Real estate Rule #6 - Don't Play Defense Until You Play Enough Offense

Hey YouTube, this is Cody. I am finally back from one week away, almost a full week. And as you can see, I'm not any tanner because I'm Irish. But what I do want to talk about today is real estate. Specifically, it's our rule and one of our primary principles being number 6, which is don't play defense until you've scored enough on offense. A lot of people want to go out and protect. From day one. And from that comes a lot of complications, and that slows people up, and that is fine. But when we're going out, we're buying real estate, we're building businesses, we don't protect things if it's not the end goal. Now, we do need to be smart. One day, if you haven't been already and you're in business, you're probably gonna get sued. It's like, it's not a question of if, but it's a matter of when. You will need to protect yourself. You need to be smart, and you need to have good business ethics. But at the end of the day, you shouldn't focus all of your energy on protecting something that doesn't actually get you what you want. And so when you map out your long-term goals, you map out what you're doing, where you're going, and why you're going there. There's no reason just to be super hyper defensive in the beginning. You should go on offense, leverage up, take on extra risk so that you don't have to take on that risk when you're 20, 30 years down the road.

Now what's going to happen is if you are worried about defending what you have and you're nowhere near where your goal is, you're going to start worrying about all the problems that could come up. You're going to defend about problems that you don't have yet. So you're going to be, "Hey, what about this lawsuit? How am I going to manage all these properties? What type of LLC structure do I need day one?" If you haven't bought any real estate yet, you need to solve problem number 1. Go out and buy real estate. Could it be in an LLC? Absolutely. Could it be owned personally? Absolutely. Will you learn different things by doing different structures? Sure.

Absolutely.

It doesn't matter nearly as much as actually buying the real estate. If you set a goal and say the goal is simply quantified by $10,000 a month, that's all you're trying to do to reach your goal. Now you have significance beyond that, but if that's the quantity that you need to get to and you are worried about things that are distraction, That is playing defense. If you're making $500 a month right now, passive income—

good job, by the way.

Yeah, you're ahead of most. Second, you're nowhere near $10,000 a month. If you slow yourself down, you're not going to make it to your goal, or you're going to take 20 years to do what you could have done in 2.

And let's say that you lose it. What if you didn't take all the right precautions, you learned, and you lost your $500 a month? Now we're not a proponent for losing real estate. That's not a very solid business model. However, as long as you go in an objective going in and a takeaway coming out, you're likely to improve. It keeps us very intentional. So in this scenario, you're going out, maybe you lose your $500 a month. Well, you lost something that didn't actually get you what you want, but what you did do, you can quantify it as tuition. You paid to play the game and you gained a lot out of it as long as you're staying intentional. If you stay at that $500 a month, you're like, I just don't want to lose this. I'm going to do everything I can to make sure I don't lose it. And you're like, okay, I'm going to go pay it off. Well, great. Now maybe you make $1,000 a month because the mortgage probably won't be that all that much if you're cash flowing $500 on a deal, but you paid off. Now you're making $1,000 or maybe $1,500. Well, you spend 10 years to pay that thing off and you're not at your goal yet. So build to your goal and then you can deleverage. You can get rid of the risk. And I do recommend when you hit your goal, that you get rid of a lot of the risk. Debt is risk, and we acknowledge that. Believe it or not, I love Dave Ramsey and his principles. Debt-free is phenomenal. It's just going to take me too long to get where I want to go if I do it that way. So in the beginning, and for you guys and gals that are thinking about doing this, leverage up. Be smart, but leverage up to hit your goal and then pay it off and get rid of the risk.

A good analogy for this would be if your goal is 200 miles away. It's a phenomenal goal and is large enough to be worth pursuing. Is it safer to walk, generally speaking, than riding a car? Yeah, in most cases you are less likely to die just walking somewhere. That being said, it's going to take you a long, long time to go 200 miles away when you can hop on a car and you're pretty much going to make it there, and you're very likely to not crash. Sometimes you will crash. The nice thing is real estate will not typically kill you if you make a mistake. If you put it in the wrong LLC structure and you find out, oh, I could have made more money on the tax end had I done this differently— well, you learned, but you learned moving forward. You're now further down the field than you were.

And back to the car analogy, you're driving in the road, Christian's talking about, well, it's harder to crash. I mean, you could crash, right? In business, you can crash regardless. Even if you had no debt, you could crash, get a huge lawsuit, lose everything, tenant slips, something happens. Stuff happens and you could lose it. But the reality is, if you're starting out today, you don't have it yet. So you're not really that much further back, except you're going to have some experience. And as long as you're operating with good business ethics, back to that car analogy, the better your business ethics are and that of those around you, the wider your road is, meaning you're less likely to swing off the road in your car.

Now, when we say don't play defense before offense, by the way, don't hear, oh, these guys don't ever play defense.

We do.

You will hit a point where you've actually reached your goals. For myself, that was leaving the 9-to-5 and retiring my wife. She just announced her retirement. Well, now I have something where I need to make sure I have enough cash flow or else we have to go back a step. I can lose that goal. That was my reason for real estate. Now the beautiful thing is now I get to set new goals, and a lot of these are outward-facing. I want to share what we do with more people. I want to show what is possible and how not easy, but how simple it is to find financial freedom. That's a new goal, but I don't want to lose my old goal doing that. I'm now at a point where We're actively talking about how do we secure this, reshuffle our debt stack, and eventually just start killing debt on our portfolio. One day we do want to be debt-free. We just don't want to wait until we're 85 and we've saved up for our first house in cash the Dave Ramsey way.

And while there's nothing wrong with that model, that, that's not what we want. And it comes down to live the life you want to live. At the end of the day, there's no reason to do something that you don't want to do forever. Yes, you need to do that in the meantime. You can't just be selfish, say I'm going to do nothing and expect everything. You do have to work for it, but you don't have to do that forever if you set up your pieces right. In our scenario, we wanted to get past $20,000 a month when Christian and I first sat down. And if we paid off the debt today, we'd each net about $25,000 a month. And so we're looking at, okay, how do we adjust our pieces to— while we're going in expanding still, we're still expanding towards the next goal— we are paying down the first goal And then we're never going to cross-collateralize. So we're going to pay down what we've currently got, re-leverage on the new assets so that we protect the first goal. Now we go build to the second goal and then we'll play defense on that one. Mm-hmm.

And as a sports analogy, which is appropriate to defense and offense, you can't win a game if you don't score. I mean, the best you could do is tie, but with no points on the board, you can't do anything. You have to prioritize offense before you're defending anything. In any sport, soccer, football, pick your poison, you try to outscore the other team and then you try to defend your lead. If you're behind, you're all out on offense. If you're tied, you're all out on offense. It's the exact same thing in life, it's the same thing in business. Just prioritize moving yourself forward first, you can figure the rest out later. Don't be dumb, don't be reckless, But don't worry about all the, how do I defend this, or oh my gosh, I've built a little thing over here that doesn't look anything like my goal, how do I not lose this? Hit your goal, then defend the hell out of it.

That's it for today's video, and as always, we are going to be posting your questions and we're gonna be talking about those on every Whiteboard Wednesday, which is coming up in 2 days. So if you'd like to see anything answered or addressed there, put them in the comment section down below, and we'll see you guys next time.