448: Leadership and Real Estate: Creating a Successful Business and Life with Trey Taylor

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It is my pleasure to welcome my good friend Trey Taylor. He is just a intellectual and an investor and just an all around interesting guy. Really, really enjoy Tre. I met him in a couple of different mastermind groups. We've known each other for several years now and it's just always a pleasure to talk to him. So I finally wanted to bring him on the show. He is also the author of a great book that is selling very nicely. It's called A CEO only does three things. Finding your focus in the C suite. But you're going to find in our discussion today that applies to a lot of areas of life, narrowing your focus and a real estate investor only does three things. A parent only does three things. So we're going to dive in and have an interesting talk on a lot of this stuff. Trey, welcome. How are you doing, buddy?

Jason, I'm so good. Thanks for having me. And I think you know I'm a long term listener and follower of your information, your podcasts and I'm always right in the front row when you're giving a talk at any of these events that we, we attend together. So I'm just thrilled to be with you today, man. Good to see you.

Yeah. Well, thank you so much. That's a high compliment coming from someone like you. I appreciate it. You know, I always appreciate your talks whenever you're on stage at our, at our mutual mastermind groups that we're in. You're just a historian and you've just got such an interesting take on things. It's, it's really great to have you. You basically run a family office for your family. You're investing in real estate, you're investing in businesses, private placement memorandums, et cetera. But you've got about, I think about 120 single family housing units, right?

We do. That's right.

And I just wanted to get your take on, you know, why you like single family homes as an investment, as an asset class and you know, where you think it's going. Any best practices you want to share that kind of stuff.

Oh, yes, for sure. So that's the easiest thing to like, isn't it, as an investment? I mean, people are always going to need a place to, to live. Now people need a place to live and work together. They're, they're willing to pay for it. And if you do it in the right way. I know you and I see this, see this in the same way, if you do it the right way, they will pay the bank for an asset that you own, which is a really great thing. And then as long as governments exist in a way that they do today and run our economy in that way, you know, those things get more valuable over time as a, as a sort of a feature built into the system. I mean, you couldn't sit there and design a better system for an investor. So, yes, you know, my family's first real estate investment ever in the 50s was buying a rental house to rent to somebody that worked for them. We have continued to do that, still continue to do that. I have a contract that I'm closing Friday on a single family, very nice condo in our hometown. And, you know, we do them all the time. We branch up a little bit maybe and do some other more complicated things. But at the end of the day, you can invest in single family homes and only that in real estate and do very well for yourself.

Yeah, yeah, good stuff, good stuff. So, you know, there's a lot of talk, Trey, about the market, about inflation, about the Fed, about interest rates, all of that kind of stuff. And, you know, you're not just a historian, you're a pretty good economist, too. So just wanted to get your take on, you know, where you think this is going. I think we're all in shock at the Fed's aggressiveness in raising rates.

Yeah. The fastest in history and to the point where the economy should be breaking right now and isn't. And Jason, I feel almost hypocrisy critical, to quote you, you back to you. But, you know, as long as there is an inventory problem of the magnitude that we have in this country, I think single family homes become a good place to park money over the long term. Now, what's the challenge today? If you can't write the check for the entire thing, you've got to finance it at a, at a fee that is higher than it has been and quite frankly, probably is higher than it should be. Right now. The Fed is trying to do a lot of other things to tame inflation, the first of which is to freeze out the growth and single family homes for a short period of time. The second of which, and maybe it's the first, is to run people out of jobs so that wage inflation specifically begins to recede. The problem is, as you know as well or better than I do, is this is the only lever they have. So once this is gone, they're toast. They're done. They can't do it any anymore. And frankly, I think they've already crossed the threshold where they are starting to bankrupt the federal government in borrowing on its own account as it is doing so. You know, I think there's some speed bumps along the way there. Does it convince me not to buy a single family home as an investment? Nope. As long as the numbers, you know, can work from a cash flow standpoint, as long as I can get rent, that covers 105% of what I think the expenses are, I'm doing that deal all day long. And we're doing that all the time.

Yeah. And Trey, you know, you said something interesting when you said this is the only lever they have. You're referring to the Federal Reserve, right?

Yeah. The only thing they have left is increasing rates, is decreasing their balance sheet. That's the only thing they have left. When they are done with that, they don't have another trick up their sleeve.

Right. And by doing that, they're making the government's cost of borrowing so incredibly high that I think that points to a place where they have to pivot. Do you feel that way?

I definitely do. So, Jason, you and I have lived a long time when we've heard the idea from whatever talking head on the screen that, oh, they're just kicking the can down the road, is the phrase that they use. Well, when you treble the borrowing costs for the federal government, because, remember, they effectively borrow at the same rate that we do, with a slight discount. When you triple that, what it means is that you're bringing the consequences of kicking that can down the road closer to you. Right. And so that's been the challenge. What the federal government should have done three years ago, when interest rates were as low as they were, was to go out, redeem all existing debt, refinance it at 2.2%, and that would have bought them another 78 years of Runway. Instead, they didn't do that. So now they're issuing debt at five, five and a quarter, which means that that Runway has shortened a great deal.

Yeah. So I think ultimately they're just going to sell out the people and we're going to have more inflation. I mean, that's my view of it?

I think so. And look, we have a commercial real estate crisis that continues to loom in the very near future. And the only way to solve that because of the spillover effect into the banking sector which is remarkably fr. Fragile now, is to throw a trillion dollars at debt redemption in some sort of TARP style rescue package for commercial real estate. Well, guess what, a trillion dollars in the economy only raises inflation rate, right? Those dollars have to compete for places to go. They're going to compete for assets the same way we saw over the last three years. And so we will end up in the same sort of interest rate environment. I'm a little fatigued with people saying well just make a bad decision today because in two years rates will be back to 4.5%. I see no indication whatsoever that that is the case. And it seems like a very wishful thinking type thing to do. So we're not taking that approach in pricing deals or deploying capital now.

But when we have a pivot that I think is sort of a foregone conclusion, it's coming. We don't know exactly when of course, or how much, but just speculate on how much. I could see owner occupied mortgage rates settling somewhere in the high fives. I think that's a pretty realistic number. But again, predicting interest rates is a fool's errand. It's.

Yeah, that's true. You know, I bought my first home in 2003 and I had one of those teaser rates that eventually crashed the economy. I think it was locked for six months and then it went to two years and then, you know, it ratcheted in a way. And my pre ratchet rate was 7 and a half percent which I was thrilled to get. And the fully ratcheted rate was nine and a quarter. Now of course we never got there because rates continued to drop and we refinanced out of that vehicle. But the idea that we are somehow today entitled, settled to or should be able to expect three and a half or four and a half or five and a half. I don't think that that's a, that's a very good, very good indicator. So the interesting thing to me is this, that in going down the road of anticipating a five and a half or even a six and a half percent rate, the reason that you want to keep those rates low on a scale is to suck up the inventory. We don't have any inventory. So that is a motivator for the regulator is not there to keep those rates low so that houses continue to.

Turnover I just think they can't break the banking system. That's a problem for the Fed. They don't want to see that happen. And they can't make the government's cost of borrowing so high for too long. So those two things to me point to, they must pivot. We're going to see rates come down and they're going to let inflation run. I mean, they're going to have to. I don't think the choice can be to keep the higher rates because the government's cost is too high and. And the banking system's too fragile.

Yeah, I think you're right about that. Now, on the banking system, I think there's something interesting that doesn't get a lot of discussion. You know, we run what's called a fractional reserve banking system. So, you know, people will know this, of course, but if you go put $100 on deposit at the bank and they loan out $100, they don't keep that one to one. Right. And so historically, that rate has been about 25 to 33%. So you have to keep a third of what you have loaned out in cash, and now it's 1 to 10%, depending on the product. So what the Fed has done very quietly since 2008 has said, we are the reserve fund for the bank. Right. Federal Reserve now takes on a meaning that probably it should have had from the very beginning, but, you know, they are not required to secure that in any sort of way, which leads to poor decision making in the banking industry at all times. That Piper has to come home and play his last bar as well at some point, I think. And so is the banking system in trouble? I think the regional banks are the next sort of domino. I think that happens within 24 months. That just means that they have to get recapped. And recapped is just an equity shift. So where does that equity go? The ones that have attractive assets, other people with cash will come in. Other larger banks will come in. So I think you're going to see this sort of sucking sound up into the larger banks that they become. You'll see a Goldman Sachs bank on the corner in midtown Kansas at some point in the near future because those regional banks are not capitalized and cannot raise the capital that is going to be required.

Oh, that's interesting. Goldman Sachs is also having its own sets of problems, but that's another discussion for sure. Trey, let's switch gears and talk about your fantastic book. Give us sort of the overall overriding thesis, if you would, and let's go from there.

Yeah, absolutely. So, you know, when I took over my family business, I was, I was happy to shut the door and run to Google really quickly and Google Search, you know, how do you be a CEO? Because I didn't know how to be that. And I had to sort of figure that out in the time that was given to me, which is very short because of the circumstances. And then as I grew up as a CEO in that business, I began to share my thoughts with other people and they said, oh, that's really good, I wish I knew that. And so over the long term, I sort of said, well, maybe I'll put this in a book and it can sort of help other people and they can have more of a straight line instead of a crooked line like I did to get into that role. And so that's the genesis of the book. What we learned over time, what I learned over time being in that role is that a CEO is the only person in the organization whose to do list is open to everybody. So there isn't anybody that can't walk through my door, Jason, and say, you now must do this task and refuse them.

Right.

It has to be done. And secondly, I'm the only guy in the building that doesn't have a job description. My job description is to do whatever everybody else isn't doing, isn't doing well, or tells me that they need help doing, which is a really unfocused way to live life. But CEOs are there to sort of take care of organizations and the people that they serve. And so we get pulled into this really sort of ineffective and inefficient way of living. And it's a very unfulfilling way of living as well. So the message that I have in the book is stop doing that. If you're paying somebody to do a job, hold their feet to the fire and let them do the job. And you focus on the things that only you can do in the business. And to me, those things sort of are categorized most easily in culture, people and numbers. And so that's what I work with CEOs to think about in larger organizations. And then, you know, per the conversation you and I have had several times before, you can scale that down all the way into a one or two or three person organization, the same as you do a thousand person organization. Culture, people and numbers.

Culture, people and numbers. So let's take that beyond the C suite, since most people listening aren't CEOs just by odds. There are some for sure but how does that apply for a real estate investor?

Yeah, absolutely. So. So let me just debate for one second On Are they CEOs or not? Well, CEOs are the prime decision maker for an organization. If the organization is one person or two people, there's still that idea that there's the executive making that decision. And that's why I think the learnings in the book still apply if it's just me doing one thing. So, you know, if I'm a single investor and I'm looking at single family homes or maybe small multifamily or of that nature, I still want to build a culture that respects my values, even if it's just me that's enforcing that culture. You know, I still think it's valuable for me to outline in advance and sort of out loud and in writing what I value and how I want that to show up in that business activity of me purchasing investment property. So it may be that, you know, I don't much care for being screwed over by a contractor or something like that. And I also don't want to do the wrong thing to people that work with me on that purchase. And so maybe I have a value of being truthful at all times or transparent at all times, whatever that happens to be. And, you know, we coach people to really be very specific and very articulate about what they value in business relationships. And. And in a nutshell, that is culture. Culture is simply the sum total of your behaviors and how. Or, sorry, your beliefs and how they show up in your behaviors.

Yeah. So, you know, that's a good way to look at it. And, you know, certainly people have been saying that for a while about, you know, you're. We're all the CEO of our own life. Right. In all our different endeavors, even if we're not running the thing, I think we should look at it as though we are. What I always say is, you know, don't be a guest in life. Be a host. Right. And we always should look at is, even if we're subordinate, we still have a leadership role here in some way. Right. And so that's a good thing. But take it into real estate investing. If you've got any specifics for that, I think that'd be interesting.

Yeah, absolutely. So, you know, in my own sort of personal practice, there are people from a cultural standpoint that I won't work with. If I see an attractive in my hometown, if I see an attractive piece of commercial property, I'm doing this the whole time to make sure that the one Guy in town that I won't do business with on commercial property isn't the listing agent there. If he is, I simply give it a miss. I don't make an excuse at all. I don't say, well, maybe this time my principles aren't as important as my purse strings. Nothing. If that guy's involved, I'm not. It's a hardcore rule. Because I know that he doesn't hold my values. I know that he will sell me out for his own self interest. He has done that on multiple occasions before I wised up. That's the kind of thing that, I mean, like, build your culture. Your culture should be surrounded in boundaries that are not negotiable. Right. This is not Israel Hamas here. Like, we are not going to argue over who owns what and that sort of thing and how you behave either side of that. We're not going to get into those discussions. That's what culture means in that place. So largely it is. It feeds into and it is about choosing the people that you will work with and then holding them accountable to working at the standard that, you know is required. Yeah.

Okay. So have standards and stick to them. Yeah, way to put that.

Have standards, stick to them, and be open about sharing those. They shouldn't surprise people after somebody has committed to an action that then they find out that there's a higher standard or something of that nature. So you're open and transparent about those values.

Yeah, yeah. Okay. All right. Okay. So. But there are three things.

Yes, people is next. And so there's some overlap there in. In culture, of course, because cultures are made up of people, their values, and their behaviors. So if you are recruiting people, even if it's into a small organization, you know, you have to be filled with intent around getting the right people on the team. Now, these don't have to be W2 employees.

This can be, you're hiring a contractor or a property manager or something, you know.

Yeah, or a banker. We don't tend to think about that. Right. But our banker is a. Should be a valued member of the team. We should treat them with, you know, the same values that we would want them to treat us with. Even though we might shop a deal from time to time, you know, they could still be a member of the team in that way. So, you know, those things are very important. And then how do you show appreciation when people do the right thing for you? That's another piece of it. So I'm recruiting, but I'm also retaining people on that team. And so I am A. I'm a very prolific writer of thank you cards. I often thank people for doing jobs they're well paid to do, but I often find that they will continue to do those jobs very well if I. If I add a little, you know, sprinkle to the top of the cupcake and just say, thanks for the help and thanks for doing the right thing. So that's a good thing. So you want to recruit, you want to retain, and then the third part of that is that you want to coach well. So, you know, being very upfront with people and saying, look, these are the standards that we're going to live by, and this is what that means for you. So my banker, for example, knows that if he knows that a rate increase is coming or if he knows that a loan is not going to work for whatever reason because of change in their portfolio. Portfolio. The sooner he tells me, the better and the longer we will be in business together and the more open communication I will have back to him when things affect the business as well. So it's recruit, retain, and then coach those people around you so that they are always being coached to the standard that you want to see them exhibit.

Yeah, good stuff. So other areas of life, you know, we. We talk mostly about real estate investing here, so I wanted to cover that one. But what about just in personal life and family life?

Life? Yeah, absolutely. So, you know, when I come home, I think of myself as the CEO of the family. Does my family have a culture? It absolutely does. We actually have articulated values that, you know, my kids and I have sat around the dinner table and my wife has contributed and said, you know, Taylors believe in this kind of things. We believe in education. We believe in personal growth. We believe in financial stewardship. We talk about those things with our kids so that that becomes a part of the culture, so that those values show up in their behaviors. Very important thing. We also recruit and retain members of the family. You know, so we have a nanny because we have a baby right now. You know, we talked a lot to that nanny and checked references and those kinds of things to make sure she was the kind of person that we wanted to keep. And then we treat her very well. We treat her as a member of the family. She was over this weekend for the big football game. She had some car repairs that needed to be done that we fronted for her, you know, treating her in the right way to retain her as part of the family as well. And then, you know, the numbers section is all about goals and how do we keep Score in life. And so, you know, we have every single year, a little sit down with the kids and the wife, and we say, what goals do we want to accomplish this year? And my daughter says, I want to go to Disney. That's her thing for every single year. Okay. So we build that into the fabric of the year and work together to make that a real thing. So, yes, it can happen in a family. It happens in small business. It happens in large business.

Yeah. Yeah, that's. That's great. It's a framework is what it is.

That's right.

Excellent. Trey, what else would you like to share with people? You know, you do so many different things, and I know you're working on your next book as well, which is about Winston Churchill.

It is. Yeah.

Whenever you get up and you speak, we think we're at a marketing or real estate mastermind and you're talking about Napoleon. You know, it's interesting stuff. You've got a lot of interesting depth. Depth and thoughts about this stuff, which is great. What else would you like to share with people, you know, regarding anything I didn't ask you about?

You know, Jason, I think the. The newsletter is something that people seem to enjoy a good bit. I know that you read it. You have been quoted in it as, you know, as well. You know, we have a lot of friends that I put in that also it comes out whenever I have something to say. So it isn't something that sort of comes out every Saturday morning so you can read it with your coffee. It comes out as I'm developing these thoughts, and I largely write it for myself and let other people sort of get a peek into, you know, what my thinking is. And we cover. We cover a lot of things. I don't cover politics. I don't talk politics. And that I'm a political person. But I don't think that's the venue for that. But we talk about interesting economic facts, world developments, demographics, all of that. A lot of things that I see on your show. Of course, Peter Zien is a. Is a favorite of mine, and I've seen him on your show before as well. So, you know, I'll. Yeah, I'll regurgitate some of his things from time to time. And it's just a way that I can sort of synthesize a lot of complicated thoughts into something that is a useful framework for myself.

So how do people get the newsletter?

Yeah, it's @plantyourflag live. It's a free substack newsletter. You just throw your email address in there and it'll be delivered, like I said, whenever it comes out. And I typically try to write at least once or sometimes twice a week.

Good stuff. Do you have another website that you want to share with people besides the newsletter?

Yeah, my personal site is just trey-taylor.com that's T R E Y the Book. Of course, as a CEO only does three things available on Amazon. It has its own little website as well. And then my consulting company for people that are interested in that is trinity-blue.com Excellent.

Well, Trey Taylor, thanks for joining us, buddy.

Thanks, Jason. Appreciate the time.

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