WCI #65: An Interview with Coach Carson

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahli.

Welcome to White Coat Investor podcast. Episode number 65, an interview with Coach Carson.

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Thank you so much. Thank you for listening to this podcast. Thank you for spreading this message to your peers and your colleagues and your trainees. There's a lot of you out there that are telling people about the White Coat Investor and I really appreciate it. But most importantly, I appreciate the work you're doing every day with your patients, with your clients, with those that you come into contact with. Sometimes we get lost in our daily work and forget just how important it is what we're doing. And it's good sometimes to take a step back and really look at just how important this thing you're doing is. You've spent 10 or 15 years learning how to do it, and you're meeting people on some of the worst days of their lives and making those days better and sometimes giving them additional years of their life to live, which is a pretty cool thing that a lot of professions can't do. So thank you for doing that. Our quote of the day today comes from Morgan Housel and we're gonna have a few of these coming up in the podcast because he's so quotable. But today's quote is that the line between bold and reckless is thinner than people think. And you cannot believe in risk without believing in luck, because they are two sides of the same coin. I think that's a great quote. Now we're going to get into our interview with Coach Carson today, which I think you're really going to enjoy. Today we have a Special guest coach Chad Carson, who's coming to us here and going to tell us a little bit about himself. Well, as share a lot of insight into real estate investing in particular, which is kind of an area of specialization of his. And he really brings a rather inspiring story that I think listeners will enjoy today. So I'm going to let him introduce himself because I think people do a lot better job doing it than I do it for him. So welcome to the podcast.

Thank you, Jim. It's great to be here.

Yeah. Tell us a little bit about your story. Tell us about your upbringing and education and career.

Sure. I grew up in Newnan, Georgia, which is a little small suburb of Atlanta, so kind of a metro city, and went to school there. And a big thing for me growing up was football. I played football and then also went to a kind of college prep school, a big private school in Atlanta. And so when I graduated from high school, I went to, I got a college football scholarship. So that was a big part of my sort of college student experience. I went to Clemson University and, and played football there and also got a degree in biological science and a minor in German, which, you know, had nothing to do with it. I pushed very hard to get a liberal arts kind of version. It was a big engineering kind of science kind of push in my school. But I really liked the broad little foreign language here, a little literature here, a little science here. But I actually kind of relevant to your audience perhaps as I was, I was kind of that been on, coming, going in the medical field and took my MCATs and just, but I had been playing football so long I needed a break and I said I'm just going to take a year or two off just to, before I go do all this and put my applications on hold. And lo and behold, I thought I would try entrepreneurship for a little while and learn how to invest in real estate during that break. And looking back, I never stopped. I just kept going with becoming a real estate entrepreneur by flipping houses. And I can get into the details of sort of how I started, if that's interesting. But basically I think we'll have a.

Chance to get into that a little bit later in the podcast.

But yeah, but that's, that's how I got into it from school. So that was, kind of jumped into real estate full, full time.

So I understand you were the middle linebacker at Clemson.

I was, I was the, the big, the big meathead in the middle of the, of the defense tackling people. And, and yeah, it was, it was fun. The, the Linebacker is an interesting position. I don't know for people who are familiar with football or not, it's sort of the quarterback of defense, which is a lot of fun. You're right in the middle of things and so you have to. One thing people don't realize about football is a very quick reaction sport. So you have to watch a lot of film. You have to. It's like chess in some ways. I compare it to like a physical version of chess and you have to have all these different permutations of what, you know, 11 different players on each side with different formations. And so a lot of the times how quickly you react in the moment, split second was really important. And I would have to, you know, move all the big guys around and get them lined up and say, go this way, go this way. And that was sort of my job in the middle of the defense on as a linebacker.

Very cool. How many years did you start doing that?

I was a three year starter at middle linebacker.

Three year starter, very impressive. And was the NFL ever something you considered?

It was, yeah. I was supposed to do well, you know, whatever projections being your junior year, I was projected to do get drafted and was a, you know, all ACC did pretty well. But then for whatever reason, my body didn't cooperate. Things kind of went downhill. Senior year, we had a bad year as a team. I had a bad year as a, as a linebacker. But I think it worked out for the best. Looking at concussion studies and some other things going on right now, I think it was good that I hung my helmet up there and knowing what I've done now since then, I think it was a good move overall.

Now are you still coaching?

I don't know. I use the term coach just because I'm an educator, I'm a teacher, I write a blog. And so the coach for me always had really good coaches and coaches meant a lot to me. And it was always a little bit more than teaching. It was, you teach the fundamentals. And I like the old school coaches like John Wooden and some of these coaches who kind of cared about their players. And so they took it sort of another level of hey, I'm going to teach you the fundamentals. But also there's this level of like passion and caring about what's going on and getting things done and kind of incorporating that discipline of sports and fundamentals. And so that's just why I picked it up and ran with that name as I started blogging and teaching and doing some things online.

Very cool. Well, tell us about the blog and the website and what you're doing there.

Yeah, so my, my website's all about the intersection of real estate investing and financial independence. That's, that's the two things I'm sort of passionate about. I don't think real estate investing is the only way or the best way necessarily. It's been very good for me. And so what I try to do is because I've had so much experience eating, breathing, you know, real estate for the last 16 years, I just have a lot of kind of practical knowledge around how you get started, how you build it, how you. And not not pigeon your whole pigeonhole yourself into a corner. A lot of real estate education, I think gives these little cookie cutters and say, this is the best cookie cutter and this is the best cookie cutter. And what my website is all about is, all right, here are some primary paths, some primary options if you have a goal to become financially independent. There's the kind of the top of the mountain. Here are several really good paths, and then here are the fundamentals you need to learn. If you're going to climb a mountain, if you become a doctor, you're going to do anything. You have to learn some of those basics of how you implement a strategy. And so I like to get into those nuts and bolts and the practical stuff and then connect that with a big picture goal like financial independence.

Now for those who aren't familiar with this, this can be found at www.coachcarson.com. and as I look at this site, I see that you offer some courses, but they're free, right?

Well, one of them is one's free.

Okay, there's one free course. All right.

Yeah, one free course. That's, that's my, yeah, I'm not doing a great job of making money. Maybe I need to learn, learn a little bit from other people. But over time I'm, I'm definitely, it's a for profit business and I teach and educate and so I have free information on the blog, but then I have a free course sort of introduced so people can, you know, see my style, understand what I'm, how I'm teaching. And my assumption is it's sort of a marketing strategy. If you, if you like the free information, then I have a paid course which goes into more depth about helping you get started with real estate and help you pick your specific path. And that's going pretty well. I've got a lot of students and a community behind that and I'm looking forward to growing that slowly over time.

Very cool. So A lot of. Lot of good tools and free newsletter. One of the two courses is free, and of course, the other one's a paid course. Tell us about the difference between the two courses.

Yeah, so the first one, I try to get very specific about the beginning in very general in terms of like, all right, here's your financial goals. Here's what we. Here's what you're trying to accomplish. If you're trying to make $100,000 a year and from your real estate, you know, let's, let's work that backwards and let's try to understand why real estate can actually help you do that. And so that's when I talked about the fundamentals. That's, that's what I mean by that. Like, what are the actual tools in real estate? Is it a rental property? Is that a note? How do those notes help you accomplish that financial goal? So some of those, I think more fundamentals. And with the course, the difference is we get very personal with that general information. So we actually have a. Two times a year I open it up. And then as a community and people, we go through it and have some challenges, for example, where if you're going to choose your target market on where you're going to be investing, if you're going to be more direct ownership kind of model, then we go through as a group and help you learn your market, study it, understand the fundamentals of population and demographics, and then we go to the next step of the understanding. How do you, once you have a market, how do you find deals in that market? How do you analyze those deals when you get them, the number on the numbers. And so it's more about customizing a plan for you as opposed to you can get general information on anything out there. But I think taking that and applying it to your situation is something I do a little bit different.

Very cool. Now, your tagline on the site is practical real estate investing strategies to help you retire early and do what matters. So I want to push back a little bit on this.

All right, what matters?

You're saying do what matters? What matters in your view?

Yeah. So it's obviously a personal thing, but my passion. So, like, if I had. Even above real estate, above financial independence, one of the things that has been really interesting in my life and has made my life very rich was being having the opportunity as an entrepreneur. And then as I became more financially independent with passive income and kind of regular real estate income coming in, was that I was sort of faced with this challenge of asking myself that question like what, what does matter? You know, I think in my experience at least, and maybe other people can resonate with this is as you go through school, as you go through perhaps grad school, I didn't go to grad school. But there's sort of this progression that you go through all the way up until your, in many cases your 30s. And the progression doesn't necessarily ask you, like, what would you like to do with your life? Like, what, what, what exactly would you like to give? What are your skills? And so for me, it was really fun as I got more space in my life to start asking that question, like, all right, let's just take money off the table. Let's assume money is taken care of. And I know I've gone down this path. I'm an entrepreneur. I've done these certain things in my life. I have a family, I have this house, you know what? But if I started over, if I just said, as a dreamer, 18 year old kid, now what do I want to do with my life? And I'm 35 years old, or I'm 30, 40 years old, and you ask yourself that question. I find the answers are really interesting and I've gotten so many different answers, which is one of the fun things of what I do is that I've had people say, I would like to continue doing what I do. I love my job, it's great. But then when I push back on that a little bit, they say, well, but you know what? The schedule of my job, I really don't like. I really don't like all these strings attached to what I'm doing. And so a big chunk of people would say, you know what, I keep doing what I'm doing, but I work a different schedule. I would push back and negotiate more. If I didn't have to deal with money, I would do what I love, but that's all I do. I wouldn't do all that peripheral stuff. Other people say, you know what, I don't really like my job. I would rather do something completely different that does not have a lot of monetary reward in my life. Parenting is one of those things where having more space to parent. And my wife and I deliberately, we took a trip for 17 months. We just got back about a month and a half from that to Ecuador in South America.

17 months.

17 months, yes.

Most people go to Ecuador for 17 days. You went for 17 months?

17 months. We were supposed to be 12 months and we kept on extending it, but my wife is a Spanish teacher and I've always When we first met, foreign languages and visiting other cultures was a big passion for both of us. And so when we had kids, we always knew that, all right, when they get, maybe our younger one gets three years old, I think we're ready to take the big leap into an extended trip abroad where they can learn the foreign language, where they can understand that things are done differently in different cultures, but most of all so that we can have a lot more space to have meals together, to talk to each other, to walk our kids to school, and just get kind of out of that frantic rush. And so for me, that's kind of my definition of what matters, is having the space to do that in addition to other, you know, I love entrepreneurship. I still love investing. You know, mixing those in a way that's more balanced than my life is a big. Is important. And so I give you that as an example. But I also love the fact that what matters is such a unique answer for everybody. And so I just, I try to encourage everybody to ask, don't assume that what you're doing is on the right path. Ask yourself that question. Assume that you have no money is not an issue. And what would you do differently? Would you take a one year trip? Would you start a different job that makes less money? Would you change your role where you are? I think that before we start talking about practical kind of tactics, I always start with that because that's sort of the end goal that we're trying to get to.

All right, we got to go back and get a little bit of specifics on this 17 month trip. How old are you now?

I'm 38.

And what did you do financially that allowed you to go on a 17 month trip to Ecuador, which it sounds like it wasn't paid. Is that correct? You weren't being paid down there?

No, no, I was not paid. My wife taught English. She made a grand total of, I think she was a premium English teacher down there, made 10 bucks an hour. So, yeah, we were, we were not getting paid down there, but rental income, that's. That's how I paid 100%.

Let's go back, let's go back to the beginning and explain how you've built up enough rental income to be able to support that sort of a trip at 38 years old.

Yeah, so in the beginning, like I mentioned earlier, I started off just as a deal person by finding deals, flipping them, making little chunks of money. Over time, they became bigger chunks of money. But I was basically just a buy seller type investor. So it was A business. It was a job. But over time, about three or four years into my business. So I started just right out of college. I didn't have any college debt, that was a benefit, but I didn't have any big huge chunks of money. I was very leveraged. I used partners, I used private investors, I used other people's money basically to partner with me to be able to flip some of those deals. Over time though, I have a business partner who We've been a 50, 50 partnership since we started and we started saving some money. We started buying a few buy and hold rental properties which today is almost all of what we do. We do a few flip here and there when it's, when it makes sense, we do a little kind of small developments when it makes sense. But we really. My love and my. What paid for the trip to Ecuador was the fact that we had accumulated from that time. We started over a 16 year period about 90 rental units and Clemson and so those are some of them. Most of them are small multi units. I have some duplexes, quadruple X's. The biggest we have is a 12 plex building. But my, my style, which might be, you know, interesting segue to other things we can talk about, but my style is very much a direct ownership, real estate style. That's what I know, that's what I've been involved in. My father had rental properties growing up. That's another part of my story. So I sort of saw that from, you know, just as a kid observing what he did and what my mom, my mom was a dentist, so she's a medical practice professional. And so I sort of saw their model and how they did it and how that eventually if you. It's kind of a get rich slowly type model. But if you can build wealth, you can use some leverage up front. You can pay that leverage off eventually you can increase your cash flow, reduce your risk and have a nice solid portfolio that can pay for your lifestyle.

Now your, your dad had some real estate properties. Your mom was a dentist. This is a nice combination, a doc and, and somebody into real estate that I found that really works pretty well. But I understand there was also an emu farm involved. Can you tell us about the emu farm?

Yeah, yeah. That's not one of his success stories, but it sure made for some good stories for me and my brother growing up. So my dad was, he was just an entrepreneur. Real estate was his bigger success. But he also had a computer business when I was growing up, when I was young that was tough you know, technology was changing a lot then back in the late 80s and early 90s, and he actually sold computer software for the front office of private dentist practice. So they would. He had done it for my mom's practice and he knew how to program some software. And so he said, all right, if I did it for her practice, I'm sure there's other practices that would want to buy this. But he ended up traveling all over the country and there's lots of support and it just was. He's not a great salesperson. And so eventually he sold that business and it was okay. And so the next thing was sort of an adventure and a speculative farming eventually called Emus, the big huge ostrich like bird from Australia. They had a little two or three year period there where it was going crazy. People buying and selling these things. Sounds absurd, I know, but they tried to make a little money on that. That wasn't a great venture either. And he settled back into real estate where it was much more stable and conservative and had a nice track record for working over the long run.

But in essence, your career has been real estate investing. I mean, it sounds like that is what you've spent most of your time doing. And it's worked out very well for you to the point where it sounds like, I mean, if you've got 90 doors and you're able to take 17 months off, it sounds like you're pretty much financially independent at this point.

Yeah, I don't have to. We do not have to accumulate a whole lot more wealth. There are some things that I would like to do from a risk and diversification standpoint, but in terms of generating income and having enough money coming in, I think we're at a pretty good point.

So do you invest in anything besides real estate, given that this has been your primary area of career focus? Really?

Yeah. So I did early on. I was very concentrated. I was also very leveraged, which has its downsides, especially when you're going into 2007 and eight, when we sort of hung on by the skin of our teeth and did survive. But now I think now that we do have a base of income. And I say we because my business partner, again. So there's 90 units, or the two of us, 50, 50 partners. I am personally looking to diversify that over time. I'm not in a hurry because I'm doing the assets I do have. I feel I can understand them very well. They're simple. Which was one of Buffett's maxims is just go with something you know, that you understand, I feel very comfortable with the investments I have. But I also understand over time, for example, I want to have some backup plans. And so for me, like the basic start of that is I've invested index funds and I think right now it's probably almost all in my Roth Ira and my wife's former 401k from her teaching job. And so that's, I just keep it simple. Sounds like from looking at your website, pretty similar sort of philosophy. Low cost index funds, very broadly diversified, have some domestic and some international. And over time I like to get that to a higher percentage. I wouldn't mind being over the long run, five, 10 years from now having half real estate, half, maybe 40% equities, 10%, some other short term bonds, cash, things like that.

Similar investments to mine, just a different asset mix. I'm much more stocks and bonds and a smaller portion in real estate. You're a larger portion real estate and a little bit less in stocks and bonds. But both, both very nice asset classes. What is it about real estate that you find attractive as an investment, as a business, as an asset class?

Well, I mean there's the basic things that a lot of people might have heard of. Just the fact that for me growing my initial wealth and wanting to live off of it, I found, I find that because real estate produces income at such a larger percentage than other assets do, that it makes more sense. It's not as volatile in terms of having to live off that. You know, I know for me having that steady rental check coming in is a really solid foundation for everything else I do. I can be more speculative on other things. I can go be more aggressive when I have, I don't have the concern about having, having that money coming in. So I think that's one of the, the really things I like the most about it, especially as a first kind of core part of your investment investment portfolio. But the other things I like are somewhat more intangible. I like the fact that there's more control and that you have the ability to influence both the success of your investment, especially when you're direct, you're directly owning them, and also the timing. So if you're someone who has a timeline 10 years from now, I want to be able to live off my investments. There are certainly some things outside of your control in real estate, but I think the levers that I've used to grow my wealth, which has primarily been saving extra rental income and saving it for the next property or amortizing my loan, either Kind of standard amortization or aggressively paying that loan down quicker than I had then, the amortization schedule, both of those are within my control. I'm not having to wait for appreciation. I'm not having to wait for anything in the outside market happening. As long as I can keep my property full, and as long as I can be disciplined about saving that money and paying my loan down, you can project out 10 years and say, all right, all I need to do is buy this many properties, get, you know, save this much money, get those properties paid off, and then I'll have that much money coming in. And that is such a simple, you know, formula. And sometimes people like, wait a minute, you need to. You need to get a little more complicated than that. It can't be that simple. But that's basically what we've done. We've just accumulated a certain number of properties. We said, that's enough, all right? We really don't need any more than that. In fact, I would like to have fewer properties than we have right now. We have too many. And then it's a matter for us as a matter of, then let's reduce as much risk as possible. Let's make sure there's no crazy mortgages that have balloons on them or adjustable rates. Let's pay off a big chunk of our mortgages and then get to a place where it's much more stable.

What's the most amount of leverage you ever had?

At one point we were always probably max, 70, 75% maybe, because in the way I did that, I mean, so I didn't have a lot of capital up front to make down payments. So I mentioned earlier that I was partnering with other people or using private money. So, like, I would go to my professor, a person I met at Clemson University. He was a business professor. And I told him, I said, I have the ability to find really good deals. I'm a deal finder. I'm out knocking on doors, sending letters, going, you know, talking to pre foreclosures. I'm out finding stuff, and I can find $100,000 house that I'll be all in. My total investment, including repairs and everything, will be 70,000 bucks. So 70 cents on the dollar was what I would shoot for. And so my proposition to that individual, to him, the professor, was if you could fund that for me. So basically being a hard money lender, or kind of a more of a soft money lender in my case, because it was a little bit more, you know, a little bit less. Less. Less interest over Time, but he would fund it, almost all of it. Sometimes I'd have a little skin in the game, but early on I didn't. And so, but I still had equity in the property, so it was still worth $100,000 and I owed 70,000 or 65,000. And so that was for me, that was, I'm 100% leveraged on my cost or 95% leveraged, but also had some, some safety net that I could, and that I could dump the property or we could refinance or I could turn it back over to that investor if we get went into a crazy market where things went haywire. And luckily I didn't have to do that in 2007. Eight, nine. But we were highly leveraged going into the real estate downturn. But the saving grace for us was a couple of things. One was we lived very frugally and so we'd made a lot of money flipping houses in the run up and we just set almost all of that aside and big huge cash reserves. And so we ate in a lot of those cash reserves when we had vacancies and we had properties that we bought that we underestimated. Repairs, for example. So we learned a lot of lessons that cost us money. But we were able to pay for some of our lessons by just having cash reserves. But the other thing we did was not all leverage is created equal. So a lot of the people, if you look at both real estate and also big corporations that went bust in 2008, 9, 10, and even in other past recessions, one of the biggest faults was the type of financing they had. If you have a call on your loan or you have a balloon on your loan, which almost all commercial loans do at some point. If you have a three year balloon, a five year balloon where the bank can say give me my money back. When you have a credit crunch, they're all going to say give me my money back. And so if you are going to be leveraged, it's much safer to have people who have loans that have longer terms, fixed interest rates. And I feel like we got kind of lucky that I was not very bankable because I was an entrepreneur. A lot of banks looked at me as unemployed. So I went with a lot of, I had to use a lot of individual self directed IRA accounts, self directed 401k accounts as my lenders. And so they gave me a little bit long, you know, 5, 10, 10 year terms, 15 year terms, but also had individuals where I felt much more comfortable if things got really bad in my over leveraged position, I could sit down over coffee and talk to that person. As opposed to having a bunch of bank loans and things go bad, that's a little bit worse situation.

What's the biggest mistake you see new real estate investors making?

I think they misidentify what real estate really is. So real estate is this hybrid concept. When you first start it, it is basically a business startup. It's not an investment, it's a business startup. But the thing, I like it. So that goes back to my comment about control and timing. I like the fact that it's entrepreneurial. I think that's a benefit. But over the long run it turns into more of an investment. So when I was in Ecuador, I spent one or two hours per week managing the managers of my property. I would do bookkeeping, I would answer some questions. I like to see what's going on and pay some bills just to keep my pulse on what's going on. But one or two hours a week is a very, very part time job for 90 properties, for 90 units. If I had five units or 10 units, it would be even less than that. I could probably do a few hours a month given if you have some good systems and some good people in place. So again, the misconception, the mistake I see people make is underestimating the fact that getting into real estate is a business on the front end. That's going to require time and effort. And I think that's necessary. I think that's a good thing. I think that like any other profession, I think you should learn something and pay your dues a little bit. And with real estate, if you're able to pay those dues up front, then you can get to the point where I feel like I'm in a really good point position now, which a lot of people who have been in real estate for 10, 15 years get to this point where you can make a lot of money, you have a lot of networks without expending the same energy and effort I did up front. I can put deals together as the passive investor and understand what's going on because I've been there in the trenches and I've done the work and I know what kind of problems can happen. I, you know, it's, it's, it's passive and I have a little bit more knowledge of what's going on.

So what do you say to the real estate investor that doesn't want to make real estate investing their career? They don't want to get any calls from tenants, they don't want to fix toilets. They don't even want to pick out their own properties, but they're attracted to real estate. What do you say to those guys?

Yes, I think it's a tricky situation. As I was just saying. I think it's a great passive investment over the long run. But I'm sort of one. This might be like kind of countercyclical, counter advice to what some people get with real estate. Like, I don't think you should start off passive. Like I don't think you should. I don't necessarily think you need to do the toilets and they get the calls in the middle of the night. Like, I don't. I think you could always hire a property manager to do that. But I think at a minimum owning one or two properties where this is, to me it's like the very similar to the person who's in a family business and they own a retail store or something and the old grandfather or grandmother requires them to sweep the floors or clean the bathroom first. I think there's value to that because that's how we learn, that's how we get in there and we understand the processes. And so I think it's dangerous when you jump right into something and you invest hundreds of thousands of dollars without having that kind of granular level of understanding of the product that you're investing in. And this goes all the way to some of the current vehicles out there that are available. I think we're both interested perhaps in some crowdfunding type things. I'm kind of dabbling a little bit and interested in some of these more passive kind of vehicles where you can press a button and invest in something. But I think I'm still lukewarm on that because of what I was just saying, because I think the direct ownership, getting involved, the education is an important part of the process and before you become this passive investor. And so what I'm worried about with a lot of these, even I have a hard time understanding the due diligence on some of these properties. And I certainly have a hard time when I read really thick 100 page disclosures and legal documents. And I don't like the complexity of all that. That kind of shields some of the fundamentals of what that real estate is. And so real estate is a hands on, you know, it's an asset that has real value, is local. And so the farther you get away from that and the farther you understand that, the more risk you're opening yourself up to. And so I think either starting and starting in that Level where you have some direct ownership is the step. But what I would say to people who want to become more passive, like if, if I had a, like a soapbox that I get on this, this is, it is when people are in your 20s and early 30s, and this might be people who are medical professionals when they're doing their residency or just getting out of grad school. If you can, if you could basically turn your residence into an investment for a certain period of your life. So it could be three or four years, it could be 10 years of your life by doing what we in the real estate world call like something like a house hack, where you're kind of have a hybrid between a house and an investment. So, for example, if you can move into one side of a duplex, rent out the other side, while you're still sort of in your low income phase of your career, you're going to learn a lot about owning property, you're going to learn a lot about managing a tenant, you're going to learn about what's in it without, without a lot of risk. Without, you know, it's not a big deal, even though it might seem like that if you've never done it, to manage one tenant and a unit next to you or to have a basement apartment and do some Airbnb rentals for that basement. But what it does do for you is that later on in life, when you do start accumulating more money and you're going to go invest it in a little bit of it in real estate, perhaps you, you'll have an understanding of what it takes kind of on that granular level. And then I think then maybe going back to some of those more passive investments could make sense now that you have an understanding of what that asset is.

Okay, so let's take a scenario. It's too late to do that. You're 45 years old, you're a physician, you're a dentist. Right. You haven't done any direct real estate investing at this point. Are you willing to go so far as to say these folks shouldn't invest in real estate at all if they're not willing to go in and get their hands dirty and actually do some direct investing?

No. What I would say though, is that I would invest with somebody who is so my second favorite. If you can't own it directly to start off, I would be that professor who started with me, for example. This again requires a little bit of networking. It's not going to be a no work situation, which might be bad news in Some cases I still think there's always some effort up front, a little bit of a hurdle to get over up front. But for example, if you found a person like me when I first started this entrepreneur who is out there working and finding deals and you probably would meet them by going to a local like real estate networking meeting, for example, you might meet them on a forum. It might be the White Coat Investor forums, it might be, you know, the Bigger Pockets forums. So you're going to need to meet some people. That's, that's my main point. And you're going to leverage that person's time, that person's energy and be a partner with that person. Find somebody who is trustworthy, which is not a given these days, but find somebody who's trustworthy, who's out in there working and go into a deal with them, be their lender, be their partner, loan the money to them, go by the site, watch how they're fixing it up, learn why are you doing that? Why are we doing that? You're not having to be 100% involved, but you are understanding a little bit more about how it's working before you go and do the completely passive. That. That would be my second recommendation.

There's no index fund, huh?

I don't think.

Yeah, I mean that's, that's what a lot of my readers want. They want to invest in real estate. They want to get these solid returns that aren't correlated with the market and they want to be able to push a button into it. You know, they don't want to go out and have to go to a real estate networking meeting. You know, they don't want to have to find somebody wonder if they can trust them before they put their hundred grand down. You know, that leaves a lot of us, you know, high income professionals in a bit of a dilemma. And we end up looking either at publicly traded real estate investment trusts like the Vanguard REIT index fund or perhaps some of the crowdfunded or these private ereits like you're seeing with Realty Mogul or Fundrise or these companies or just, you know, the crowdfunded investments themselves at each of these platforms or getting in with some sort of a syndicator. There's a number of these syndicators out there that are doing this or even a real estate fund. One benefit that a lot of these high income professionals do have is they qualify as accredited investors. So they have access to some of these private real estate funds or these syndicated investments that are looking for accredited investors to put in 50 or 100 or $200,000. Do you think that's an advantage to be an accredited investor in this space? Does that just mean you're more likely to get taken?

That was, I would say maybe, yeah. My answer is going to be maybe it could be an advantage. I think you have a lot of deals coming to you. But going back to that previous conversation, if, you know, I'm not saying you have to directly own real estate to get educated. I mean, if you're, if you're a medical professional, you've spent years of your life educating yourself about something important. And so I would just say the education is a thing that's not optional. So if you can't, if you can't do it directly, if you're not a like direct learner, I would say being an accredited investor could open you up to more risk. If, because you're gonna have a lot of people pitching stuff for to you and if you don't understand it, if you don't have a kind of that fundamentals understanding of what they're putting you in, I'd say don't do it. I think that's the difference is that there's certainly ways to get educated. You could ask questions, you could read books, you could, you know, go to some take some classes. But once you do, then I think being an accredited investor does have some advantages. That's where you have more options. You can go to realty shares, you can go to Peer street, you can go to some of these that have a lot of deal flow. And then you can be picky and choosy. As I'm playing around with those crowd sharing sites, I'm trying to learn and apply what I've learned as a direct investor to picking these investments all over the country. I'm investing in California, in a county I have no clue about. And so how can I protect my risk? How can I understand that? And one of the best things that I do like about crowdfunding is that you can diversify. So I either think you should be all in on a investment. This is what I learned reading the Intelligent Investor from Benjamin Graham, was that you should either be a completely passive investor or you should be all in. Like I'm analyzing the heck out of these investments and going to the nth degree to understand and due diligence, it needs to be one of the two.

Like either concentrate all your bets in one basket and watch it very closely, or don't put all your eggs in one basket, huh?

Exactly. If you're not willing to do the due diligence in real estate and really understand, read every single document to look at the values and understand the market. I think you are opening yourself up for risk. And I would just say buy an index fund, you know, go, go completely broad. And I'm totally cool with that. I think that's an awesome, has nothing to do with real estate. But you have companies with, who have a proven track record, three or four thousand managers when you own the total stock market index, who are going to reinvest your money pretty well and do pretty well over time.

Now, one thing I hate about real estate, I hate it about the books, I hated about the seminars, I hated about the websites, is this rah rah rah thing that you get in real estate. Why is that? There, there is none of this in stock investing or mutual fund investing. I mean, maybe you see a little bit of it in cryptocurrency, but mostly it's, you know, you see it in, in real estate and you see it in, you know, Amway where these seminars trying to get you excited about it and get out there and do it, you know, can you explain why is that in real estate and is that a good thing or a bad thing?

Well, I hopefully I don't have any first hand experience with that because it's not really my style either. But the only thing I can guess from my, I have people come to me who spent 15,000, 20,000 bucks on some, you know, upsell kind of thing. And I think you got to get people riled up and kind of play some psychological games in order for them to forget that they're spending 15 or $20,000 on something that can't possibly get a return. So that's only, you know, I don't know, I think there's a lot of shucksters out there, a lot of people who are not thinking about the best intentions of their customers. And, and so the real estate guru business, I don't even call it education, the guru business is certainly one of those. And I think it's more going back to the business side of real estate. You know, there are potential, you know, I've bought and sold a property that made 65,000 bucks in one pop. You know, within a three month period. You know, I could go around talking about that, saying, look, you too can replace your annual salary with one deal. You know, that's great. You know, that, that sounds, that sounds amazing, doesn't it? Unless you ask questions and understand how you did that deal, what risk I took the five years it took for me to get to that point where I could do a deal and make 65,000 in three months. So, yeah, I don't enjoy that either. That's one of the reasons me using the name coach, for me, it was like going back to sports is such an interesting metaphor for life and for business. And I was like John Wooden I mentioned earlier was one of those coaches who, you know, the old school coaches who focused on. He used to teach his players the first day of practice how to tie their shoes. And they would spend an hour learning to tie their shoes. And people, you know, These All American 6 foot 10 basketball players are itching to go out there and shoot a basketball and play. And here he is over and over again teaching them how to roll their sock up. Don't get a wrinkle in your sock because you'll get a blister. Here's how you tie your shoes. You don't get injured. And he would get them to the point of exasperation and say, are you wondering why we're spending an hour learning how to put our socks and tie our shoes? And he would explain, he said, look, if you get a blister, you're going to miss two practices. If you miss two practices, you can't play in the next game or you won't play as well the next game. And he would proceed all the way to show them how them not putting their sock on would affect their championship, that they were all trying to win. And that's my approach to education and to doing anything, whether it's real estate or business or starting any venture, that you've got to focus on the little things in the process before you can get to the rah rah stuff in the end.

Yeah. Now you've written that real estate is hard, that it should be hard and that you should be glad it's hard. What do you mean by that?

Yeah, I see it as a barrier to entry. So quoting back to Warren Buffett, Warren Buffett always likes businesses that have a moat around them, meaning it's like an old castle where the more dangerous the moat, you should have some like fire breathing dragons living in the moat and underneath the bridge. And it should have alligators in the moat. You're going to have a hard time attacking that castle when you have alligators and fire breathing dragons and water to swim across. And so I see that the same way with investments is that real estate is pretty popular as we're talking right now in 2018, as it was in 2000, 6 and 7. And this thing goes in cycles. But the more difficult something is on the front end, either intellectually difficult or physically difficult or just takes time. The people who can figure out how to solve that puzzle have an advantage. That's a good thing. So when it's hard and there's a problem, I don't automatically respond this way. But when I have a problem in my business, I'm like, all right, if I'm thinking clearly about it, I said, that's actually a good thing, because my competitors are probably going to run into the same problem and they're going to have a hard time. And so let me figure this out. Let me try to build a system around it. Let me hire somebody who knows how to solve it. I'll give you a specific example. You know, mold. Mold is one of those properties with mold or like, you know, oh, my gosh, there's. There's mold in this house. Don't buy that and. Or structural issues like, don't. Don't buy a house that has some. Some joists and sills that are rotted out. That's horrible. Right? That's what most, Most even people who consider themselves real estate investors might run from, that kind of thing. Well, if you are into things being hard and finding barriers to entry, then you would say, give me all the, you know, go to your realtor and say, give me every house that has molded. Give me every house that has structural issues. That's the one I want. Because you're going to reduce the competition.

Yeah. Especially if you already have a system in place to take care of those problems.

Yeah, exactly.

So let's break it down a little bit to nuts and bolts here. Let's say you've got A doc that's 40 years old, realizes, you know what? I don't want to be practicing medicine 80 hours a week until I'm 70 years old. I kind of want to see how quickly I can free myself from it so I can do what I want. Has never invested in real estate, has no experience with it. 40 years old, maybe making $300,000 a year at his practice. What steps should he take to get started in real estate investing?

Well, there's two things. One is the capital. So if you're making 300,000 a year, and if you assume you have good credit, those are big benefits you have. That's something you have that. Me, when I first started, I didn't have. I didn't have credibility with banks. I didn't have a lot of income coming in so let's take advantage of that. Let's save up. Let's save up some cash for a down payment, or if you prefer to not have any leverage, you could even just pay cash for some properties. So, but one way or the other, step one is let's save up some capital. Let's set that aside. And if you're making 300,000, I'd say, can you put aside 50 to 100 grand for your real estate venture? That'd be a good starting point. The other side of it is choosing which, which route you're going to go in. I mean, there's a. Real estate's a huge universe. And so are you going to be a lender? Would you prefer to be somebody who loans the money? And let's find some people who are flipping houses either directly or through one of these crowdfunding sources and you just want to go that route, or do you want to be, do you want to start off being a rental property investor? Buy and hold and do it that way?

I don't know, man, but I'm just sick of being on call every third night. I just want to, I want to do real estate and get out of it, you know?

All right, so even if you're a landlord. So here, let me, let me explain that one, because that's one of the biggest misconceptions I have, is that you got to be on call. I've traveled for 17 months, I've been all over the place, haven't been home in two years, and I'm still, I'm not going to houses, I'm not taking calls in the middle of the night. That it doesn't have to happen that way. And so the first, so the first thing you need to do if you're going to go buy direct real estate is you need to build one or two good team members and that the main one is going to be your agent who's on the ground. And, or it would be nice if that agent was also your property manager. If you. That, that's the one. If you can find that one person and they're out there, that's, that's, that's going to take a little bit of asking around. You could talk to your network. I, for example, just to give you one specific example, somebody I know is super good at that kind of thing. There's a guy in Houston, Texas, that I know named Arian Chihai. He's a broker, he writes a blog, an investing architect. He's just a solid agent. He's a real Estate agent who also goes out and finds properties for people in the Houston area. There are people like that, there's real estate agents who specialize in finding investor properties. And so if you would have a consultation with a person like that, you say, I've got my money, I've got my mortgage lined up. Go find me some good deals. And they would work and they'd make a commission whenever they found you a good deal. They would also, they or somebody on their team would manage the property for you. They would take those calls in the middle of the night. And so you could take that 50 to 100 grand and buy two. Let's say you bought two solid rental properties. And these are not going to be like low end, you know, high management kind of properties. They're probably going to be, you know, we call them like B neighborhoods. You know, it's not going to be like the ritzy neighborhoods. It's probably going to be.

Sounds like they're not going to be in the Bay Area either, huh?

No, no, they're going to be in the center of the country, they're going to be in the south. And even if you live in the Bay Area, they're still going to be in the center of the country or the south. And that's perfectly fine. You need to buy them where there are reasonable cash flow ratios. So kind of a rule, a quick rule of thumb, if you can find something close to the 1% rule, it's not the end all be all, but the 1% rule means if you invest $100,000, if the purchase price of your property is 100,000 bucks, you want to be close to about 1,000 bucks a month in rent. That's rough rule of thumb, there's exceptions. You can sometimes be better or worse, but that's what your realtor is going to be out looking for you. And you're going to be the one who puts up the money and you're the one who's going to get the loan that these other people on your team are going to be finding the deal, they're going to be managing it for you, and you're going to work together to manage that asset. And 10 years from now, if you are disciplined with that, those two properties that you maybe you bought for 150,000 each could turn into that's $300,000 purchase price total. Those might turn into a 5, $600,000 asset combined. And their income, once you could aggressively pay those loans down, the income could be one piece of your get out of the job kind of income. You could also have some other investments that provided some stability. But again, you could use that income as sort of a base for what you need to exit the job.

It's kind of interesting. The difficult part seems to be finding the guy. You got to find your guy. I know a lot of docs have gotten in trouble doing that trying to find their guy. When they go looking for a financial advisor and they end up with some whole life insurance salesman or some broker and they gotten into a lot of trouble doing that. Do you have any tips for knowing when you found someone reputable?

Yeah, I think is compare it to working with people in your, in your current job. So when you, when you work with some, if you're a surgeon and you work with somebody who's next to you, you know, what kind of, what kind of things are you looking for there? I would guess you're looking for somebody who has competence in what they're doing and so be, be able to ask them five or six questions that demonstrate their competence. For example, with a property manager, I would ask them, I would say, can you tell me about your system or your process for leasing properties? And then be quiet. You don't have to be an expert. If you interview three or four property managers and you ask them, explain, tell me about your system for leasing properties. If they give you a two sentence response and it's not in detail, that's a huge red flag because screening tenants and leasing properties is like the fundamentals of what property manager is all about. You'll get into more trouble getting bad tenants than anything else. And so I would ask those kind of questions that demonstrate their competence. You need to educate yourself enough just to ask some of those questions. And then the other thing which is not universal for real estate is just are they a trustworthy person? Like, do they have references? Can I call those references? Can I tell me about your history in the business. Look them, you know, Google them. Do all the things you would do if you're hiring somebody for any other business and are they a decent, trustworthy person? And the thing I found is that that seems like a lot of. It seems like it's not a lot of people out there, but there, there are plenty of trustworthy, competent people out there who are just looking to make a commission. And you as somebody who is an investor can, can hire those people to help you out.

Very cool. That's good advice. Anything else you'd like to share with our audience? Something else you think that they ought to know that they Ought to be aware of or something to watch out for.

Yeah, I want to say, I mean, it was more of like kind of another benefit of real estate. It's just the thing I like about it is that you don't have to be, you know, a rocket scientist to understand the fundamentals of real estate. That's one of the good things about it. Like, for me, I would never invest in single stocks because do I really understand what, you know, Tesla is doing? Like, I think Tesla is awesome. I think it's such a cool concept. But do I really understand the technology and the competition and what's going on? That's hard to understand. Real estate, on the other hand, all of you have lived in an apartment. You've lived in a house. You understand why people like neighborhoods or they don't like neighborhoods. It doesn't take a lot of crazy, deep understanding to understand why a location and a property is good or is not good. And so I think that's a benefit. That's something. That's one of the appeals to me of owning some real estate is that you can own something that is intuitive and simple and understandable. Yes, there's some complexity. Yes, there's, there's some in the finance and the money a little bit. But compared to some of these other financial products that some of you are probably getting pitched with insurance and, you know, other other things, it's a pretty simple game. You gotta buy a property that's in a good location. You gotta have some basic cash flow criteria and you gotta buy it, Buy it well and then, and then get some good management. If you, that's, that's the rental game in a nutshell. You're just, you're putting your money in a good location and making sure it does. It kind of grows slowly over time. That's, that's, that's, that's pretty much it. I mean, you can get into notes and if you, if you loan money or if you flip properties, those are kind of variations on that theme. But basically that's what drives almost everything else is that basic formula.

Very cool. So simple even a linebacker can understand it, huh?

Exactly. You can get hit upside the head a lot of times. It's still figure this thing out.

So thank you so much for being on with us today. You can find Coach Carson's stuff@www.coachcarson.com and we really appreciate you coming onto the podcast today.

It was a pleasure, John. Thanks for having me.

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A practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

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