Understanding Real Estate Investment

I can start with the basics. At the centerpiece of all great real estate is an amazing location. What makes an amazing location? It's demand. Demand makes an amazing location. You can have a lot of great spots that you might think are great, but if nobody else wants it, it doesn't have an economic demand, it's not a great real estate location from an investment perspective. So you have to want and figure out how to get what everybody else wants.

Greg is my coach and mentor. He is amazing. Just a brief bio, what probably won't do you justice, Greg.

I'm sure it will be overkill. Shonai.

Greg is an outside cat forever. He's been a lifelong entrepreneur. He's got years of experience. He's passionate about family, the outdoors, and aviation, as you can see from his background. He's taught acquisition, finance, negotiation, and the philosophy of success at the Pacific University or Seattle Pacific University. He's spoken around the world. His goal is to disrupt and drive positive change, living a life of purpose and passion. So I think everyone knows Greg is my coach and mentor. Greg, let's just dive right into it. This group has a lot of newer investors. The question I get a lot is what makes a good property? How to analyze that. So I'd love to hear your two cents on that.

And, and we'll cover world peace at the same time because that question is, uh, an enormous question. The beauty of real estate— and this is one of those things that I— you're gonna have to just keep me on task and directed because a question like that You'd have to come at it from a lot of different angles. I can start with the basics. At the centerpiece of all great real estate is an amazing location. What makes an amazing location? It's demand. Demand makes an amazing location. You can have a lot of great spots that you might think are great, but if nobody else wants it, it doesn't have an economic demand, it's not a great real estate location from an investment perspective. So you have to want and figure out how to get what everybody else wants. Rare is important in this equation. All right, so then there's a way of slicing it up into all kinds of different product types and different ways of evaluating what makes a great piece of real estate. Because there's all kinds of different product types. What makes a great single-family home is very different than what makes a great light industrial zone piece of property. And so we've got to understand that real estate has a lot of different utility, a lot of different faces, a lot of different uses. And so that's why the real estate's been very fractionalized into specialists. That really get to know a specific product type really well, a specific location very well. And of course, the surrounding of that location of where that real estate is, the, the next layer out of services and districts and schools and shopping and access and employment and on. So is the city a demand city? Is the major metropolitan area something that people are moving toward and building up? And does it have an economic base that's diverse and wide and vibrant? And we can just keep going on and on. From an investor's standpoint, I want to look at it and know that there's predictable profit. I want to know that there's a way that I can structure this that creates an income stream. Way beyond the cost of ownership. And again, it could be a personal use property that follows none of those rules. Oz, I've owned some properties out in the middle of nowhere that I built a ranch on that are just for me. I love it. It has nothing to do with real estate investing. Investing follows rules like rules of physics. And so demand is the centerpiece of that. And then we get into the deal structuring itself is also the next layer of what you try to create in any great real estate transaction. Third component, expandability. Is there something I can do there to that piece of real estate? Once I own a demand piece of real estate, once I've deal structured it properly, now is there something I can do to change the picture to a higher, better, more profitable, more economically viable picture than where I started? That, that expandability is the third principle of what makes a great piece of real estate. Therefore, if you think about it, buying a tract house in a brand new housing development Nothing I can do. It's landscaped, the front door is painted, it's brand new. You walk in the door, what are you going to do, hang pictures? New is not for you. Now I can create a new building, and I've built many where there used to be a little single-family home, gets torn down, and 40 units are built there. Okay, now I've changed the picture. And we take it from there. Zoning changes, use changes, plat changes, all kinds of different forms of expandability. So if you put that all in one sentence, what makes a great piece of real estate? Location, deal structuring terms, expandability. There you go. That's the best I can do in under 3 minutes.

That was perfect. Yeah, I think, you know, a lot of times people ask me, do I invest out of state? And I don't know the areas. I might cash flow great, but I don't know if it's in demand or the— so that's what my— when I think about going out of state, I like being in my own backyard. So I'm sure you get asked that a lot too. What's your— do you have an answer for that?

You're using a lot of— you see, when it's in your backyard, you're using your knowledge of a city, your knowledge of districts, your knowledge of demand locations, your knowledge of traffic flow, and all sorts of various overlays that you automatically put in charge. When you go out of state, A, it takes a while to know those things, and controlling the asset and controlling the decisions within the asset are critically important. Said a different way, taking somebody else's word, especially somebody that gets paid if you go there. You see, now that I can't tell you how many times I've heard, the broker told me this, the broker told me that, they said this, they said that, and you took it and you took their word for it and you were, you went all in. And it turns out that they weren't exactly right about that. And whose fault is that? It's your fault, because ultimately we make our own decisions. And so when buying out of state— I've bought a lot of real estate out of state, but I really take the time and energy to go there, to know it. It also puts a premium on your network. You and I, Shona, being connected to the Power Player community, if somebody said, oh, I've got a piece of property in fill in the blank, my first call is to one of my very students that's going to— because they're trained to know exactly what to look for, they're Power Players. And, and I can get a full briefing on that property within 24 hours of exactly— and I do that literally Every week I'm talking to somebody about something I've heard here. Hey, check it out and give me your eyes on it. And they'll get back with the 10-point question filled out in detail. And this rates a 23 out of 30. I think that this is something that somebody needs to get all over right now. Or it may come back that no, this isn't all that in a bag of chips. It's, uh, it's about a 14 on the scale. And I don't know who's telling you this or that, but no is the answer. And so trained eyes and ears in a community that you're looking to buy real estate that have no other agenda. They're not getting paid to tell you anything. They are your comrades. They are a part of the same fraternity. They give as much as they want to receive. That's this amazing community of power players. You know it. I know it. I'm blessed to be a part of it. So are you. We can utilize that when going out of state. Yeah, and do. I'm catching a flight Thursday morning, and the 3 cities I'm at next week, it's a gathering of power players that know more about that city than I do. And that's, that's awesome. Destin, Tampa, Orlando, San Antonio. That's next week.

Um, that is so true. Community is really everything, and this is a team sport. It is, yeah, an education. The power of power players has blown my mind. So I think why people often want to go out of state is they see this cash flow number and they think they can't afford to buy in their own backyard. I hear that a lot, right? And so that's where involving the seller and financing, it's huge topic, but just pique our interest, right?

I've been buying real estate in the most high-demand locations of the greater Seattle area my entire life. Almost 50 years I've been at it, and I've watched values do what values do. Rents also do what they do. So sometimes it's a— it can be a bit of a relative offset. But overriding all of that preconception of what you can and can't do, deal structuring is at the centerpiece of putting deals together in ways that do work. And I hear all day long what can't be done. And so this is also the right brain mindset component that no one will ever ask for what they think is impossible. And so I don't do that either. I have a mindset around possibility, and I move in with a deal structure that serves the seller, that also is reverse engineered to meet all my entrepreneurial objectives. And I propose it, and I don't say yes or no. I let them say yes or no. I let them direct it. And this is where the left and right brain of our business have to be highly educated and highly tuned to get the kind of answers and results we're looking for. Both left and right brain. Everybody thinks real estate is just left brain math and this and that and the other thing. I gotta tell you, that's crazy. Yes, there's a ton of it. I have taught hundreds and hundreds of hours of finance. But the right brain side, we think we know it. We say, I've heard people say, I have no problem talking to people. And of course, my response is, what in the world does that have to do with the art form of negotiation? What does talking to people have to do with negotiating an end conclusion? Virtually nothing. Matter of fact, talking is what you don't want to do. You want to listen and understand the language of your audience and handcraft a proposition so that it sounds like it's coming from their own mind, their own voice. This is negotiation where I get everything I'm looking for in a transaction. But if you were to ask them, it didn't really come from me, it came from them. It's not about, oh, here's what I want. We live in a world that puts proposals together and this is how it works for me. Immediately I'm on the defense. Screw you. Hey, this is what it works for me. And it's bangs, two rams on a ridge pounding heads. That's not the art form of negotiation. Nobody ever hears what I want out of a situation. It's all, how can I, in ways that you may not have thought of, get you exactly what you want and even better than you were shooting for? Even better, because I'm educated. A surgeon is going to do a better job of fixing something internally in your body than an electrician, right? He knows more, therefore he does a better job, right? And knowing your left and right brain in this business is how we can go into areas that look like you can't structure something there that would cash flow. But knowing how to do that is, is how it gets done. You only know what you know. And if you think that, oh hey, with prevailing rates at a bank, I'm gonna go have to put 30 or 40% down, I'm going to have to underwrite it at a 1:3 debt coverage ratio, I'm going to have to go in— and then rates of course now are 6.7% amortized over 20 years— and oh, it doesn't pencil, therefore you can't— it can't be done. I go, let's change a few things. How about nothing down? Nothing. How about a deal structure that allows for nothing down? How about the prevailing rate with who I lend money from, more like 4.5% to 5%? How about an interest-only or more payment? How about an incremental step of interest, maybe starting as low as 3% up to 5%? How about a deferral of accrued interest because there's nothing stabilized or performing yet? How about this? How about that? How about this? Then we start inserting first right of refusal clauses. We start inserting subordination agreements. We start inserting substitution of collateral clauses and first, all of the lettuce and tomatoes, as we affectionately call it. Now I'm creating something that, that is a life all to its own beyond the world of the real estate I'm buying. Now I'm into two-dimensional monetization of an asset, not just one. And when we add third and fourth layers of thinking of how we can take one asset and actually create 3 or 4 different monetizations within the structure we're creating. Now we're— now it's a combination of all those things working together. Are we making money on this or not? It's not just simple, linear, one-dimensional stuff. We've got to start layering ways of making money on a deal to make certain deals really work in cash flow. I, I probably just confused everybody. And Shona, this is, as you— this is the challenge of doing snippet education, is that it's like reading the back of the book and that's it. But you, for example, have been to Power Players, which is a 100-hour intensive several times, right? And so you see, it's a commitment to know this in a very deep and important way, and then take it to somebody's living room like you were today and start knowing how to have the conversation, pulling the knot apart and saying, I've got a few ideas to consider that I think, given what you've told me, would help you. And there you go. Did I answer the question?

I think so. It really comes back to mindset and having that— the toolbox of things. And yeah, you really have to— I think education— I'm not just saying that to sell it, like, I firmly believe that it's really important. And you— my— the reason I did this was because I felt like there was so much emphasis on flipping and wholesaling and not really, not a lot on strategy and buy and hold. And I, this is my soapbox, but she's got assets. I want people to own assets and I feel like there's a lot of just wholesaling and flipping and that does not get you down the road.

It's shown up. I've been privileged to speak to every major real estate investment group in this country, some of them multiple times. And I would tell you that 95% of every room of investors that I talk to, it's wholesaling or flipping. That's what real estate investing means. But I'm telling you, that's— that can be a lucrative taxable income. It can be a flexible job. It can be profitable. It'll never create wealth, not even Matter of fact, it's much like the brokerage world. You can make a lot of money in commissions, and you just got to keep going. You got to keep going. And the beauty of being a real estate entrepreneur is that when you truly understand the levels of, of how you can purchase something with all of the expandability and the layers of ability to monetize it, the layers of ability. You add the concepts of leverage, you add the concepts of scalability to these tools, and truly it can be a one and done given people's normal objectives. What do I mean by normal objectives? I don't know anybody in the world that wouldn't want an asset that throws out a net positive cash flow. And let's just use true middle-of-the-road, nothing crazy exciting numbers, but one deal done correctly that throws out $5,000 or $6,000 a month right now. Is that wealth? No. Is that— is everybody just gonna live in a life of luxury? No. No, but what you've done for yourself now is you've bought yourself the freedom of time. Because now if you can figure out how to scrape by and just live on that, now you can focus. You don't get to work until you don't have to work. Now you don't have to work. Now you get to go do what you want to do. And if you take that number to $10,000 or $20,000 a month Okay, now most people in this country, if they had a passive $10,000 or $20,000 a month coming in, are free to go think about doing what they really should do. Let it sit there correctly doing its thing over time. Principal's going down, assets going up, rents are going up, financing's fixed. The number gets bigger and bigger. And look it up 15 years from now, and there's a lot of equity and there's more cash flow. Sure, it's taken a little management along the way, but not that big a deal, and you can hire that out. The point I'm making is that I've seen people work their entire life, from literally young adults all the way to 65, and their entire retirement income after all those years, one building purchased correctly produces way more. And so I tell people, even if you don't want to get into this like this is your life, make the investment to know what the hell you're doing. And if you buy one building a year for 10 years and hang on to it— sure, a little bit of weekend work, sure— just hang on to it, you will retire in the top 1/4 of 1% of all people in the country. But, but they've got to be done right. Real estate has two gears, forward and reverse, and they both move very quickly, very quickly. And it's not just the real estate, it's the deal structuring. When you sign on for hundreds of thousands of dollars of, of money to repay, you better have a rig that's going to carry that and then some. If it doesn't, it's left on you to figure it out. And wow, this all is about analyzing the deal structuring and the debt you're signing on for. Does it have shock absorbers built into it? Is it— can it stand the unknowns of the future? The if-then scenarios, are they built into your negotiation? Those sorts of things are what deal structuring is about. And, and this is the science of becoming a really educated real estate entrepreneur. There's no shortcuts. The metaphor I use— I don't even know if I can see it, but if maybe you can see a tail rudder back there somewhere. Yeah, I'm sitting in a hangar right now and there's a very complex airplane back there. Pressurized, multi-engine, retractable gear. It's the real deal. You don't just get to show up and say, oh, this looks like fun, let's go take this out tonight. You, you don't get to do that. A few thousand hours of training and instruction and about 20 tests, you could have a multi-engine instrument commercial high-altitude, high-performance rating. and then if you get type rated in that plane, maybe you could fly it. But there's no shortcuts. You either have it or you don't. And this is, to me, it's not selling education, it's just I'm being a realist here. There's so much at stake, just like the metaphor. When you start buying real estate and you don't know what you're doing and you're borrowing other people's money and you're borrowing this and that and the other thing, when the thing crashes, it doesn't just crash and kill you, it kills everybody you're dealing with. So it puts a premium on knowing what you're doing. Okay, I hope that answered that question. I—

wait, I'm just trying to bring it back to context here. I feel like there is a lot of fear around buying your first property, and like, when you have the tools and you have the the right— it's calculated risk, but it takes that fear away. And I think it's— it is a big risk, but it's calculated. And if you do it right, you're going to be okay. But you need that education and you need to understand what you're doing, because done wrong, right, it's worse than not having anything. But it is—

there's the risk of non-action too, right? We all kind of hang back. I don't know about this, it's pretty risky. And yet, as you said, as you work hard to mitigate what we perceive the risk with knowledge and education. Okay, now if we don't go, there's the risk of regret. And so we're going to risk whether we stay or go. It's just mitigating it properly. And so I think this is where, honestly, I think that I, I— there's many occasions where I get to work with people who I— it's like they, they rent my confidence. Because I'll tell you a funny story. When I was first learning to fly 25 years ago, there's a guy with 25,000-hour jet pilot two doors down from my hangar, and I was just like, anytime you go flying, I want to go with you. I just want to learn. He says, okay. One time he says, okay, I'm leaving in two minutes. I run down to the hangar I jump in the plane. This is his business, is aviation. And we jump in this plane, and there was a seat belt, that was good. But there were wires hanging everywhere from this plane. The whole dashboard was like all apart and this, that. And he goes, okay, let's go. And the guy's so good, he's just talking to