Always Buy the Perfect Assets - Real Estate Rule - Buy to Fit Your Why

Hey YouTube, this is Cody. I am here today without Christian, but we do have a great friend on board today, Dion from Dion Talks. If you haven't seen his YouTube, you should check it out.

Howdy.

Today we're talking about real estate principles and our real estate rules, specifically number 13, buy for your why. And the thought process behind this is if you need to go just down the street, you could probably walk. And if you have to go a mile or two, maybe you could bike. But if you have to go across the country, you might need to get a vehicle other than just a bike. You might need to go get a car. You might need to build a plane. If you want to go to outer space, you're going to need a rocket ship. You need to build a vehicle to get you to the goal that you want to achieve. And Dionne and I have very separate but significant goals for ourselves. And so we had to invest in different types of assets to get us there. And Dion actually just retired and hit his goal. Can you share a little bit about that?

Yeah. So when it came to investing, some people are trying to grow a machine that grows itself, like Michael Zuber from One Rental at a Time, or Matt the Lumberjack Landlord, or you, Cody. You have over 100 units and you're looking to add more. I don't want 100 units. My goal was— I've worked, I've had a job since I was 8. So my goal was to invest because I'm not an entrepreneur. I don't want to buy another job. I want to buy something that made work optional so I could retire, which I just did.

Congratulations, by the way.

From One Rental at a Time, his kind of catchphrase is, every day is Saturday. My catchphrase is, every night is Friday night. I wanted a life without an alarm clock. I wanted a life without a schedule. And it didn't happen overnight. It took about 8 years to make work optional. So since 2018, I could have quit my job. I worked another 4 years. I just like the job. Yeah, but eventually, you know, 50 hours a week, time freedom kind of won out.

Yeah.

So for me, it was I wanted rental properties that were close enough for me to self-manage. So I had some control. I didn't want 50 units. I didn't want 30 units. I have 16. I don't even know if I want to keep 16. I might sell one, use that money to pay off two of the mortgages and increase the cash flow and have less tenants to take care of because I wasn't trying to create a giant portfolio. I was trying to generate passive income that was 4 or 5 times what it took me to live. A lot of people talk about their freedom number, figuring out, you know, the newer investor, the brand new investor thinks I need to replace my income. The person with a little more experience thinks, okay, it's not my income that matters because while I'm working, I'm saving for retirement, I'm paying the highest taxes, I've got the cost of working. So we don't need to actually replace our full income, but we need to figure out how much it costs us every month. So look at the last 6 months of data. What were you paying for housing and food and entertainment and healthcare? All of those expenses, that amount, if you can generate passive cash flow from a source that you don't have to sell your life for one hour at a time, where the money comes in even if you don't get out of bed, you reach your freedom number. I wouldn't retire right when you reach your freedom number because now a health concern, a recession, a pandemic, or, you know, those things that will probably never happen in our lifetimes but possible, like a pandemic, might happen, and you want more than just enough money coming in. So I waited until I had right around 5 times my passive cash flow.

That's phenomenal.

To then retire. I'm not going to continue to add a whole bunch of units. I might, because I have to do something with the money, buy another rental or two in a few years or later this year. Something my daughter says that I really like is it's really hard to make a decision when both outcomes are positive. So paying off the debt, adding rentals, staying where it is, All of those for me are positive outcomes because I don't have to work. I'm a little bit older than you. Yeah, like, like your life or more older than you.

Yeah.

So my goal is very different. If I was your age, I would be looking at growing generational wealth and creating a company that runs real estate. I don't want that. I wanted just enough rentals to where I can do anything I want to do. And that came from 16 rental units that I'm currently self-managing. Takes about 2 hours a month.

And what's your biggest property?

4-plex. So I don't do anything over 4 units currently. I have looked up to 8 units because the thing that I like is 30-year fixed rate debt. Yes, I can fire and forget, never have to worry about balloon payments, loan revaluation periods, anybody looking at the NOI. I just— as long as I make the payments, nothing changes. So with 4 units or less, you can get residential lending, which is for the most part up to 10 mortgages in your name, 30-year fixed rate debt. Again, scales much slower than what you're doing.

But it's your goal.

But it depends on what your goal is, right? If your goal is to grow a machine, my way would take you decades.

Yeah. And that's what Christian faced. He was buying duplex after duplex. He wanted to get to 30 units. He had 4 units. He's like, oh my goodness, I'm going to have to buy another 13 duplexes. That's a lot of deals because you can only have up to 10 loans in your name without getting creative with partners. And if that's not his goal, then that's not his goal. We ended up buying something much bigger, a little bit more creative, a lot more creative than his duplexes. It was just a little bit of a different machine. And for me today, I'm not looking at anything really under 10 units and I don't want to buy a lot of stuff under 20 units because I'm trying to scale the portfolio. And Dion's actually— I don't know, actually, you may have more cash flow than me on your 16. I'm not sure. We haven't talked about those numbers, but—

So it's like a hockey stick though, if you're comparing my year 10 of investing.

Yeah.

The first 8 years, there really wasn't much cash flow. You're in your first 8 years of investing, right?

Yeah.

After you start to have things like your appreciation, your cash flow, and your principal paydown all start to snowball, you get this income snowball that kicks in.

Yeah.

For me, it was between 6 and 8 years. Money started coming in faster than I could figure out what to do with it. But that doesn't happen in the first few years. The first 2 to 5 years is, I think, the hardest part for investing for anybody. Even if you scale very quickly like you are, I think those 2 to 4 years All cash flow, you're probably recycling. Yes, it's for the next deal. It's for the debt. You know, I'm at the point where the cash flow is mine.

Yes. Right.

That's so if you're a new investor, try not to compare year 1 through 5 to someone's year 10, especially if their goal is different. I'm actually kind of excited to see what your year 10 looks like. It's going to look exponentially larger than mine because we had different goals.

Yes. Yeah, it's going to be different. But your main thing is anybody, regardless of position, can retire within how long?

10 years. And just a quick recap, just in case you've never heard my story before. A little over 10 years ago, I had made it to 40, never had $1,000 in the bank. I went through a divorce, found out about $89,000 in bad debt in my name I didn't know existed. I was a single parent with 3 kids. I had full custody, been laid off from a police department, started teaching at a CDL school making $17 an hour. So I had a bad debt-to-income ratio, low income, but I— and this is funny—

and you're coming out of a pretty big crash. I mean, that just—

it was right after the 2008 crash too. So a lot of people were saying real estate is not a safe asset, don't invest in it. And I was like, well, you have to live somewhere.

Yeah.

So looking at house hacking was my path to it. So I've only house hacked twice, but I think almost anybody, even if your position is as bad as mine was, within 10 years or less, living through those first 5 years. That's when it's slow. And you're doing so many more deals than I am. In my first 4 years, I bought 2 places. I saved for 2 years and moved into a duplex, and I saved for 2 years and bought a duplex.

But the beauty is you still hit your goal, right? You built the vehicle to get you to that goal.

That's— so that's the person watching. Figure out your goals.

It's—

and here I'm going to nerd out for you for a second. This is a Dungeons and Dragons map, just in case, you know, I'm a nerd. I play a lot of online games like World of Warcraft. And here's an analogy that won't fit for most people. But when you start a video game, you look at the way you want your character, your avatar to end up. What is the end game? And then you find the path that gets you there. You have to start with the end in mind. When you look at investing, what is your goal? Is your goal to create a company that does, you know, 50 flips a year or 50 BRRRs a year? Or is your goal to invest in real estate as passively as possible to where even self-managing, it takes me about 2 hours a month. If I had a property manager, it would take me 2 hours a month to manage the manager. So my goal is met either way there. What is your goal? That will help you pick the path to get there.

And that's the reason that Christian and I are scaling up to large multifamily, because we want to build a company. We want to build an organization that has employees and helps other people. And we can't do that with one duplex at a time. It's just a completely different business. And neither is right or wrong, but we have to buy the type of real estate that gets us to our why. And that's the main purpose for the video.

And the world needs motivated hard chargers like you and Christian to go out there and do things like look at the jobs you're going to create with that company and the housing you're going to provide. And the world has people like me that are super lazy and just wanted to buy enough properties to where I don't have to work anymore. So you're somewhere in that spectrum if you're watching this. You, you, you might be the motivated hard charger, you might be super lazy, but somewhere in the middle is Somewhere in the middle is the path that will get you where you want to go.

And you can make it happen through real estate, whether you do it with one house, one duplex, one fourplex at a time, or you start looking at the bigger complexes, or you go into storage or retail. There's an opportunity everywhere. Just make sure it aligns with your long-term goals. Play the game that has the most upside for your personal benefit and future. So that's it for today, but, uh, thanks for tuning in. And if you want to close out.

Yeah, thanks. So to touch on what Cody was just saying, when it comes to investing, there is no one right way, but there is a one right way for you. When you watch content like this, I might say something that helps you. Cody might say something that helps you. And the way that you invest looks totally different than the way both of us are doing it, but it'll work for you.

Awesome. Well, thanks for tuning in and we'll see you on Whiteboard Wednesday.

Ciao.