The liabilities that you have can actually make you richer if you get creative in making them into assets and find strategic ways to afford them. Host and rental property investor, Jason Bible, together with co-host and real estate investor, Robert Orfino, provides insights and strategic ways on how to turn your liability into an asset. They also share some of their personal experiences on doing real estate deals and eliminating mortgages. Join Jason and Robert as they teach you how to build a true real estate empire.
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High School: Liability Versus Asset with Co-host Robert Orfino
We need a guru rant again. “Rob, for the low price of $97 at my weekend retreat, you too can learn how to be a senator from Minnesota.” Does anybody find that weird when you’re sitting in that real estate seminar and they share the picture of their house? I love the guy that said, “Here’s the picture of my car.” I’m like, “You can buy that for $125,000.” I realized that’s a lot of money for the average person. It’s not like it’s a McLaren F1. It’s not a $30 million car. He probably got that on a lease for $200,000 a month. I don’t get the guru stuff.
I watched another guy doing an interview. He’s like, “I’ve been doing this for 30 years.” I’m like, “What a failure.” He’s like, “I want to see other people succeed.” You’re still charging $15,000 for your boot camp.
I sent that email out, “We did this deal. I made about $1 million on a deal.” I’ve been getting a lot of emails back and one of the emails I got back was, “Why are you teaching this? You want to keep it as a big secret.” He’s like, “Why would you tell people how to do this?” I sent him an email back, “The more radio shows I do, the more YouTube, the more Facebook, the more stuff we put out there, the more money we attract and the more deals we do.” It is that simple. We tell people we’re looking for more real estate, real estate shows up on our doorstep. We’re teaching these little classes. It’s a lot of fun. We want people to come with us because it is a little bit of a lonely business. We’d like to build a network of people. At the end of the day, the more we do this, the more deal shows up.
I don’t think he can teach that deal.
Someone has to say, “Jason, I got this.” You can’t teach them to go find that.
It’s a Jeffrey Gitomer thing. He’s always saying, “Antennas up. Always be looking. Always be aware. Always be listening.” I was like, “I know what to do with that.”
You have so much transaction and rehab experience. A guy like you drive up and you go, “We can rehab that.”
Even I was thinking about, “We’ve got to get a $900,000 loan on this thing. That was my exit.”
I was like, “We’ll figure all that out.” Even if I took the Fast Track, they freak out. They’re like, “We’re not doing that. It’s way too much work.” I’m having fun wholesaling those three houses.
You get a lot of people saying, “Send me the address. When can I go look at it? Will you take $120,000?”
We’re like, “I’m not doing that.” There are three houses in EaDo, East Downtown. The ARV is probably $300,000. I’m wholesaling them for $170,000. They are as-is property selling for $180,000. If you are interested in buying one of them, shoot Rob a text to (281) 401-9008. You need to send proof of funds. If you cannot do that, if you don’t know what a proof of funds is, this is not a deal for you. These are going to be tough. These are big rehab.
Are we letting daisy chains in?
We’re not doing daisy chains. Daisy chain is where one guy wholesales it to another guy, wholesales it to another guy and then finally, someone buys it at the end. We buy a ton of daisy chains but nine times out of ten, one of those broke wholesalers in the middle screws it all up.
They’re greedy, desperate, scared. It’s mostly fear.
What’s your thing? It’s either fear or ego.
When you’re a guru, you’re only on stage for two reasons: money or ego. That’s it. There are only two reasons you ever stepped in front of a crowd.It is not charity if you need recognition. Click To Tweet
It’s okay to have an ego and money. There’s nothing’s wrong with that. Just be honest about it.
There are many better ways to help the poor than to have a radio show.
Or put on another REIA club event. It’s much less expensive and much more packed.
I don’t know the Bible verse, but it’s one of my favorites that Jesus says, “It’s not charity if you need recognition.”
I donate to a guy’s birthday thing on Facebook. I do that whenever they pop up in the feed. I’m sitting there. I don’t have anything else going on. I was doing emails. I was at Saint Arnold’s and I saw a pop-up. I thought, “I’ll donate to that guy’s deal.” It’s almost that thing. I do the same thing, MS 150 comes up, I do my birthday posts. I didn’t do as good a job the other year but the year before, I did a great job. I started calling out rich guys on Facebook. I sent an email out to a small group of people. I’m like, “I know I’ve made all of you a lot of money. I am not below calling you out on Facebook if you don’t donate a $100. You need the tax breaks.” We raised a bunch of money. It was great.
I’m pretty sure that was something from the Bible. I also remember reading something that most quotes that you think, there are three places they all come from. It’s Shakespeare, Jesus or Ben Franklin’s Poor Richard: An Almanack. Those are the three sources. I’m pretty sure it’s a Bible verse.
This is a perfect guru segue because you mentioned Ben Franklin. He retired at what age, Rob?
It was in his late 30s or early 40s.
He was able to retire with real estate. Look at that, he came on and eventually invented all these great literary works and all that other stuff. I highly recommend reading Ben Franklin’s books.
The motivation for the revolution was mostly, “I own a whole bunch of land that’s getting taxed and I export a lot of stuff.” One-third of the population was for the revolution.
We’re going to talk about liabilities and assets. People are texting the verse.
Matthew 6:1, “Be careful not to practice your righteousness in front of others to be seen by them. If you do, you have no reward from your Father in heaven. Watch out. Don’t do your good deeds publicly to be admired by others. For you will lose your reward from your Father in heaven.” There are 9,999 other things in the Bible that I don’t necessarily practice like eat pork and all this other stuff, but that one I do. You’ll never see me sign my name to any of that stuff. I’ll give cash all the time, “Here it is. Here you go. I don’t want my name on it.”
Do you want to write your name on the balloon?
I don’t want to write my name on the balloon.
All the big donations are always completely anonymous.
My rule is if anyone ever asked me for money like a homeless guy, I have to give him everything I have. I’ve never carried large bills on me, but I’ve been caught a few times. The guy says, “I’m hungry, got any money?” There’s $40 right down. I gave him the money.
What if you got a bag of cash from one of our renters?
I will be in the middle lane of every street.
I noticed one of these conferences, I think it’s Quest. I got a Quest text. It’s going to be a fun one. One of my favorite guys is going to be there. I’m going to be in the room when he speaks just because I love his accent. He used to own a mobile home dealership. He then turned into an owner finance guy. I’ve sat in a whole seminar with him. He’s like a Southern Baptist preacher guy. I’m going to his seminar to listen to him for an hour. It’s so good. He’s smiling the whole time and gold watch.
Those red flags are right there on stage.
The rich old ugly shirts, Ed Hardy. I think you can be a 22-year-old hipster dude that’s way too tan. It’s ripped. That guy can wear an Ed Hardy, like a dragon on them and then it’s like old guys.
Do you remember the Mastermind we came out to in California? We did it in a hotel with the airplanes. We had the big suite and the lunchroom next door. That’s a fantastic event. One room over were these four guys who were selling timeshares. They’re from Vegas and they all had the rings and those shirts. They’re on 1970 something Cadillacs in the outside, you know they just drove out there. They were running people through over and over just sucking the money right out of the timeshare stuff. There they were and I was like, “Look at these guys.” It’s like straight white pompadour. That dude can sell.
He always wakes up in the morning like, “Somebody’s buying something from me.” Assets versus liabilities. I was thinking about our deal yesterday, our appraisal that came in. This is the typical real estate stuff. It’s like, “Here’s the appraisal.” They forgot to appraise half of it or third. Now, it’s not worth this. We have an appraisal that says, “We’re that.”
It came back well-appraised, but we’re not selling it. We’re holding it.
The rent side of that appraisal is funny. I looked at the appraisal. If it brings in $5,300 to $5,500 a month and they say it’s worth $730,000. I’m like, “What GRM is that?”
We’re talking about one of our properties that came back. We will give you the backstory on it. It’s a great property and appraised exactly where we thought it was going to appraise, $720,000. Since it’s a hold, they looked at only a portion of it for the rental part. We’re like, “Did you get this and this?” They’re like, “No.” “Why not?” “I don’t know. We’ll have to send the appraiser back out.” Otherwise, they’re going to do a 52% loan-to-value on a property that appraised at more than the purchase price.
That’s 135 Gross Rent Multiplier, which is a little aggressive. I usually use 65 so it comes out with a much lower number. They must be pushing a low DSCR on it. It’s a pretty good week, turning liabilities into assets. I look at some stuff in real estate like grades in school. If you make 100 on one assignment and a zero on another, your average is 50. If you can avoid the zeros in some cases or the negatives, just get 40s, you can do pretty well over the long-term. If you could take those liabilities and turn them into assets, this is how I think of it, stuff that produces some cash in the future.
There’s a big difference in our world and we talk about it all the time. People come to us and they followed Dave Ramsey for many years or Suze Ormanor whoever out there. You have to stop that because that’s how you run your household. We’ve got to talk about business lines of credit and things like that. It’s hard to do it all cash 100% paid off. You’re going to have to leverage. They freak out because they’ve been trained over at their church, the community center and on the radio to pay everything off. I know he does. That’s you personally. What you don’t understand is you personally are not this business. That’s a big stretch that takes you from an amateur to a professional or from a non-sophisticated investor to a sophisticated investor to understand that there is an entity now that is going to acquire debt.
You may personally guarantee that entity’s debt, which will freak you out. That’s not debt for you. All of a sudden, they think they have all these liabilities as you do, but you really don’t because they’re in this entity structure. I don’t think a lot of people teach that unless you’re in business school. We don’t teach how you have to set up entities. Entities work differently than your personal income. We talked about it all the time. There are two tax codes in this country. One for individual and one for the businesses. Which one do you think is better?
The business one always. We had gone through this transition when we started investing in real estate. I’ll never forget the day I went on Facebook because that’s the best place to put your family drama. I put on Facebook, “After this last closing, I will be $1 million in debt.” My wife saw it and freaked out.
On the personal debt side, I’m maybe in $160,000 to $170,000. In my businesses, $1.8 million. I’m almost at 50/50. Almost a good chunk of that is equity. When we did that personal financial statement for the bank and we looked at it, we said, “That’s not bad because 95% of it is the business.”Taking liabilities and being able to shift them once you start paying them down is a best way to earn. Click To Tweet
When you start talking about risk management in businesses, when people say, “I’m going to put this in this little LLC and this one over here. I’m going to have this grand liability protection strategy.” I’m like, “Yes, but all of your assets are in real estate anyway. What are you hedging?” Then they’re like, “I’m trying to sell a $10,000 LLC package.”
I’m leveraging out 60% of my properties. All my lenders love me. “You’ve got 40% equity in that. We’re good.” Turning liabilities into assets, that’s was the genius theme of our program. Taking those liabilities and being able to shift them once you start paying them down. We understand the ease, whether it’s your mind or your stress or your wallet of a free and clear property. That’s when you finally get rid of that liability, which is the mortgage.
Free and clear property is like dating a supermodel. I think it’s amazing. It is absolutely great. I’ve never dated a supermodel, but if I got a free and clear property. I like the free and clear property. It’s incredible.
That’s what we’re talking about is getting there. We understand that people want to get there. Both Jason and I want to have at least ten free and clear properties in our portfolio. It’s better if it’s 100, but we want to start getting there. We want some free and clear. What this deal is allowed us to do is to get very close to taking over each of us having three units free and clear in a matter of a year.
I’m getting a lot of blowback on my numbers, which is hilarious. What’s been interesting are the guys that do a lot of real estate and they know that side of town. Jeff who’s out in Austin, he’s a savvy investor. I can’t remember if he posted or sent it to me as a note but he said, “You will probably make more than $1 million on that deal. I think that’s the current market.” I said that’s exactly what it is. He goes, “You hold on to that for five years, that may be $2 million you make on that thing.” I don’t disagree with that. One of the reasons we do Airbnb in small apartments is because they produce so much cash that if we wanted to, we’re able to pay these things off in seven to eight years. That tells you how much free cash they’re kicking off compared to the debt service. If we go back to the liability thing where everyone’s freaking out about debt. If you’ve got a property you’re in for $110,000 to $120,000 and it’s making $300 a month and you’re like, “I’m killing it because it’s bringing in $3,600 a year.” I’m like, “Can you Airbnb instead and produce a lot more cash and pay it off sooner?” That’s a great way to reduce your liability.
Everyone’s got a different appetite for that. For the most part, people look at this and it makes people nervous because they’ve been a Dave Ramsey fan all their life. They realized, “Jason and Robert are talking about making $1 million, but all they have to show for it is $500,000 debt.” That’s it. We saw the opportunity to take that liability to make it into an asset. We have a plan to work that liability to make it into an asset. It didn’t happen on day one.
Wait until someone goes through there and shoots the pre-rehab video. It would scare most sane investor. We know where the money is at. It’s sitting right there and many people passed on it. It’s amazing.
I’ll tell you a quick story. I told this to the ever-fashionable Curtis Warden. He said, “Don’t you get stretched? Don’t you feel that?” I was like, “I never felt it more than last Friday.”
What happened last Friday?
There were lots of contractors to pay and lots of people to pay. It was payroll. I had yet to go through all the accounts and see where we’re at. Before I could even look at it, I started getting a little panic attack. She was in the office. I decided to walk by her and took a little walk around, took a little breath, came back and said, “Put it all on paper.” I laid out every single job we have, every single thing and I’m like, “We’re just fine.” Sometimes it hits you because you start dealing with these large numbers. I looked at it and we still have a ton of assets to cover the debt. We were still writing more checks. We’re okay, but it gets to such when you start getting into large numbers. We’re writing $250,000 every week. I was like, “Something is happening. What’s going on?” I’m looking at my watch, my heartbeat was racing. My watch is freaking out.
Are you sure it isn’t that weird Keto stuff you’re on?
It was not keto, trust me. It was $289,000. I was like, “I’ve got a lot of checks. Where is this money coming from?” Then I realized, “We got this cashflow over here. We got this.”
Since I sold my hundred houses flipping business and all that other stuff, the number of transactions we’re doing and the size is so much bigger than I did in 2018. They’re gigantic. We routinely talk about doing million-dollar deals and it’s like, “Here’s a million-dollar deal, here’s a million-dollar deal there.” I started thinking about it when I was reviewing the deal, something hilarious is going to happen and I’m interested to see how people react to it. I’m going to cause a little stink at somebody’s office. It’s a good one. I can’t wait to see the reaction. I did this for the reaction. I was thinking about, “Could we do a deal like we did Wednesday every month?” I started going through the numbers in my head. I started looking at some real estate and I’m like, “Actually, we can.” There is a unique place at a unique time in this marketplace where you can do deals, where you make about $1 million because it’s this untapped little marketplace that nobody thought of. I was sitting there thinking, “Let’s say you go with the 100-unit apartment complex, how long does it take to make you realize $1 million dollars in that?”
I’d love to grab some apartment guys and have that conversation. Everyone makes money in apartments when they refi and when they sell. How long does that usually take? Probably about a year. Do you really put $1 million in your pocket? You need seventeen partners to go take down this class A or class B nonsense. I started thinking, “How do you make that money unless you go up that much in scale?” I can easily see buying a handful of assets in a year. In twelve months, you’re realizing a few million.
In assets, we’re not walking around with a suitcase with $1 million. We’re still driving what we drive and we’re still going where we go. It’s that stuff. There’s an opportunity in the marketplace if you understand the difference between assets and liabilities and that sometimes packages come with both.
The other thought I was having is everything’s appreciating so fast that if you’re buying commercial assets below $500,000. I need a chat with Ryan about this. Ryan and Chris deal with this more on a daily basis. If you’re buying commercial assets below $1 million, is there really much risk there? It’s like buying a house under $50,000 or $75,000 or a retail-ready house under $100,000. How much risk is there? It’s so far below market price. The median home price in Houston is $250,000. That’s insane. What’s your risk if you’re buying a house in Katy and you’re all in for $150,000 and it rents for $1,300 to $1,500 a month? What’s your risk in losing money on that deal? Don’t get me wrong, you could get the AC goes out. All that nonsense happens. In real realized losses, when you’re buying as a landlord, when you’re buying as a buy and hold investor at that entry-level marketplace, it’s hard to lose money. McDonald’s is not losing money on Big Macs, but if McDonald’s went into steaks, high-end steak places go out of the business all the time. The fusion restaurants go out of business all the time. McDonald’s isn’t going anywhere because they are the entry-level. We can talk about debt load and how much debt you should take on. What’s fascinating is you can get to a point in the marketplace that even when you take on the debt at 100%, what’s the relative risk of the backlash when you take on leverage?
This is why people are buying these commercial assets at 125% of the appraised value. It’s over the top. A lot of these pro formas and a lot of these syndication deals are the best-case scenario over the next several years. Rents will eventually be at $3,500. Therefore, we can make 17% on our money. Everything we look at is today’s dollar. What can I do with today’s dollar? A lot of these guys are looking at the future. They’re not afraid to go out there and raise $27 million for something that may only be worth $15 million. You can fix it up and you can improve it and you can get better tenants, but that is not going to get you 100% increase. What they start doing is they start projecting over time how well it will be. If you will look at assets and liabilities and you’re out there looking in the marketplace, we were able to identify properties and you will be too. It’s all over here. This is the most amazing thing. There are tons and tons of properties that says, “Three houses on one lot.”
It’s not listed like that in HAR but it totally is when you read the agent remarks.
We start looking at identifying those and then we’re going to find some deals and we can turn some of those liabilities into assets.
We’re all about buying deals and bringing in money. If you guys have any crazy ideas for the show, just share away. We’ve got our mastermind. What is our mastermind? It’s our peer-to-peer sharing workgroup. If you’ve already got some real estate and you want to buy more real estate, this is the group you need to be in. This is a group of people that Robert and I have put together that are going to share with you best practices. What’s working in their business and what’s not. You’re going to share what’s working in your business and what’s not. If you’re a brand-new investor or you have one rental property and you’re like, “I’m trying to figure out how to buy some more. Here are my goals. This is what me and my family tried to do.” This is a great place to do that. Our membership is $7,500 a year. It’s super inexpensive. If you’re interested in doing that, shoot us a text message and we’ll get more information to you. It’s (281) 401-9008.