes wrong, you're not losing all your money and you've got a hard asset.

That'S worth something, even the land itself, even if it all burns towards something. Okay, well, this is probably a good segue into. Let's talk about some of the types of vehicles that you both invest in and advise other people to start looking at. I know I've got a short list from the first time I saw you talk, but I want to here instead of me talking about, I want to hear you talk about it, you mentioned real estate. But let's even dive deeper into real estate because there's. I'm going to buy an individual house, I'm going to buy 20 houses, I'm going to buy multifamily, I'm going to buy some of that stuff. But let's give me a little bit more details on some of the types of vehicles and then maybe we'll dive in a little deeper to each.

Yeah, I mean I like income producing assets. So specifically in real estate, I want something that cash flows and that could be numerous things. And by the way, you kind of have to look at from a time standpoint, how much time do you want to put into it? So for example, if you're okay putting time into it or you're okay owning it directly and hiring it out, you're probably going to get a little bit higher of a return than if you invest in someone's fund or in someone's syndication. But that's also a good move if you don't want to spend any time. So I think you got to get clear on how much time you want to spend. Right.

Let's assume because we're lifestyle investors here that we want to spend the minimal amount of time necessary to find like almost no time managing the investment. Right? Yeah, we're all like, and hopefully most of the people on this call are entrepreneurs and we're running businesses and doing other stuff like that. Like yeah, I want to be a lifestyle guy. I want to put minimally viable time in order to have a maximally viable investment.

Yeah, for sure.

Well, I'm cleaning any toilets?

Well, I'd say, I mean I'm a big fan of single family home rentals. You can do that on a short term basis with Airbnb, like that type of model. You can do it on a long term basis with a year round tenant. You can scale that. There are property management groups that you can utilize on that. You can invest in funds or in different groups that manage it for you and pay them a fee.

Do you recommend going to? Because there's a lot of turnkey, like residential turnkey, real estate investment companies out there who they go out and they find the deal for you, they manage it, they, they take care of everything. Basically you just get the check every month. Granted it's, it's a lower cap rate like you might be getting or just like a 10% return sometimes if you're lucky, sometimes a little bit less. When it's all said and done, do you kind of recommend that or do you have other ways that you go about finding some of the real estate deals, especially in single family.

So I think that's fine. I mean, I think there are a lot of groups that do that and if it meets your financial goals, I think that's totally. You just want to make sure that the group is a good group. I also like other asset classes too. I mean, I love mobile home parks, as you already know. That's been one of my foundational investments in my portfolio. It's still something that I actively hold today. I like apartment complexes in the right markets and the right type of apartment complex. Traditionally more workforce housing and not really like your top tier. But I think that there's other great avenues. But I look to the city, the specific demographics on that. I like self storage. I also like industrial, like warehouses, distribution centers, like all of these assets, cash flow and all of these assets. I've had a good amount of experience with positive results, so I feel good about them.

When we talk about like apartment complexes, for instance, there's different ways to do this. You can go out and try to find the owner of apartment building and negotiate one on one with him and raise capital. Whether it's a four unit or you know, 100 unit, it really depends with yourself and your clients. Do you typically get them in? Do you do that route or find a syndicator who is a professional at putting deals together and offering like a syndicated return, et cetera. Where do you fall on those, that spectrum?

Yeah, earlier in my career I like to do a lot more because I wanted the bigger return. I didn't value my time as much. Now I value my time way more. And so I don't really want to spend it doing that. I'd rather just find partners that are really smart and really experienced. So I think what's important on this one is that they have experience, that they have a track record, that they have local operators in that market where the asset is the property is. I think that is really important. So vetting the operators, vetting the financials. If you're going to go that route, you just have to either A, have someone that can help, you know, because they're an expert, that it's a good deal or a bad deal, or B, you need to learn that yourself. But as long as you do, I think those could be great vehicles.

Nice. Do you typically have a minimum benchmark return you're looking for when you're dealing with multifamily apartment buildings?

Yeah. So this is one. This is an interesting One. So let me preface this by saying most people that I run into and that I work with, their goal is I want to earn X amount. And so there's almost like this allure of a higher IRR internal rate of return where they're like, this is the deal I want to do, but you really can't do it based on that. You've got to do it based on what deal is the safest deal, where it's like the least likely you're going to lose money and still get a good return. That to me is really important. So it's not always about the return. I just don't want to lose money.

Rule number one.

Yeah, that's right. Warren Buffett says it best. And so that one, to me it's like if I earn one less percent on the irr, but I've got an infinitely safer deal that's perfect, no worries, I'm totally down with that.

Right, so then you talk about self storage, industrial distribution. I'm I guess high level familiar with like self storage.

Right.

I understand you can buy one, they're, you know, have managed, they're pretty low maintenance, et cetera, but I'm not familiar with the industrial distribution warehouse, et cetera, at all. Tell me about the process of investing in those. Like, is it also like syndication companies that typically do that or. And you know, and do you ever go out Right. Now, I guess that this is not a good statement because I'm sure deals fall in your lap all the time just because you're in the process of doing this. But for the majority, is it more dealing with people who professionally put this together versus going out and hunting them for yourself?

Yeah. So at this point in my career, the answer is yes, it's way more professionals. I mean they're going to do a better job than me, there's no doubt about that. And I'm willing to pay them a little to do it. You know, I'm happy to have, you know, a smaller piece of a bigger pie that is managed really well. So I look for the best of the best in terms of like who are the best operators, who are the best syndicators. You know, I like funds as well because then you're having exposure to many assets, not just one asset. So if something goes wrong with one, you're not out that money. It's probably balanced out by the rest of the assets in a portfolio or in a fund. Right.

What kind of funds are you talking about? Are you talking like public reits or are you talking about Something more private.

Yeah, private funds. So I'm a big fan of like a private industrial distribution center fund, you know, mobile home park fund, self storage fund, RV fund, single family home fund. I mean you can do direct investments and syndications where you go right into a deal and you own that one property and if something goes wrong, then you lose money. If you're in a fund, it mitigates some of the risk because you have so many assets that are going to likely perform well compared to the ones that don't.

Yeah. With the caveat that if you're in a fund, you typically actually don't have the claim to the underlying asset. One of the places I've made money and lost money in doing hard money lending for real estate investors. And with, you know, whenever I dealt with good, respectable investors and you know, I do a short term loan, here's $40,000, they're going to, you know, pay back, you know, whatever 16% return in six months. That was great. Then there was a company that I was using that did a fund of hard money and it sounded great. Everything went sideways for them and I don't know, I probably lost 10 or 15% when it was all said and done. Just because they, when they were trying, maybe more because they were trying to unwind. But they, you know, people had shares of a fund, they didn't actually just. I didn't have the assets to go, okay, I'm going to foreclose upon this. Right. It wasn't one versus one. So that was one case where I kind of took a little bit of a bath. But I think I made up for it with my other, you know, one off properties.

Yeah, can I speak to that real quick? Because there's a big difference here between investing equity and investing in debt. And so from a debt standpoint, you would never want to lend. Unfortunately, you learned this the hard way. You would never want to lend without being in the first position or the senior position and having collateral to back that loan. So in this instance you're totally right. And I love debt funds and credit funds and I'm a huge fan of just the world of investing in debt. I think that is a great vehicle. It cash flows really well. But having a senior secured position is really important. And a lot of people also don't know that when you invest in debt versus equity, you are higher up in the repayment schedule. For example, if something goes bad, a debt investor is always paid back first and a senior debt investor is paid back before all the other debt investors.

Exactly. Exactly. Which is like in real estate, I like hard money lending, if done well and done right, just because you can keep on turning that money. And that's the way, you know, that's the way banks work. Right?

That's right.

When it comes to some of these investment. Well, did we talk about all of the various types of vehicles? Because, I mean, we talked about multifamily and individual housing. We talked about industrial center, self storage, rv. There's a lot of these assets that you can buy. Are there any other alternative asset classes that we haven't touched on that you sometimes do? What about individual businesses or.

Yeah, great question. I love operating companies. I do a decent amount of investing in those. In fact, I just bought a company, a dog training company, believe it or not, last week. And so to me, I love finding businesses that I can buy for a fair amount where I can be the capital partner and I don't have to do any of the operations. I've got a strong operator that runs it, that is adequately compensated. And when I say adequately, like they feel really good about their compensation. And so they're willing to work hard. That they've got some skin in the game, but they're willing to work hard. That is one of my favorite ways to invest. And I've had a tremendous amount of success investing in companies that have scaled and have done really well.

Where have you found some of your deal flow in the operating companies?

Well, some of it is just having the right relationships, right. So it's. You just know the right people and something, you know, kind of comes across my desk and I say, oh, this looks good or this doesn't, or I knew, you know, someone says, hey, I've got a friend and they're looking to sell. Do you know anyone who's interested? You know, so that happens a lot. I have sourced businesses via brokers. So there is a big business, you know, a big marketplace where people can sell their business. There are brokers that will, you know, kind of represent and kind of market different businesses, operating companies. So I'm a big fan of that in some instances. I mean, really across the board. They're just like. A lot of my businesses actually are from repeat deals. So I invested with one person. It went really well. They ended up buying another business and wanted me to be their capital partner again. Right. And so that's a great sign. Whenever that happens, it's like, okay, well, I know that I've done a good job as a capital partner. And I always tell people, your goal is not to Just get money. You want to get money that has wisdom tied to it and a network tied to it. Right. Because it's easy to find money. It's not easy to find wisdom to help scale and a network that can help scale. And so my value add is that I've got money, but you can get money from various sources. I want to help people build a great business, and I also want to teach them how to do it themselves. My goal is not to run it, but my goal is to really help people get out of the rat race. And so, you know, with this last business, it was cool because my partner, John, he was working for another company. This was his opportunity to quit that job, to get into the entrepreneurial space and to run a business. And prior to that, we had invested another business, and his wife, Melissa was able to stop working for someone and start, you know, running that business. And so I think that that's really exciting when you not only have a good investment, but you're helping other people get out of the rat race and teaching the lessons that you've learned along the way.

Yeah, yeah, precisely. When it. When it comes to, you know, the whole process for finding these deals, structuring them, et cetera. I know one of the things that I'd seen in the past you were talking a little bit about there's deal flow, getting a deal flow, and sometimes that's easy. Sometimes you just go find somebody who's got deal flow and you just give them money. Right. That's the lowest maintenance, probably the lowest return versus going out and hunting for the deal yourself. But then you said some interesting things before when it came to structuring the investments and not necessarily just taking whatever terms that are offered, but actually negotiating for even preferential terms. Can you talk a little bit more about your process there and maybe even some stories about what you've done?

Yeah. My goal is to always de risk a deal as best I can and to add as much upside as I can. So whenever I get a deal, the deal isn't the terms that they gave me. The deal is, how do I take those terms? I mean, if those terms are good enough and I feel fine and protected. Okay. Generally that's not the case. I mean, when someone presents you with an offer, it's generally because they feel really good about it. It's not because those terms are good for the buyer. They're good for the seller. Well, I want to take those terms and I want to make them good for me as the buyer as well. So the goal Isn't to like try to get such a good deal that they totally get screwed. That's not the goal. The goal is for both parties to walk away and say, hey, this is really good, we both win. And in fact, I want them to feel so good about it, they'll come back to me on the next one. Right. But it's got to work for me too. So I've got a lot of mechanics that I use in structuring deals and it can be, you know, I've got a book coming out here on December 8th, and I kind of outline my ten commandments. It's the lifestyle investors, the ten commandments of cash flow investing for passive income and financial freedom. And So I have 10 commandments or my 10 criteria of what I need to be able to accomplish or items that need to be a yes for me to say, okay, I can make this investment. And so sometimes they don't fall inside of my criteria and I've got to help them, so I might need to. One of the commandments is finding income amplifiers. So how do I enhance this deal so I have better income opportunities and I can make a return that makes sense because some deals, it doesn't make sense. Not because the deal itself doesn't, but it's because I could invest in another deal at a better return so that it'd be a lost opportunity cost.

Can you give an example of an income amplifier?

Yeah, sure. I mean, and there are tons of these that you can use. I mean, some of them, you know, like there's a cash bonus. Could be an income amplifier, getting equity in a company on a debt deal, but getting like an equity kicker for free, that would be an income amplifier which can be structured in pretty easily. A liquidation preference. How do I get paid in this investment before anyone else? And negotiating something on gross proceeds, that would be one. I mean, getting warrants, which is just an. It's an option to buy in basically equity of a company at a future point in time, but at a strike price that's locked in today. And so that would be a way to do it. Or a profits interest. If a business is basically valued at a higher valuation. And therefore if you had equity now, it would cost you a lot in taxes. Well, you can structure it so that you. It's not going to cost you as much. Now there are just tons of these that you can use to get an advantage to the investment.

Right. Okay, what has been maybe one or two of your. You know, we've all got some of our favorite deals and Some of the ones that have also bitten us in the butt. I mean, I'm sure you've had a. I'm sure you haven't been a Midas touch your entire life and had some things go south. But what are some of the ones that did really well? And this doesn't have to be the anomaly that you hit it out of the park like, oh my God. But it was just like, man, we got into this. This is a fun one to talk about at a cocktail party. It's generating this kind of cash flow, et cetera. Can you walk us through a couple of your. Maybe some of your favorite deals that you've done?

Yeah, yeah. And this is so fun. And by the way, this goes without saying, if you're an investor, you're going to lose money somewhere. I mean, sometimes that's the best educator. And that's why it's good to not put all your eggs in one basket. And by the way, that includes the stock market, not putting all your eggs even in that one basket. But I've had some really fun real estate deals. I've had some. I mean, I'll tell you one that's really interesting is a senior credit fund, senior secured. And it's in the cannabis and CBD and hemp space. And this group does loans to companies that have really good cash flow, a lot of assets, so they can really collateralize it. But it's in a market where the banks can't lend. And so you have this prime opportunity for a really high return on a very safe collateralized or protected investment. If something goes wrong, you have enough assets that are two or three or four times the value of the loan so you can recoup whatever it is if a company doesn't make it, and then you're getting a good return. And so I'm getting in some like right now, one of these, I'm getting 15% annualized and it's a quarter or. I'm sorry, it's a monthly distribution. I mean, that's a great return in an industry that is just booming and growing. 25% quarter over quarter.

Yeah, yeah, it was a. Collateralized by like, you get as much free weed as you want if everything goes south.

No, no, collateralized by, you know, real assets. But and for just so everyone is clear, you know, generally you want to collateralize a loan with something tangible. Real estate accounts receivable stock pledged in the company so you can get equity in the company if they default or. I mean, there's tons of stuff that you can collateralize against. But the goal is to have something that's worth a lot. So not only is it less likely that they default, it's one of those things where it's like, wow, the deal is actually better if they default. Therefore they're going to do whatever it takes to not default. You know, I put an example of this in my book where it's like, hey, we did a loan with a company for, you know, a million dollars, but we have about $60 million in collateral backing it. So there's no way someone's gonna lose out on a million dollars, like not pay that, default on that when we can come after 60 million, right? They're gonna do whatever it takes. They're gonna raise extra money. They're gonna find a way. And so that to me is like, you know, my second commandment in my book is to reduce the risk. And so that is exactly it. How do you protect yourself from losing money, but then how do you also make a good return at the same time?

Exactly. Well, that. And that's the. Yeah, that's the two hands playing the piano, right? You can play a tune with one, but you really need both to play a song, which is. Yeah, get the most. Most return. The return that's going to get you where you want without taking the risk that's going to blow you up. I know in the past, some of the biggest mistakes I've made have been going for high returns and then like super high risk, super high returns. Like, for instance, I lost my hat in. Or my ass, I should say, in the oil and gas space. A couple of natural gas wells, they looked great. But for instance. And this was, man, this was like 14 years ago or something, but telling one of my war stories that I lost. But I knew the company. They had a couple of oil and gas wells or natural gas wells that they knew for a fact that there was gas under them. It was an execution thing. All they had to do was go ahead and get it. And I didn't realize how many problems happen in trying to drill for oil and gas. Like a lot of technical, mechanical problems. And in a general partnership like this, they have these things called cash calls, which you may be familiar with the concept of cash call, which says, yeah, if you, hey, we had something go wrong, we need more money. Otherwise you. You either play along with everybody and you put more cash in or you lose everything. So talk about being pot committed, right? Like poker term. I had started off with a $25,000 investment, and it grew to $100,000 before it petered out. And that was everything I had at the time. So I went from, like, I made a bunch of money flipping a few houses in real estate, and then I was like, ah, this is great. I'm going to throw 25 in this oil and gas well. And it just shot me in the foot. But there was no risk mitigation there. It was all risk. And I still do some highly risky stuff. I've done a few angel investments, and I've done a few things like that. But, yeah, as we get older, et cetera, holding onto that is a lot more important than just, what do you make? It's kind of, what do you keep Real estate. Okay, let's talk about the overall market environment. I mean, it is November of 2020 that we're recording this, and the one thing we can say is that the world or the country is crazy. Right? There's no doubt, absolutely crazy year. We're in a crazy. We don't even know who the president is. We think we do, but who knows? And there's a lot of macroeconomic factors, such as potential foreclosures and a lot of things coming right around the bend. I'd be lying to say it doesn't spook me and make me kind of sit there sometimes like a deer in headlights going, yeah, I don't know about that. Like, I don't know what I don't know. Do you have an overall macro view right now, and a macro view as it applies to your investments? Like, how are you kind of protecting yourself from some of the unknowns that were going through in this very, very unique time period?

That's a great question. And Brad, really, it's understanding what you know and investing. It's educating yourself in an area where you're uneducated or investing in an area where you're already educated and kind of sticking to what you know? And so your last example is a great example. I don't know oil and gas that well, and I've heard of other people with horror stories like that. And so I've just never. It's one asset class I've just never invested in ever, in my entire career, because I don't feel like I'm great.

If you need a tax loss. If you need a tax loss, they're great.

I just don't understand it well enough. Like, I don't understand the risk mitigation. Like, I can't ever get to a point where I feel comfortable and confident in it. And by the way, there are groups that do it. There are people that know it. I'm not saying it's a bad investment just for me. I haven't. Whereas in real estate there are some commercial buildings because of what's going on right now that you can get for pennies on the dollar. And I mean another one of my favorite investments was with a group where I'm an LP and we bought American Airlines former headquarters. And this thing is a gorgeous complex, a three building campus complex. And we were able to get that first building leased out to Bell Helicopter on a government contract backed by the government for a longer term than what was projected. And they're likely going to take, you know, even more of the lease of this building. But it's exciting because the returns on this thing are astronomical. I mean we're talking about a 4x over a three year period of time.

That's great.

And so it's deal and then with tons of risk protection involved in the negotiations of it right in the contract so that we could get our money back via put options. That's another protection mechanism where if you don't like the direction it's going, you can actually get your money out for any reason at any time. Right.

And I know that macro. Speaking from a, from the real estate point, I would say if we were having this conversation six months ago when we were right in the heart of the pandemic, I would have been like, oh damn. Like I don't know if any of your real estate investments got affected by the, the rent moratoriums. Did they get affected?

Well, not really. I mean I luckily I fared really well in the vast majority. You know, there were a couple of things where I was an LP and something and maybe they didn't pay the distribution in a quarter. Most of them recover pretty well because most of what I'm in is generally recession proof or close to recession proof. And so we had a lot of our assets, especially in multifamily that improved and that occupancy rose. So it's kind of a crazy phenomenon.

Yeah. I was curious how multifamily really fared. I've got a really good friend of mine in Dallas who has a big multifamily company and I was going to, I haven't had a chance to really talk to him to say like did you, did you guys get moratorium? Like did you get people just stop paying rent etc. And I do believe that we're out of the, I think we're out of the woods from that. Like with coronavirus now, even with some shutdowns, etc. I think we kind of over. I do think we'll probably see a lot of, you know, more evictions and some other stuff like that, of that nature of existing things, but it doesn't scare me as much going forward. The. What is the lifestyle like of a lifestyle investor that, like, how much time? You know, let me back this up, because you're different, because I know you work with clients and you help them do what you do, right? Like, you. You have a program where it's not that you manage their money right? It's you show them how to do this themselves and how to kind of duplicate, you know, your years of experience. What is their, you know, the clients who work with you, what is their lifestyle like as they're learning to become a lifestyle investor? How much time are they spending trying to learn and understand investments versus identifying something, placing the money, moving on?

Yeah, each person's a little different. I mean, some people just want a certain amount of cash flow. Other people want to be students of the education. Everyone wants some familiarity and some understanding. But some people are a lot more interested in the details and others aren't. I mean, I've got a bunch of entrepreneurs that either A, had a big exit or B, make really good income, but they're kind of like chained to their business and so they're looking to buy their time back. I've got some executives that they earn great money, but they're kind of the same way change to their job. And so, you know, with these individuals, it's teaching them. It's like new mindset stuff. A lot of these people that I coach, these are concepts they've never heard of. They've never even thought you could negotiate. The way that we structure things are like, holy cow, I would have never known that you could even do this or that this was a thing. And my goal is to just help them create a better lifestyle. You know, if they love what they do for work, great. They're the minority. Right. It's a small percentage of people that will say, like, I love what I do, and I feel really good about the hours that I put in. Most people are going to tell you both of those are wrong. They don't love what they do. They'd rather do something else. And they work too much. Right.

So true.

So I'm just trying to help people get to a place where they're doing what they love and on a timeframe that they love it and they're able to prioritize their family and their health and the things that matter most in their life.

You know, the biggest shift mentally that they have to make or that they. I guess there's two versions of that question. What's the biggest shift that they have to make? But then what is the biggest shift that gets made? Right. And sometimes those. Not the exact same things.

That's right. What, what do they want, what do they think they need? And what do they actually really need? Yeah, without a doubt. You know, most people, it's a mindset thing and with other people it's a mechanics, but you know, or it's a discipline. I mean, some people, their lifestyle is so expensive, it's like, all right, we got two options here. We can either decrease what it costs you to live or we can increase what it is that you're earning and investing. And so each person tends to be in a different situation, but with everyone there's mental baggage. There's like mindset or scarcity issues or it's not always scarcity, it's often revolving around scarcity, but there's underlying like beliefs and just like beliefs that they think are hardwired about how the world works, how money works, how they need to show up, how they need to invest. And for a lot of people, it's getting them out of being so scarce minded and into more of an abundant mindset and then also into a mindset that is open and creative and allowing them to do it different than just a nest egg approach.

Yeah, that's, that's really important. So then how do you work with them? What is that like when you're, you know, when you're working with a client? Is it one on one? Do you do it, you know, in kind of a group setting where everybody gets to kind of learn and meet each other and et cetera? But what, you know, what's it look like to be?

Well, my. Yeah, my one on one clients I have limited to just four to six people a year. That's all I do. It's a pretty high ticket item to be able to coach with me. And I'm pretty selective with who I work with. And then I also have a mastermind where I do more group style coaching. And that one, you know, I have a kind of like my cap for how many people can be in that group. And for both of those, you know, one is group, one is one on one. And some I get to know how they tick and their finances and their idiosyncrasies at like the highest level. Right. And then Other people, it's less of being able to know those intimate details, but much more of covering principles, philosophy, strategies.

Yeah. And then do you, when you're working with them, do you have, you know, let's say there's the education component about what to do, but let's say somebody's interested in mobile home parks. You mentioned that several times. Right. And they're ready to deploy money, they get it, they understand the economics of it and how it works. Do you typically have resources for them to go be able to deploy their money? Or is it all right, you gotta start sending letters to mobile home park owners and see if you can buy it, et cetera. Like how much of that is active versus how much of it is kind of like, look, step into this. I've already done a lot of the heavy lifting.

They can do it either way they want, but I've done a lot of the heavy lifting already. I mean, that's part of the value add of being in my investors club is that I have deals that I, I've vetted deals that I've invested in, operators that I've worked with, just people I have relationships with over the last couple decades that I've done a lot of the homework. You know, I've got a lot of professionals in place that they know what they're doing and I have a lot of other professionals in place that, that screen and you know, analyze what we're doing as well to make sure that everything's on the up and up.

That's great. Is there a. For your ideal client or is, do you have kind of a minimum bar you set to say, listen, if you don't have X amount in assets, for instance, this may not be the right thing for you. Do you kind of have that minimum level that.

Yeah, you know, on a high ticket item. You know, if someone's going to coach with me for a year, one on one, it probably is, they would need to have at least 250,000 that they could invest into something. If it's on a lower scale, you know, if it's like the Mastermind or any of the other products we have, it could be less. I mean, we have people that come in that are looking to place 50,000 over a course of a year, 25,000. Some people, you know, are in a few hundred thousand. So everyone's a little bit different. You know, I have a higher standard for that one on one coaching. But for the group mastermind, I try to, I mean it's a highly curated and you know, group and there's definitely a barrier to entry. But I really want to meet people where they are. People that aren't going to fit the dynamic of the community aren't going to get in. But my goal is to help people with their finances. So I'm not going to limit someone on their finances unless I believe that it's just financially irresponsible and I'm just not going to let someone join if that's the case.

Right. Well. And you know, I'm sure that some of the people who are going to be listening are going to want to find out more. And obviously in December your book's going to be out so they can get a good primer on that. But I just want to let people know, like, yeah, okay, if you're living paycheck to paycheck, you got $2,000 in the bank, this may or may not be something the mastermind or whatnot to really pursue because you might need to focus on income and generating some, a little bit more income, a little bit more savings to be able to deploy. Although I'm sure that. Do you use much leverage in some of the investments that you're making already? I mean, in real estate, leverage is the name of the game, but because I would imagine that most of the real estate deals either if you're just investing with a syndicator that, you know, they're oftentimes using leverage. But in some of the other deals, do you typically borrow money and then deploy it or is it just depends on the deal?

It depends on the deal, but I don't, I mean, I love using leverage, but I don't like to use a lot of leverage. I really want to be very safe. So you know that that's something I'm very conscious of. And you know, for me, I don't ever take, I don't invest money for people. I just invest my own money and I share with people. Here's what I've done. Here are the terms I've negotiated, here's why I like it. Here are the risks. That's kind of how I break it down. But I invest with groups and I invest myself all the time with leverage. It just needs to like leverage. If it works in a worst case scenario and you've run financials for what the worst thing that could possibly happen, like a pandemic and it passes, then that's good. But if you haven't done that, then that doesn't work.

Yeah. What's the last deal you did?

So the last deal I did well Technically it was that dog training company that I just bought.

Nice. Where are they based? Out of?

Kansas City.

Cool. How did you discover them?

And so that was like a relationship that was almost. We heard about it through a landlord that was losing the tenant because they were starting another business and selling that business and they didn't want to lose the business. And so they were just saying, hey, do you know anyone that is looking to buy, you know, a dog training company? And so, you know, it was like, actually we might be interested.

This is a personal contact that you knew?

Yeah, yeah, technically it was a contact that my partner had. So yeah, it worked out pretty well.

And then now who's running the business? Cause did you say that they're my partners? I'm sorry, the partner.

My partner's running it. I don't do operations in any of the businesses anymore. I either. For any real estate I own, I have hired an operations manager. And for any other businesses I'm involved in, there is a principal or an operating partner.

Yep. Now I love that that's a tenant I've tried to stick by. Although sometimes I end up getting my grubby hands in there more than I should stop that leave to them. Which is why like one of the things right now I've got a business partner and I, we are actively looking to acquire IT service like managed service providers. He's got it. He has a successful MSP right now and we've started to reach out looking for other companies who are, you know, small half million to 5 million or so in revenue, doing some things like that because he has the operational expertise to come in. And I'm looking to help structure some of the deals so that we might be able to do some stuff. It's early, we have not acquired any yet. But it's one of those things also where. So I know very little to nothing about IT service. I know enough because of his business and I've been helping him grow his. So I'm learning a little through osmosis. But one of the things I like about it is that I don't know enough about it to be effective in getting in there and trying to operate anything. It's like forced ignorance.

That's right. That's right.

If it was like an E comm business, digital marketing, something of that nature where a lot of my experience lies, I can't help but get my grubby hands dirty. But otherwise I do. So, Justin, this has been really enlightening and I'm really enjoying the way you look at these Things and the way you look at the assets that are out there and there are a lot of alternative assets that a lot of people, they're just not going to think about mobile home parks and self storage facilities and whether it's going individually or after syndicators and funds and just a lot of alternative things. I also like that you have your commandments, your criteria to say, look, don't just invest in this because of X, because you can issue cash flow, it should have this, that or the other. And then negotiating deals to where you're getting the best out of it. It is true. You don't have to accept the terms you're given. I look back on some of the things I've made, the investments I've made, and thinking, why did I accept that? Why didn't I just go and ask for something? You never know if they'll give it to you. But if people want to find out more, granted I'll have a link to the book. But if they want to find out more about how you do what you do, potentially work with you and see what that would be like to kind of go along for the ride and not only learn what you're doing, but earn some good money on some of the investments. What's the best way to find out more?

Yeah, they can go to my website, justin donald.com and they can check out some of the different things that I have going on. I mean, I have an online course that's really cool, opportunity for people to go deep, but at a really friendly price point. And additionally I've got a podcast that's launching here in a week, a week and a half. What's it called?

The Lifestyle Investor.

The Lifestyle Investor, yep. Yeah, without a doubt. And you know, there's just, there's a bunch of info. I mean, I've got some content that I send out. People can join my email list for just extra thoughts and ways to kind of digest this world of investing.

Perfect. So, last question. This is an opportunity for me or maybe even some of my listeners to help you out. If you strike a chord, lets us know where we can add some value. But what's a nut you're trying to crack right now in your business? And by that I mean it could be somebody you're trying to meet, it could be a challenge you're trying to solve, a technical hurdle, somebody you're trying to hire, or an investment you're trying to find, it really doesn't matter. But just anything that's kind of like you're working on and it's like, man, if this could only go a little bit easier, that'd be nice.

Well, that's a great question. I mean, I'm always happy to, you know, if this resonates with people, I'd love for you to share it because I really want to teach people that they don't have to invest the way that their parents did or the way that Wall street basically says to do it because they want your money. So if this resonates, pass it along and share it with other people and get the book in other people's hands. Tell them about the podcast and I think that'd be great. And if anyone has really interesting, cool people for me to meet, I, I just love meeting new people. So I'm very open and eager to that. I've got a few people on my hit list, big time investors that I'd love to meet at some point in time or people that I've learned a lot from over the years that I.

Anybody you want to throw out there in case there's a connection that can be made?

Yeah. Tim Ferriss lives here. I love his podcast. Joe Rogan lives here in Austin. I love his podcast. So those are two of my favorite, probably my number one and two favorite podcasters that I listen to most. Pardon?

Yeah, same here.

Yeah, they're just great. Warren Buffett on the investment front, but there are tons of great.

I'll text Buffett for you, see if he'll.

I like it. I like it. Well, thanks so much, Brad, for having me. I really appreciate it.

Yeah, it's been a real pleasure. I look forward to staying in touch. And as I said, you know, this is a topic near and dear to my heart. I'm always out there looking for stuff. I've been, I haven't deployed too much here super recently with the exception of I've been dabbling again a little bit in crypto, but that has been, you know, it's definitely not cash flow investing and it's dabbling in cryptocurrency just because I've got, I do believe in it and I think it's important to have a, have a small portion of my assets there. But otherwise, yeah, I'm always on the lookout for good opportunities like this as well. So I love talking to people who are doing it in a big and kind of unique way. So for all my listeners, justin donald.com. he'll have his book for sale. What was the launch date? December. What?

December 8th.

Cool. So coming up, so go over there and then check out his course. And I think it's just really important that as you go through, you know, you're building your business, you're building assets. Don't get so caught up in income that you forget to build to buy assets, because that's where real wealth is made. And I just really appreciate you taking the time here, Justin, to talk about how you do it. I've learned a lot.

Thank you. Thanks for having me. This has been a blast.

My pleasure for everybody else. Please subscribe and rate the show and we will talk real soon. Thanks a lot, Justin.