278: Client Case Study: Self-Management & Diversification with David Nelson

This show is produced by the Hartman Media Company.

For more information and links to all our great podcasts, visit hartmanmedia.com.

Welcome to the AIPIS Show. For accredited income property investment specialists and those who aspire to be. If you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Hey, it's my pleasure to welcome one of our wonderful clients back to the show. This is David Nelson of David and Gina Nelson. You heard them on the show before and, and they have been doing amazing things with their property portfolio. Growing, growing, growing. Learning some lessons along the way. Lessons aren't always easy, but we're going to share some of those today. And, and like I say, you know, if you're not learning some lessons and making some mistakes, you're just not doing anything. So David, thanks for coming back on and sharing with us. Appreciate it.

My pleasure. It's absolutely an honor to be on with you today. Jason.

So. So you were first on the show. I remember interviewing you and Gina when we were walking back from lunch. We were in Oklahoma City on a property tour and it was the first time I got to use at the time my new microphone and I was so excited about that.

Right, that's right. I remember that. Yeah.

I think we almost got run over by a car when we were not paying attention. Walking. That was a walking interview. Yeah.

You had Coco along the on for the ride to keep us company. That was great.

That was cool. That was cool. Interview. Haven't done too many of those. But you and Gina have been coming to a lot of our events and we're really grateful to have you at them. You've been building quite a real estate portfolio. Honestly, before we talked a couple minutes ago, I didn't know you were already at 26 properties. So congratulations, first of all.

Thank you so much. It's been life changing for both of us.

And so you started with us, what, in 2016 about three years ago?

Yeah, I started in around March of 2016. I actually spent about a month listening to your podcast from a referral from a friend of mine, Con Moran, who's also. Oh yeah, he's very active in your network. Yeah, Con. He, he turned me on to your Jason. Yeah, Jason harmon.com website and I started listening to podcasts. I spent about a month listening and I jammed on a phone with phone Call with Sarah. And we picked up a property in at the time, Ellenwood, Georgia, right before Georgia became Atlanta became kind of hybrid after that one. We picked up seven, six more through 2016 and 2017. And now we've partnered up with a couple of great friends that we knew through business before and we've picked up another 16 doors since 2017.

Wow, fantastic. Yeah, good for you. So you had the one property that you bought in Georgia, then you bought six more after that and then you actually partnered with some friends and bought 13 or 16 more doors.

Did you say how many 16 more doors exactly since we partnered up at. Yeah, precisely.

And now you, I know right now you're just buying your first property inside of your ira, it looks like from our local mortgage specialist in Jacksonville, Florida.

Yes, we bought two duplexes from him last January. So I had bought a turnkey back when he was doing turnkey. I bought one in Jacksonville.

Yeah.

And.

But this is the first one inside your IRA is what is unique about. Correct.

But what was good at he. I liked his outfit. I really got a good feeling from him and they were, he did what he said he was going to do. So he was ethical, honest and I, you know, talking to him live and at your events, I, you know, I got to meet him and get to know him. So I had a good trust level. So Gina, she's been so on board with, she's been so supportive. She's just amazing. And she's an entrepreneur. So she's actually started three businesses the last few years. One of them took off so remarkably that like I was talking to you about, she left her corporate job, got a, got a 401k rollover into a self directed IRA and now she's buying a property in Ocala, Florida for single family residents there. So pretty exciting.

That's excellent. So, and Gina of course is your wife and she was on the show before there as we talked about that. So. And you guys, by the way, I should say are from Folsom, California. Northern California. Right. David, what do you do again? Tell the listeners what you do.

I'm an information technology supervisor for Large Healthcare Corporation up here. I've been doing that type of work for 30 plus years at this company. I'm 15 years in now.

Good stuff. Okay, so when you first got to know us, your friend Con Moran, our client, referred you to us and you listened to the podcast. And what was the first event you came to? Was it that property tour that where I met you?

Oh no, we went to one in Ohio.

Okay.

The first time we went on something was. It was like in June of 16, actually. We went and met Khan and his wife there at that Tour. The Cincinnati Tour.

Yep, I remember back then.

Yeah. Yeah. That was our very first event then. We've gone to, you know, several. Meet the Masters and your. Some of your Jason Hartman education. Other events I've gone to. Yeah.

Excellent, excellent. Good stuff. You were saying that you learned some lessons and had some successes and some difficulties. Tell us about both. You know, tell us about the successes and the difficulties.

Things were going really well in 2016 and into 17, so I got a little cocky, to be honest with you. I thought, oh, you know, this isn't so hard. I can do this, you know, on my own. So I decided to go buy a property from a wholesaler without doing really due diligence. And I didn't follow with the property inspection. I didn't really take seriously some of the stuff that was flagged on the inspection with regard to electrical and some things. And I just. All I saw was potential numbers. You know, I saw this, okay, I can get 1300 bucks a month for this $100,000 property, blah, blah, blah, you know, and I. I learned very valuable lessons after I bought. I had to dump thousands and thousands into it to get it, you know, rentable. And it was just. Yeah, just some very valuable lessons for me to do a better job of research and analysis.

Sure, sure. So let's just tell people what that all means. So this was a. Outside of our network. And when you say you bought it from a wholesaler, you know, for those who don't know, a wholesaler, basically. I mean, this has kind of several definitions, but mostly what people mean by wholesaler is someone who goes around and tries to find motivated sellers. They tie up a property, put it on a contract that's assignable, and then they sell that contract to somebody else. And so basically, they won't even touch the property. They won't even take title to the property. They don't even ever own. Own the property or have any intention of owning it. They're basically creating a contract and selling the contract to another party. So you were that other party that bought that contract from the wholesaler, and that property wasn't rehabbed, obviously, and you didn't have as much knowledge or information about it. Right? What happened?

Right. Yeah. And you're exactly right. It was from a wholesaler. I looked at the property online. I, you know, I looked at photos. I did get an inspection, and really I talked to the Inspector. And I should have paid more attention to the stuff that he flagged. And I took the chance. I did it. It was just a risk. And I knew then and go, this is risk. But the reward was hey, look at the rent to value, look at the great numbers I could get, you know, and I've never actually realized those numbers since factoring in the stuff I've, the money I've had to put into it. Looking back, it was a failure. It's not a failure because I won't do it again.

Right, right. Well, as long as you learn something, there are no, really no failures. Right. But you're planning to sell one of your properties, I think. Is that the one you're gonna, you want to sell?

That's the one I'm working on. I'm almost ready to get it. Almost ready to sell. Yeah.

Okay. Okay, good on that one. I mean, listen, you know, everybody makes those mistakes. You see dollar signs and you go for it. So don't feel too bad about it. It happens. But I'll tell you, I think one of the lessons here for our listeners is that we constantly are approached. You know, I'll get an email. This happens somewhat frequently that'll say, hey, I've got a small portfolio of seven properties in Indianapolis or Memphis or some Texas City, can you sell them for me? And we always turn those people down. Okay. We don't do any one off deals. And that's one of the things, out of the thousands and thousands of properties that we've sold over the years, we have never done a one off deal. I should qualify that a little bit. We have done one off deals on a few big properties, you know, apartment complexes, bigger deals, but not on the sort of what I'll call the assembly line, single family homes in the small plexes, duplexes, triplexes, fourplexes. Because one of the things that you're really buying and one of the things that you really want to use as a kind of the carrot and stick if you will, is the opportunity for future business. And you need to make them see that. And when it's a guy doing a one off deal like a wholesaler, you know, there's just not enough leverage in that kind of deal, you know, and that's why I don't like them. That's why we, we just don't do one off deals. You know, we, we only do transactions based on an entire relationship. So if we're not going to be in a position where we can have a relationship with a local market Specialist and hopefully over the years sell hundreds and hundreds of properties with them. We're just not going to enter into it. It'd be nice for some quick bucks, but I just know that we're not going to have any leverage and things aren't going to usually work out well. So. So I think that's kind of part of that lesson is just being in a transaction where you just don't have enough leverage. Right?

Yep. 100% agree on that one. And I haven't nothing coincidental about it because I haven't done it again since. Lesson learned.

Yeah, lesson learned. I got you. I got you. But you know, the great thing about income property, like I always say, is you can renegotiate the deal all along the way. So, you know, that deal might get better. You know, maybe you should just get rid of it if it's really a problem child. But it might get better. You know, you might get a better renter, you might get more money, you might decide to improve it, refinance it. There's lots of ways that you can, quote unquote, renegotiate the deal along the way.

Right, Right.

Yeah. Good stuff. So tell us about, you know, any of your successes or just experiences that you want to share with our listeners from all of the other properties. All the other, you know, the 26 properties.

I think you have to really have some thick skin. And you've said it many times. You don't get emotional about it. Be and be area agnostic. And one of the great lessons we've also learned is to manage. We have a few that we self manage, but most of them are property managed. Don't be afraid to manage the property managers. I have fired many of them and I don't fire them the first time. I give them chances. And I'll give you one example. In Memphis, I had one that charged me $150 to replace a flapper and a toilet. And I had that's outrageous. And I said, okay, that was the last draw. You, you're done. And I went on to another one. And I'm in the process of moving four of my properties. And Sarah helped me out finding a good property manager there. I'm moving four of my properties from one property manager in Memphis to another that's happening at the end of this month. So don't be afraid. It's one of those don't be afraid. And they're helping. And I think I've mentioned this before is let the new property manager help you take over from the old Property manager, right?

Yeah.

I give them each other's contact. I say, here's what we're doing, go. And then they take care of everything. That's awesome. You just step out of the way and let them do it.

Now you've never done any self management. I'm sure you've thought about it because you're here about it on the podcast all the time. Or have you? I don't know.

We do, yeah. We have a few properties that we're doing that. The one in the ones outside of your network. We're not self managing any that we got from you. We've got one in Kansas that I'm managing and one in Texas.

Okay, so you're 1500 miles away, give or take from those properties. How's that going? How you doing the self management? How's it going for you?

It's been absolutely fantastic. And because I got direct contact with, I'm actually very blessed because the tenants are awesome, so they're reasonable to work with. One of the guys, I'll give you an example. One, the one guy in Wichita, Kansas, he, he had a busted door on his stove. He fixed it himself. All he did was show me a receipt for the part and he took care of the labor. So I just deducted the part off of his rent and it was really like 70 something bucks.

Isn't that great? Sometimes.

That's an example.

Sometimes your tenant is your best contractor and your best manager. Your tenant will be your property manager to some extent. Yeah.

Yeah. And I think I'd like to expand down the road. When like done with the corporate gig that I'm doing, I'll definitely look at doing some more self management and even maybe before that.

Yeah, after you retire from the corporate rat race, right? Yes, okay.

Exactly. And that's what it is.

And again, you know, something I want to say to listeners many times, just because of the nature of the way things are set up, self management doesn't take any more time. In fact, sometimes it takes less time than managing your manager. And I know there are people that have never done it who might not believe that. They might be skeptical of that comment, but I've done it. We have lots of clients who've done it. And you know, you've heard Drew Baker on the show many times talk about it. Now he's sort of overdoing it, if you will. And he admits that firsthand. You saw him speak at our last Meet the Masters. I know David, he's gone into self management. But what he's really Doing is he's doing a lot of frankly capital improvements to his properties as he's self managing. So he's spending, you know, more time than most people would on it, but just to do the kind of status quo self management. You know, honestly I, I just think a lot of times it's just easier than having a manager in the way. And I'm sure we all find this to be true a lot of times. I mean, look, we're not in an era where many people use travel agents anymore, but they still exist. A lot of people have their assistants do things like book their travel right, you know, book their airline tickets or things like this. But a lot of times it's just faster and easier to do it yourself. Technology has enabled so much do it yourself stuff nowadays that's just easier to do yourself. I find that sometimes, and you know, I'm sure I'll get some criticism from this, from some people. There are some things that just, they just don't make sense to delegate and I would argue that one of them is property management.

In some ways self managing is really much easier than having a manager. So anyway, we've talked about that ad.

Nauseam, but yep, good advice. I think mix and match is not a bad gig and you can bring it on. Like Drew went from eight or 10 properties that he kind of took in chunks. He started managing four or five of them right away. And then I love what he's doing.

He did it by city. He did it, I believe first he did Indianapolis and he took all his properties there and made himself managed. And he liked it so much that he then took Memphis and he self managed all his properties there too. It's good. And you know, what I would say is that sometimes I find that just letting the world or the marketplace make a decision for me is a good way to go. So if you're listening to this and you have a portfolio of properties, just take your worst property managers and fire them and self manage those. If you have a great property manager, just leave it alone. That's what I do. I just kind of let the, frankly I let the manager decide if I'm going to self manage. If they're really good, I'll just leave it alone, let them manage it. But if they're difficult or they're, you know, giving me a bunch of piddly little expense deductions for repairs that are sort of absurd, a lot of times, you know, I'll just get rid of them and I'll self manage. So I kind of let Them decide. They get to decide whether or not I'm going to be their customer, right? Yeah.

Yes, exactly. I like it.

Yeah. I'll take my money where it's treated better if they don't treat it well. Money goes where it's treated best. Yeah, Good stuff. Well, what other lessons or experiences or, you know, anything you want to share.

When I look at real estate for us, I look at it kind of like the presidential election. Like, like Trump was an interruption to the normal process of what we've been doing for so many years. I think it was, to me it was like a socialism interruption. But that will, that's another issue. But in a good way. Got us real estate, got us thinking bigger, it got us dreaming bigger. It took the lid off of limiting what is possible. It got entrepreneurship in our heart and soul. It's really meant a lot because when you combine education, which you provide with actions, there's really nothing you can't accomplish when you put your mind to it. And despite like the evictions, we've had a few evictions, we've had some issues, we've had maintenance, we've had this and that. But looking at the big picture, if you can look and not microwave your success, you have to look at the big picture and look down the road. Five to ten years of something you can control.

Right.

This is a great avenue and as you've said it millions of times as tax favored as anything you can get. Right. So yeah, it's been a good ride that way. So I, I just say look at what your financial goals are and what you're, who's in control of them. And then look at real estate and you can, I think you can get a very good marriage that way.

Yeah. What did you do before real estate? Were you doing the typical. I know Gina, like you said, your wife had a 401k that when she left her corporate job, she converted it to self directed IRA and now is buying a property in Inside the self directed ira. That's awesome. We had a speaker on that at Meet the Masters. I know you're working with them. What were you doing before? Just the typical, like some mutual funds, 401k, some stocks, you know, whatever.

Yep.

How'd that go?

That's exactly right. I was doing, you know, what my dad told me to do. You know, it's like put the max in and do a moderate to aggressive at your young age and then when you get older, make it more conservative and just let them manage it and let the money build and it was all for us. I've got, actually got a pretty, pretty decent 403B, 401K that I have that here's a point on that is after I started going to your events and hanging out with some of the great people in your client base, I was talking to a group at the Cincinnati and Property Tour and one of the guy I told I'm maxing out my 401k. They're like, why are you doing that? Why don't you just do where the company matches and then take the rest and invest in real estate? You know, there's like a big light bulb, light bulb moment. So I did that. I dropped my, I was putting like 17, 18% pre tax money into this that I had no control over. So I dropped it down to where the company was matching, which makes sense.

Right.

And then I'm taking the rest out and buying more properties with it. So that, so that was what I did. But when I retire I'll take that and I'm going to do. We're using Gina kind of as a model. Well, I'll do what she's doing with her buying real estate within her IRA and that's what I'm going to be doing.

That's awesome. That's awesome. So what are your plans for the future? I mean it sounds like you are planning to retire from the corporate rat race here at some point. Your wife has done it already. What's your plan for your real estate investments? And, and what is it going to mean to you?

Oh heck, she did it in her 40s too. I'm kind of jealous. But I'll be probably right about the time I retire I'll, I'll be about near 59 so I'll be able to get at that IRA. Yeah.

If you want, you could take distributions. Yeah.

And we're definitely all in, we're all in on the, on just investing in real estate and making that. I want to get to where I'm 80% invested in real estate and 20% or less in other areas. That's our big picture goal. And then real estate will become my business, which it already is, but it will become my full time business and that'll be, you know, the income from there will sustain us. And when my daughter's out of college because we're paying cash as we go for her college. So when she's done, that's when I'm done.

Yeah. So here, here's the thing. Some people might be listening to that, especially new listeners to the show, if you haven't been listening for the past 15 years, you know, you might hear what David's saying, and you might think that does not sound prudent to be 80% in on one asset class. And here's what I would say to you, is that, number one, just remember income property is the most historically proven asset class in the world. And David and Gina are diversified because they're diversifying geographically. If real estate goes down the tubes, so will the stock market. So will pretty much every other investment. Okay. In income property really is a diversified asset class because it's something that reflects so much of the overall economy. But you have such unique multidimensional characteristics that enabled you to protect yourself from downturns. For example, if you have stocks and they go down in value, you know, that's the end of the story. They went down period. Precious metals, they went down period. Cryptocurrencies, they went down period. You're done. Whatever you. There's nothing else to do. But with income property, you can add some creativity to the mix. You can adjust your strategy. You can be a cash flow investor more than a capital appreciation investor. And you can constantly shift. You can refinance, you can improve the properties. You can let them languish and not maintain them well. I know this sounds crazy, right? You can be really cheap with your properties and not maintain them well and not upgrade them over the years. And you can, you know, just let the rents stagnate. That's actually a strategy. You know, the point is, you're in control. You can do things to adjust to the economy, to adjust to the marketplace with the stocks, the bonds, the mutual funds, the precious metals, the cryptocurrency. You can't do anything. You're just. It's. Whatever it does is what it does. Here. You can add some strategy of your own to the mix.

Absolutely. Yeah, we're all in there.

Good.

No doubt.

Good stuff. Good stuff. Well, David, thanks so much for coming back on the show, and congratulations on your success. 26 doors. Hey, keep on going. How many more are you buying this year?

We are definitely buying. We're buying two more here in the new near future, but we're looking at the next couple of months. But beyond that, we've got a couple of moves we're making financially. When I sell, here's what I'm gonna do. When I sell that Indianapolis property, I'll be looking at two more properties. Good.

Good stuff. Well, so you're doing.

Looking at a half dozen.

Yeah. You're doing the two for one exchange. I've done it many times. That's another good strategy.

Yes. And there's several. There's a few, actually. The one in Ellenwood, Georgia has appreciated so much. We want to do a 1031 out of that one.

That'll be great. So you'll take that one property 1031 tax deferred exchange and you'll get two more. You might even be able to get three more. You could do the three for one potentially. It's not super likely unless you want to buy really cheapo houses, which I don't recommend. But you could certainly do a two for one, so. And I've done that many times myself. Good. Good for you.

So, yeah, we're working on. Yep.

Well, I wish you and Gina the best of success. We appreciate your business and appreciate having you two as clients and keep up the good work and we'll see you at the next event. Happy investing.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episode episodes. Be sure to check out the show's specific website and our general website, hartman media.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.