Mastering Real Estate Wealth: Strategies for Financial Independence

If you have a ton of equity in your property and somebody comes after it for one reason or another, then you have a bigger target with the more equity that you have.

Welcome to the High Voltage Business Builders Podcast, a show where we interview high voltage entrepreneurs growing and scaling through e-commerce, real estate, and other wealth without Wall Street ventures, showing you the path to making your first or next million.

Welcome back. As always, please like, comment, share, engage. I don't care if you say you hate the podcast, but at least put a comment somewhere. on YouTube, Instagram, and give us some love. Beat big tech at its game. As always, I have a wonderful guest here today. I'm excited. We're repeat offenders, I think, on each other's podcasts. You're at least one or the top of the top 3 people who've come on my podcast multiple times, which is awesome because I always love chatting with you. Always a good conversation. Love to hear about you and your family and things that are going great and always want to get your insights into what's happening because you're a man on the street when it comes to real estate. And you always have some really cool things that you're doing and just moving on and shaking and So glad to have you on, Chris, and let's unpack some more of these things. If anybody's interested in real estate investment and alternatives in real estate investment, that's what today's call is about.

Excellent. Yeah, look forward to it. Thanks for having me on again. Always good to see you, my friend.

Yeah, brother, you too. So let's dig in. Is 2024 as bad as some people making it out to be?

I thought 2023 was going to be bad according to what people were saying. And this is, let me, I'll have to grab one of my other books here to share with the audience, but Yeah, I do not think 2024 is going to be a bad year economically. And if we—

a year to forget.

Yeah.

And if we back up now specifically, I'm trying to talk about it from a real estate perspective.

Absolutely.

Yeah. So, you know, Next Level Income, we focus on really commercial real estate, but we do, we even have, we have a residential lending fund. We do multifamily, we do self-storage, we do car washes, we do mobile home parks. So I'm always looking at the macroeconomic environment, Neil. And if you look at the trends, people say, oh, there's 7-year cycles, there's 10-year cycles, 11-year cycles. What I've really gravitated towards over the last decade is the 18.6-year real estate cycle. And that's pretty specific, but there's a book by Philip Anderson called The Secret Life of Real Estate and Banking. And in the book, Mr. X, yeah, Mr. Philip Anderson outlines this cycle and what he does, he goes back through history. in the United States to show these different— the cycles as they repeat throughout history. The thing is, while they repeat, they're not the same exact unfolding every time, but they more like rhyme, right? So if you look at where we are today, there's really 2 parts of the cycle. There's 2 7-year up parts of the cycle, a mid-cycle slowdown, which happened during COVID this time, and then a 4-year kind of sideways or down cycle. And we are in the second half of the second upcycle, which is typically the strongest phase for real estate.

Interesting. It's almost like setting your watch by real estate investing.

It is. Now the question is, it's like, okay, Chris, it's kind of like if we know the sun comes up and it goes up, it sets, it goes up, it sets in 24-hour cycles. Like we know that, but the question is why, right? So we want to know why The real estate cycle expands in this way, and the answer is in credit creation. So if you think about even the way the IRS looks at real estate, so like our home, a commercial office building, our car wash, the IRS says, oh, that has a life cycle and we depreciate it, right?

Yeah.

So, and we understand like a building, we say real estate is an appreciating asset, but is it really the building that's appreciating? No, actually the building is depreciating, which was one of the reasons we get such great tax benefits.

Yeah.

But like a business, like the businesses that you and your coaching clients create, Neil, the value of the real estate, specifically commercial real estate, is valued on the income stream. But if you wiped away that building, you said, okay, the building's not worth anything anymore. You have the income stream and you have the land and the credit creation. It's created and it's basically stored that value in the land. So if we have a piece of land, we can take that land. I can buy a lot for say $200,000. It can double in value to $400,000. I can, I don't even have to own the lot outright. I can now go to the bank. The bank will lend me money. I haven't done anything, but the bank will now lend me money, enough money to build a property, a house, a commercial property on that lot. And then I now, I've potentially created a half a million, a million dollars in value. through that cycle. But that only occurs when you have expansion of credit. And that's really the key to this whole cycle. Ray Dalio talks about that as well.

Can you become financially independent without debt?

Without debt, you certainly can. You certainly can. So let's take that same example. So if I paid cash for a $200,000 lot and it doubled in value to $400,000, right? I can either finance that. I could have a partner, And use that. So there's 2, there's a couple different ways. Personal, you can use personal debt or you can have non-recourse debt, which occurs in commercial things. If you said, okay, we're not going to do that at all, you can still build for cash, but it's going to take a lot longer, right?

Yes.

So if I'm going to build a property that's say $1 million and I have a lot that's worth $200,000 or $400,000, I have to now come up with the money for the lot as well as the land. And when we do our underwriting, we actually have an unlevered return and a levered return. So that unlevered return would be the return, which is typically significantly lower than the levered return, but it's still decent. But the thing is, you also want to, there's a lot of different factors when it comes into that. So you certainly can make money when you leverage, you're going to take more risk, but you also should have more reward.

Well, and there's a number of people who have different philosophical beliefs on that. And I was just curious to get your insights because I've never asked you in that way. I know Kiyosaki and his whole, you know, 4 quadrant thing, which is amazing, but he's also very into like you leverage debt for everything. And he says that's the way all billionaires do this. And I don't see that per se, because I see that personally in different ways. And I see the effects of, there was a graph the other day from a place that had graphed it out over 10 years, what $100,000 earners and then millionaires and then billionaires did with their money and how they earned their money and kept their money, et cetera. And there was a huge differentiation. between the billionaires and everybody else. And how they not just leveraged debt, but everything they had, like up to 10%. So I mean, 90% of all of their assets were tied to the business and only 10% of their assets were otherwise, were personal, personal of some kind. Cash on hand or otherwise.

Yeah.

So that was a super inadvertent relationship to anybody else. Everybody else had their land and their value, their house, their cars and their 401s, et cetera. The millionaires were in some balance between that and some business or real estate, more heavily on cash and assets than they were on business and real estate, et cetera. And then the inverse relationship to the billionaires. Have you seen that in your life? Absolutely.

Yeah, absolutely. And it's one of the reasons we've had you on the shows is to talk about like how to create businesses. And if you really, again, if you look at the, there's rich, right? Like everybody listening to this podcast most likely is rich. Which means if you live in the United States and you make $40,000 or more a year, have running water. Yeah. You were like, we are, we are a rich country. So we have to be careful about kind of what we look at. So I really look at like the ultra rich. So individuals, families worth $30 million plus, right? Like even $100 million. So how do they make their money? It's through businesses.

And it's always businesses, real estate or business in the real estate or business of some kind.

Absolutely. And I would, I would really classify commercial real estate as a business.

And yeah, well, it is because you've got tenants, you've got work, you've got usually cash flow and revenue out of those operating businesses. And so if you're going to go out and kind of tie that back to the point of the $200,000 property and going out and leveraging or not leveraging debt as a tool, I think we've got our minds all jacked up when it comes to the idea of leveraging debt as a tool.

Absolutely. And look, again, it is a tool, And almost any tool can be a weapon, right? And a weapon used inappropriately or not understood how to be used can be dangerous, right?

I always use the hammer analogy, right? You can build a beautiful house or a deck or something. You can smash your thumb if you're not careful, or it's like the number 3 used weapon in murders, right? Behind baseball bats.

Or you can assault Mr. Pelosi in his house with a hammer, right?

Oh my gosh.

There's— yeah, well, I'm just saying, like, it can be—

it can be used for— it's truth.

It can be used for lies detected. For positive and also negative or evil. And debt is the same way, Neil. Like it's a tool.

It absolutely is.

But it can also be a weapon. And I think there's rules around debt that we follow, right? Like we—

What kind of rules are we talking about here? So if I'm in and I don't have that per debt, maybe I've tried. Let's use it in a specific analogy of somebody might be in this place. Do I, and I saw this the other day, do I take and continue to keep that debt on, say, that mortgage rental property or short-term, or do I go ahead and take Cash assets or whatever paid off?

Yeah, great question. Okay, so let's do this in 2 phases. Okay, so let's first talk about like someone's personal residence. So going back to college, I was on a radio show when I was in grad school. So there was, I think, 4 of us. There was a financial advisor, there was a mortgage broker. I was a licensed realtor at the time. I think we had somebody else in there, but the question was, should you have a 15-year or a 30-year mortgage? Which that's kind of a derivation of should you have a mortgage at all, right? Because it's kind of sliding.

Variations with flavor.

Yeah, exactly. So it's like, how much leverage should you have? How long should your mortgage be? Those sorts of things. So my argument was you should always have the 30-year mortgage. And the financial advisor said you should have the 15-year mortgage. And we had a discussion and the point was there's a few different things. One, do you truly ever own your home? And when it comes to taxes and those sorts of things, the answer could arguably be no, right?

Eminent domain, right? Arguably, you don't pay your taxes, you don't actually own the land. They could take it from you even if you paid it off.

Exactly. Exactly. So yeah, you might own the structure, but when it comes to the land, it's like, which is part of your home, it's, there's a component there. So then when we look at the, so somebody could take our home or put a lien on our home. So we agree to that. So if my home, and I'm just going to use round numbers. So if my home's worth $2 million, or let's just say a million, we started with the million example before. So let's say it's worth $1 million, right? And I buy it and I put 20% down and I stop paying my mortgage. There's say $200,000 of equity in the house. Maybe it goes up in value, maybe it goes down in value. But if the bank says, hey, we're going to take your home, Chris, or the city or state's going to take my home and they're going to turn around and quick sell it, that's not a lot of margin. If you're going to quick sell a house, you're going to get a discount, 10, 20, 30%. Is pretty reasonable. Now, let's say I have no debt on my home and there's a lien put on my house. If somebody takes a million-dollar property and says, well, we need $500,000 from this property and there's no debt on it, you could probably sell a million-dollar home for $500,000 really quickly and get your money back.

Yeah.

So my point is, if you have a ton of equity in your property and somebody comes after it for one reason or another, Then there you have a bigger target with the more equity that you have. That's part number one. Part number 2, let's say you have an alternative place to store your cash and earn a return. Let's say cash value life insurance, for instance. So one of the groups that you and I see each other at, big fans of cash value life insurance. Cash value life insurance is a private contract. I currently am getting a higher rate of return in my life insurance policy than I am. It's about, it's almost twice what my current mortgage rate is. Okay. So if I have $1 million to pay off a $1 million mortgage, would I rather have that in my life insurance? That is a private contract that is significantly safer than say like a bank account where people can see it and look and potentially get it or equity in my home. So if I have a $1 million mortgage and $1 million in the bank or in a Life insurance account. I can always pay that mortgage off if I wanted to, right? So there's that.

Cash flow assets.

If I can't afford to pay my mortgage because I've been paying it down rapidly, in the case of a 15-year mortgage, instead of putting that money, you know, somewhere that's liquid and I have access to it, if I stop paying my mortgage, even if I've been paying it ahead of schedule, the bank will still foreclose on me. They don't say, well, Chris, we really appreciate you making double payments for the last 10 years.

No.

And say, you know what, you just take a break for a while. No, what they say is, thank you very much. That makes it a lot easier for us to get our money back. So that's right. If you do decide to pay your mortgage down, acknowledge that it may not be the best financial decision. It's certainly an emotional one, but I think—

Well, it certainly feels good to get out of debt. No one's arguing with that. You and I would never argue with that. No, it's again, what kind of debts should we not be in and what should we be out of? Yeah. Necessary debts and then prevalent entertainment debts and stuff are very different.

Yeah. So that's kind of step one. Like, is it a good idea to always pay things off? Robert Kiyosaki would say you don't want debt on things that aren't assets. And assets would be something that are making you money according to Robert Kiyosaki. Now you may say, whoop, I got you, Chris. A house is a liability because it's not making you money. On my property, we have 2 Airbnbs. So my property's actually producing Producing income every day. Yeah. So I'm okay having some debt because my, I have cash flow.

It's servicing itself in a sense.

That's right. So number one, it's a leveraged debt. Yeah. Leveraged debt. But number one, don't over-leverage. Like you want to have equity, whether it's in your property, your house, whether it's in your business, whether it's in commercial real estate, you want it to be hopefully positive leverage. So you want the cap rate on the property. Yeah. So a cap rate would be the percentage in income that you're getting if you paid cash for a property. So $100,000 property getting $6,000 a year is a 6% cap rate. So if I have a mortgage or a loan at 5%, my cap rate's at 6%, that's called positive leverage. So that's another thing. And then you want to make sure that you have adequate reserves. So you never want to be leveraged to the point that you have to make every payment and you don't have cash in the bank. That's when you can really get into trouble. So some debt, some leverage can be good. Too much, the more you have, the more leverage you have, and the less you follow those rules, the more risk you're going to have, in my opinion.

That's experience speaking right there. Absolutely. If I want to cash flow those assets, say into a cash life policy or into some other mechanism of paying down, et cetera, what are you saying in 2024 is the best place to go? I hear a lot of things about short-term rentals and they don't quite pencil in and blah, blah, blah. And you've obviously got Airbnbs sitting on your property, which is pretty cool. Maybe somebody listening to this could do that.

They're not doing it currently.

Where are you putting cash for return on your cash flow today?

Yeah, so going back to the early part of our conversation, looking at the real estate cycle right now, prices are high. Prices for residential real estate are high. Commercial real estate are high. Interest rates are high. So what performs well in this type of environment? I'm a big fan of kind of becoming the bank. So banks are actually very profitable typically during this period. So we have a debt fund, So what we do is we do short-term loans or hard money loans. So we're lending on fix and flip properties. So we lend money typically for 6 up to 9 months, and then that money comes back. So we're doing that. We actually have investors can participate in that in a passive fashion. So investors are getting anywhere from 6 to 10% in a liquid manner for their money in that. So that's pretty good in terms of, if you look at historically speaking, if you look at kind of core real estate, multifamily, self-storage, those sorts of assets, the returns are a little bit lower than they've been because prices are so high and interest rates are so high. So that eats into the cash flow and the returns, still solid returns. But what I'm seeing that are outperforming those are things that are operating real estate, things that have an operating component to have the real estate be successful. Short-term rentals like Airbnbs, car washes, which we also have. We have 31 car, actually 32 car washes. Currently, senior housing is another one and mobile home parks. So all of those people would say, well, those are all real estate, Chris, but really they have to have a successful business to be successful as real estate. And what happens is even with higher interest rates and lower leverage, you still get really good cash flow because you have basically 2 buckets of cash coming in, one from the real estate and 2 from the operations, if that makes sense.

So let's say somebody wants to return cash flow of, say, I don't know, I'm just going to make a number, $5,000 a month, because it sounds like a nice number. Someone might need $1,000, but let's just say $5,000 out of hypothetical. What are you needing people or wanting people to understand in terms of investment to return that kind of return in, say, 6 or 9 months on one of these cash-flowing assets you're referring to?

Yeah. So if you're looking for $5,000 a month, that's about $60,000 a year, somewhere between half a million and a million dollars in an investment. can typically produce that type of cash flow in the types of real estate that we're talking about. Now, what I will say is that if you personally are listening and you're going out and originating the loans, you buy your own car wash, you're operating your own short-term rentals or mobile home parks, you could probably get, I would say, even up to twice that type of cash flow if you're going out and doing it yourself versus our business specializes in passive investments for investors, Neil. The examples I gave, 6 to 10%, our investors are getting those from our current offerings that we have out there right now in those types of asset classes. But certainly if you're ambitious, you can go out and do it yourself, and you should, if you're taking your time and your money and your risk, then you should certainly get higher returns than even those. And I would say cash flows of 20% in some of those asset classes are certainly feasible. But again, short-term rentals, potentially cleaning the rentals, managing The turnover, those dealing with phone calls when your water heater goes out when you're on the way to Folly Beach. That's a very general example I know when your family had to turn around 45 minutes from the house. I can wait enough walking down water heaters. Yeah. Pro tip, make sure that the wax seal on the bottom of your toilets has been installed correctly by your plumbers on a new home. Yes.

Oh, yeah. Ask me how I know, right?

That's right. All these little things that catch up to you.

Just little things that catch up.

That's right.

Car washes, senior living, and mobile homes. What's your favorite of those?

Oh, oh, can we talk about my boys and which one's my favorite? That's the easier question to, uh, right.

Well, okay, so you're in a plane and it's crashing and you could only take one of them with you.

Which one's a pilot?

Who's not listening to this podcast?

Yeah. Who's a pilot? Who's a pilot? Yeah.

Who's the, which of the kids is the pilot?

Yeah, that's right. Let's see here. So, all right. Oh geez. That's hard to answer.

So I think you love all your kids equally.

That's right. I do. But so I think from a long-term demographics perspective, I'm a big fan of senior housing because we have some tailwinds over the next 20 years. So I think that's going to perform really well over the long term. I think right now we're still digging out of the COVID hole, so to speak. We have kind of suppressed occupancy rates in that. Mobile home parks, I'm a huge fan of. If you're a fan of multifamily, I would lump them in that bucket because there are less and less mobile home parks across the country. Because you have this not in my backyard. You got the little thumbs up there. So we— yeah, AI. So you have the not in my backyard crowd, which is ultimately, you must have a different setting, my friend.

Apparently I'm not as cool as you.

But people don't want mobile home parks in their backyard. But the fact of the matter is there's no affordable, no more affordable place to live than a mobile home park. Say you're paying $300 or $400 a month lot rent. That's very affordable. You get some pride of ownership. Our strategy, Neil, we are actually owner financing new homes that are in the park. So we have kind of a, a two-pronged strategy to really help these parks generate additional cash flow. So if you like real estate today, huge fan of mobile home parks. We actually have a mobile home park fund that investors can participate in.

Now I gotta pause on that because everybody right now is suddenly envisioning the worst mobile home park they can think of in their local area. I'm sure you're all doing that right now. All of a sudden you're just like, who wants to live in that area? Like, I know people are thinking that, but is that, that's, you're not a slumlord of mobile homes, are you?

No. So actually the contrary. So we're actually buying a lot of our mobile home parks that we buy, Neil, are from what you would call mom and pops. So 80, 85% of mobile home parks are owned by small operators. So going back to that example, let's say you have a mobile home park that's worth $1 million. That's not a big mobile home park. That could be, say, 20 lots. Not a big mobile home park. But if you've owned it, so we bought 5 parks from 2 brothers over in Tennessee a year and a half ago. And one was an administrator, one was a teacher, but they'd done very well buying up these little parks and self-managing them, but they were about half occupied, say 60% occupied. That's not very good occupancy. But if you're a teacher or administrator, even if you're pretty successful, my mother was a teacher, I understand. how this works. You probably don't have, say, a half a million dollars in cash to come up with to make infrastructure repairs, landscape repairs, bring in new homes, demolish or remove old homes. So how do you improve that park? That's where we come in. So we love to buy these parks that are kind of ugly duckling parks that are under—

Distressed, if you will.

Yep. A little distressed. And it's not uncommon for us to raise the full price of what we pay for a park. So if we're paying $5 million for a park, We may raise the money for a down payment plus reserves plus capital improvement budget. We may raise $5 million for that park because we're spending that extra capital to do things like repair the water system, put in new driveways and improve the roads, improve the landscaping. So our parks improve substantially after we take them over.

Cool.

And if you see the before and after, and we enforce things like you have to have Skirting around the mobile homes. You have to have painted roofs. And a lot of times we'll even supply these things to our residents to encourage compliance with these. If our residents don't upkeep their yards, we'll charge them for that. We'll do it, but we'll charge them for that. So yeah, we really raise the standards in the parks that we take over. But look, let's be clear.

Of course.

If you and I were renting a Class A apartment somewhere for $3,000 a month, That's going to be very different in scope and amenities than a mobile home park that you're paying, say, $600 a month in lot rent and you have, say, a $15,000 or $20,000 mobile home. It's a different demographic. But again, that doesn't mean that you can't have the highest quality.

Quality of, yeah, quality. Exactly.

Yeah, exactly.

That's very good. Absolutely. So you have an MHOA, basically they have to combine 2. And ensure quality of the park. And there's some nice ones out there. There's one in Springfield down the road about an hour from us. And it's actually, we always comment on how nice the mobile home park is.

Oh, there's luxury parks out there, Neil. I actually have investors that have owned a quote unquote mobile home in one of these luxury communities, say on a lake or in an area that's kind of a resort area like Finger Lakes up in New York. So there are vastly different types of these mobile home parks. And we typically focus kind of on the middle, so we don't own the worst. We try to own those that are kind of like around the middle, maybe a little bit below that we can move into the top half or top quadrant of mobile home parks. But we're really focused on the affordable niche and those parks that we can really bring a meaningful improvement to.

Good value, guy. Good value, guys. If you're listening to that and you have any interest in knowing more about how to become an investor, maybe even a passive investor, in one of these areas that Chris is working on, highly recommended. Everything is in the show notes for you to connect with Chris. Chris, is there a question I didn't ask you maybe you wanted to cover, or there's something I didn't bring up that you'd love to share?

Well, I'm glad we got to talk about the real estate cycle. If you're listening, you have any questions, you want to learn more about it, you could check out episode 100 of our podcast at nextlevelincome.com. Again, that's episode 100 where I really dive into kind of the specifics of it. And then you should be able, if also at nextlevelincome.com, you can get a free copy of our book. Um, which is on there as well.

Excellent. Very, very good. Last question. If it was in my power to invite you to meet somebody who might be in my network, let's say hypothetically, and you would want to connect with them, anybody you can think of, have lunch conversation or whatever, who would it be?

Who would that person be? Oh boy. In your network, who would that be?

Or just, yeah, make up, I can't say I could connect you with Elon Musk, but someone in the 6 degrees of separation listening to this might be able to.

Yeah, that was, that was one of mine.

I've had Andre 3000 and Warren Buffett.

Oh, that's a, that's a, yeah, we've had some good to great.

Jim Collins was one of the recommendations.

Yeah, he's terrific as well. I'll tell you what, I've always had a tremendous respect for Tony Robbins.

Tony Robbins.

Yeah, I would love to meet him at some point one day. And quick, quick, we can actually make that happen.

So guys, if in my network you're listening to this and Tony Robbins, tag him in here, tag him in the comments or section or tag me so we can get Chris connected to Tony Robbins. That might actually be one I could pull off for you, my man.

I love that. I love that. Yeah, he's had a massive impact on my life, so love to think—

Fantastic. Thank you so much for spending this time with me today, brother.

Always great to see you, my friend.

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