How Much Wealth Can You Build? with Guest Co-Host Robert Orfino

TRE 4 | Building Wealth


There is no doubt that real estate is a risky investment, but there are massive opportunities and wealth to build and accumulate in this industry. It is no wonder that there are still many who are willing to take the risk. Jason and Robert talk about how much wealth you can build with different asset types – houses, apartments, and commercial assets. As they run through the risks of investing, they pose some of the challenges in finding the right assets and buying single-family and multifamily properties. On the side, discover why local elections matter and what happens when national elections force major changes locally.

Listen to the podcast here:

How Much Wealth Can You Build? with Guest Co-Host Robert Orfino

Local Elections Matter

We’ve got a few good things to talk about. We’re going to be entertaining and informative and we’re going to talk a little bit about real estate. We’re going to talk about essentially what’s going on folks like me coming to the State. I’m still discovering Texas. I am loving it. The State is run the way it’s supposed to be run. You want to be pro-business but you want to have a decent infrastructure. There are no complaints here about the roads. The roads are fantastic, and of course, that costs money. People are being taxed or added onto their property bills. We are very happy. I know that after the flood, Harris County went ahead and pulled a big bond on doing some diversion so we cannot repeat the horrors of the past.

I will tell you, living through tropical storm Allison in 2001 that was the last bad flood. I worked in the medical center and I sat in as a fly on the wall when some of the most powerful people in healthcare said, “This will never happen here again.” It didn’t. It flooded all down there. All of those hospitals built all those hydrostatic walls, flood walls, and the ability to pump water up from one place to the other. The Medical Center did. The Medical Center was open the day after Harvey blew it out.

That’s important because as a real estate investor you want communities that are active and proactive. We’ve learned, you talked about in Sugarland, the trees and they take care of all the bayous.

They do not mess around down there. I don’t want to get into politics, but what happened in this last election to our local judges is very concerning. I’m going to go ahead and call out my fellow Republicans and Conservatives because they typically don’t vote straight party ticket. They go race by race and they say, “I don’t know this race, so I’m not going to vote here.” Guys like Judge Aber did not get reelected. Our judges are responsible for emergency response. You saw exactly what happened with this whole Pasadena fire when you got this young gal who is 33 years old and who’s responsible for emergency response. Maybe she’s a great person. That’s fine, but she’s no Ed Emmett.

That’s what you have a county judge for. Your local politics are extremely important, especially down here. You may not agree with folks nationally, but it’s the local guys that keep the trees trimmed. They fight for silly, boring stuff like levee improvement districts. We need a bond for this. They’re willing to expend political capital to do so. Real governance is not sexy. It’s not parks and green spaces and all that. It’s the hardcore like, “We’ve got to cut these many trees out. We got to dredge this, we got to do that.” It’s not the cool stuff. Fort Bend County, in particular, has been absolutely fantastic. Harris County is a little bit different. The local infrastructure is what’s going to attract the right kind of employers.

TRE 4 | Building Wealth
Building Wealth: One of the ways to raise money is to do syndication.


Business is business. You can get in and out. I know people complain about the traffic, but the traffic’s not bad. Try and get into Chicago at 8:00 AM. It’s a disaster. Here comes our first tangent. Up in Chicago, they have probably the greatest restaurant in the world. It’s called The Weber Grill Restaurant. They have giant Weber Grills that they cook everything on in charcoal. That’s the taste. It’s like going to a barbecue, but it’s in the middle of Illinois. It’s freezing out and you can go in the Weber Grill.

I like Chicago. I’ve always had a great time when I go up there. It would be a tough market to do business like Boston. I love Boston but I couldn’t run my business up here. There’s no way.

I have friends that invest in Chicagoland for sure and it’s a disaster. It’s tough. I’ve done New Jersey and Southern California. I can tell you that here in Texas, specifically Southeast Texas, this is a happy hunting ground. You can actually move forward pretty fast on properties. We’re talking to a builder and he says, “I can get a house up in about 120 to 150 days.” It takes two years in California.

I’ve got a buddy of mine who does business in upstate New York, Adam. He’s a fan of the show. He’s a great guy. Next time he is down here in Houston, I’ll see if I can bring them on the show and talk about being a real estate investor in New York City.

When you created an environment that is very, very friendly to business, entrepreneurs and investors, obviously people are going to come. I’m not leading the pack, I’m part of it. I’ll tell you the story. We went to a REIA club. It’s a Real Estate Investing Club. There are all types and some will be in hotel rooms, some will be in bars. I went to one in Laguna Beach, California. This was up to the hill overlooking the Pacific Ocean. There’s a four-string quartet. There’s a violin, cello and they’re playing music. There’s wine, cheese, crackers, and chocolates. It’s in this amazing $3.8 million house with a little lap pool. It’s absolutely beautiful.

Business is just business, and you can get in and out. Click To Tweet

I was going through and doing networking like I normally do, “What do you do?” “I live in Houston, Texas and I invest in Texas. It’s the best market in the country.” Half the people were like, “Me too.” I’m like, “You’re in Houston.” “No, I am in San Antonio. I own 60 properties in San Antonio.” “What about you?” He’s like, “I’m going to do an apartment building in Dallas.” A couple of other folks said, “We’ve done some syndication deals all over Dallas, all over that part of the State. We love it.” There are a lot of people bringing a lot of California money here and it’s happening all the time, especially when you get into the syndication world when people are throwing $100,000 at a time at an apartment building here and there.     

Why don’t you explain what a syndication deal is?

You got to raise the money. We’re going to buy a $2.2 million apartment complex. One of the ways to raise money is to do syndication. What syndication does is you’re going to put together your PPM, which is your performance. You’re going to go through that and your addendums. You’re going to put a contract together. It’s going to say, “This is real estate. It’s very risky.” Before we get any further into this, let’s understand that real estate is risky.

Let’s not compare this to a T-Bill or annuity. You can obviously reduce your risk by being a good operator; operating your asset, buying it for a little bit less than market value. This is not a risk-free investment asset. The SCC qualifies real estate as a risky investment.

You have to follow all the guidelines for raising money because back in the day, people just bought all kinds of land in Florida that wasn’t there. People go around and you have to get 506(b). That’s syndication and a technical term. It’s for sophisticated investors. Typically, a sophisticated investor is an individual who makes $190,000 a year, has done some investing in the past and doesn’t quite have $1 million in assets. Most of them do but they are sophisticated. They understand the risk of investing. That’s the real definition of sophistication. You prepare a document, you say, “I’m trying to raise $2.2 million, $100,000 at a time.” People will invest and put that in. That’s called syndicating.

TRE 4 | Building Wealth
Building Wealth: Multifamily is going to get meaning. Buy that multifamily now because it’s about to get really expensive.


When you hand a private placement memorandum, you put a PPM in front of a potential partner and investor, they can read it and understand it. They understand the risk associated with doing that deal. They understand what a pro forma is, the financial statements, the Trailing Twelves and there’s risk. We could lose everything.

They’re raising that money in California every single day. I couldn’t tell you how many times we heard about apartments in Dallas at the clubs in Southern California for years and years. Those folks already have their eyes upon Texas and it’s not stopping. We know there’s going to be corrections in the market in California, Las Vegas, Phoenix, Seattle, and Denver. When that happens, people who have the money get nervous about their market and they look somewhere else. It’s usually Texas, Florida and some of the flat States like North Carolina and Tennessee, but there’s nowhere to deploy big money like here in Texas.

That’s where a lot of people miss. Why are these $5 million, $10 million apartments becoming so expensive? Where else do you put $10 million, $20 million and $30 million at a time? Grant Cardone is literally buying apartments in my backyard in Sugarland because he’s got to deploy $1 billion.

Once you raise it, the problem is to find the right asset.

The population is growing. We have more investors investing here, which is creating a challenge in acquiring and buying assets. I’ve said it for a couple of years, you think real estate’s expensive in Texas, but you just wait. It is getting expensive. What threw me into multifamily was what happened in the third quarter, Q3. The Trumpster comes out and says, “I don’t like these interest rates. I don’t like them going up. The Fed is killing the market.” The Fed is technically independent. I cannot remember the guy’s name who runs the Fed. The Fed is run by a committee called the Federal Open Market Committee. It’s FOMC. You can actually read the FOMC notes from their meetings that come out the day that their guidance comes out. You can actually try to read the tea leaves, if you will, from the FOMC minutes. Trump calls Powell and says, “This new interest rates too big. I like things huge and they’re getting big and that’s too close to huge.” Powell and the FOMC committee actually listens and says, “Maybe the Trumpster is right.”

There's only so much you can do in twelve months. Now in five years, you can do some really fantastic things. Click To Tweet

We may only have one rate increase, which blew the market apart from the third and fourth quarter in 2018. They’re saying, “No rate increases in 2019, probably a rate reduction in 2020.” At that point, I was like, “We got to get into multifamily.” I realized that cap rates and interest rates are not correlated. It’s the delta between the two. We may be in a situation where you make your money. It’s an arbitrage play right between what you’re borrowing and what that cap rate is. At that point I was like, “I bet people are not going to predict that cap rates are probably going to fall again.” That can totally happen in the Class C space. If I were to shake my Magic 8-ball, I’d say there’s about a 50% chance that we’re going to see cap rates fall in the next months.

You think there is going be a rising tide. People are going to move out of the C into B. How does a C building’s cap rate drop?

There’s no construction. Class A construction has collapsed. We were at record new starts in multifamily for a while. Class A new construction has virtually stopped. There is virtually zero single-family new construction. FHA guidelines have tightened. There were 50,000 people that cannot get a mortgage in 2019 that did in 2018. Those are what we call renters. Like I said, “Shake my Magic 8-ball up.” I have a Magic 8-ball that sits on the corner of my desk. When people talk about markets and all that, there’s a pretty good 50% chance in the Class C space, which will trickle up to class B and Class A, it will be a relative decrease in cap rates. We’re going to see a decrease in cap rates over the next months. Let me break this down so it makes sense because we’re about to buy $11 million worth of properties. Buy that multifamily because it’s about to get expensive. That’s a good way to put it. You thought it is pricey in certain markets. In that submarket where we let that 120 units go, I don’t think that’s going anywhere but in Houston, Dallas, Fort Worth, San Antonio, Austin and outlying communities, San Antonio is bananas market. San Antonio is changing into a market that is very similar to Dallas and Houston.

You’re talking about supply and demand. There’s not enough supply so the demand is going to go up. I have a more valuable asset because of demand. I could sell it at a lower cap.

TRE 4 | Building Wealth
Behind the Housing Crash: Confessions from an Insider

Supply and demand are independent. You’ve got supply meaning how much product do we have. We’ve got demand, which is the desire for my product. How many people are real buyers out there? We’ve seen some demand changes. These FHA guidelines, there are going to be some changes.

Less mortgages and more renters.

What’s interesting is where does that impact a single-family? It impacts single-family at the new home buyer. A lot of those folks are new home buyers. They’re not going to enter the marketplace. We can’t build houses for those buyers. If you want to get into the technical details, the hottest single-family marketplace across the entire country are the houses in and around the median home price, the “affordable housing model.” There’s no affordable housing being built anymore. That market will continue to become expensive. Here’s the problem for those of you who want to be landlords in single-family, you’re running out of time fast. I’ll give you a great example. I bought a house in Bear Creek right after Hurricane Harvey. The value is increasing so fast, my taxes and insurance are getting to the point where it no longer cashflows.

Single-family real estate as a means to long-term wealth, meaning through buy and hold, will go the way of the dinosaur in next years in the major markets in Texas. The real estate’s going to get so expensive, it’s not going to cashflow. You’re not going to San Diego to buy rental properties. There’s nothing that cashflows. You can’t do it in LA, Chicago, Philly, Miami and Seattle. You start going down the major markets. Houston is right behind all those guys. In Houston, this is the last generation of investors in which you will buy single-family real estate that cashflows. This is it. It’s over. One of the reasons we jumped into multifamily is because if you’re going to be a real estate investor, that’s where you’re going to start. You’ll be buying single-family houses in Wharton, Victoria and bragging to your friends that you’re making $300 a month in cashflow. That’s where these markets are going.

We looked at LA. We looked for single-family houses under $300,000. In the entire county, there were four.

Four houses in one of the largest counties in the United States. If you’re going to do single-family real estate, you better start. If you are looking at building long-term cash flow and wealth, you better be looking at small multifamily and Airbnb. That’s why you and I are doing a lot of small multifamily and Airbnb. There’s a sweet little marketplace between two units and 50. That is going to be a market that is ripe for disruption, which is what we’re doing in that space. Those are some of the big challenges in buying. These markets are appreciating so fast and we can’t build new units. We were talking about challenges in buying and we’re also going to talk about how much wealth you can build in real estate. We know a lot of real estate investors that work in different segments, different asset classes and different levels of class grades.

When I talk about this market, I’m talking about the major markets in Texas. I’m looking at a deal in La Grange. It’s a cool, quaint little town. I’m looking at a deal out there to buy, to Airbnb or possibly rent which is pretty good little deal. That’s a whole different thing. It’s a very rural market. When I talk about what’s going on in this market, I’m talking about Houston, San Antonio, Austin, Dallas, and Fort Worth. These houses are appreciating so fast. Everyone’s waiting for, “There’s got to be a crash and I’m going to be able to buy in Alief for $25,000 a door.” No, you’re not. If you want the best books and when people join our club, I’m going to give this book out as a part of the membership because it is required reading.

The best book on the housing crisis is a book written by Aaron Clarey called the Insider’s Guide to the Housing Crash. It’s a self-published book. It is the best book on what happened. He was an underwriter for a bank. He did a lot of the commercial stuff for developers. He was doing commercial underwriting for developing communities in the Twin Cities. What he explains in there, how many things had to happen in order for the world to end as it did in 2007 and 2008. For one thing, we had a massive glut of housing. You’ll hear the term over-housed from the FHA guys. We were over-housed nationally.

Before you take that oath that you want to retire in five years or less, you have to have a plan for what that looks. Click To Tweet

New construction for new houses is 40% what it was at its peak. Years later, we are 40% of what it was at its peak. We cannot build houses anymore in this country. It’s turning into Europe. You can’t do new construction in Europe. My wife is like, “We got to go to Europe.” I’m like, “I lived there for a while. It looks all the same. It hadn’t changed.” Trust me, they’re not tearing stuff down like we are here in Houston. It’s beautiful, but it doesn’t change. That’s going to happen here but with one exception. If somebody figures out 3D printing for houses, that’s going to be a huge problem for the real estate investor market.

That’s going to be a huge problem for the economy because that will signal deflation.

It will be incredibly deflationary for the largest asset class on the planet, which is real estate. If you want to be the first trillionaire, figure that out. I’ve watched that technology very closely because then where’s the value? The value is the land, which does not depreciate. Let’s go back to building real wealth. I was thinking about this. We know a lot of investors. I was up at Brad Sumrok’s Event and Brad was on stage and said, “I’m worth about $30 million.” He’s been in the apartment business for about twenty years. He has done seventeen or eighteen deals.

Then there are a couple of other apartment guys I follow. They’d been in the business for 20 or 30 years and they’re worth about $20 million to $30 million. I started doing the math. I’m like, “I’m starting to see a trend here.” If you’re an active apartment investor, your net worth will go up. You’ve got to be an active investor. You’ll make about $1 million in net worth a year. That was the number I came up with on average. It would be fun to look at Grant Cardone’s wealth. I bet it’s pretty similar on the apartment side, not on his training businesses and all that other stuff.

I don’t know how that makes money. That’s probably a break-even proposition so that he can buy apartments. Marketing should break even.

TRE 4 | Building Wealth
Building Wealth: You will actively work against yourself if you are uncertain about what your future is once you reach your goals.


My guess is these guys can pack in about $1 million a year in net worth. If you are an extremely active single-family investor, it’s about half that. You can bring in about $500,000 pretty easily in net worth a year. If you think it’s $25,000 a house, you’ve got to do at least twenty houses. That brings you about $500,000. This is a good conversation because a lot of people try and figure it out.

That was very casual the way you said twenty houses a year, $25,000. That is not what anyone starting out is going to be.

That’s why I said extremely active.

You have to be very active. It’s probably five years’ experience to hit that point. Would that be fair?


I don’t want to give any misrepresentation if someone makes $500,000 in 2019.

You can do it but it’s very rare. A lot of folks say, “I’m trying to add another $1 million or $2 million on my net worth and I want to do single-family real estate.” I first ask them, “What’s the number you’re trying to hit and where did you come up with this number?” Know your number. You’ve got to back into, “What’s the number I can make and what can I make in a reasonable amount of time?” It always shocks me how much people think they can get done in a year, but they discount how much they can change in five years. They think, “I can do all these great things in twelve months.” You can only fit so much in that sack. You can only fit five pounds.

Most people have nineteen hours a week of free time.

Especially around the turn of the calendar year, I like to say people want to get ripped and rich. They want to lose weight and they’re going to get rich. There’s only so much you can do in twelve months. In five years, you can do some fantastic things.

We talked about all the time, I’m on a five to seven-year window. I’ve got a good idea of what I can get done in five to seven years. Beyond that, I don’t know. I’ve got to be prepared for market changes. 2020 year is not looking like anything year five is going to look.

I don’t think you thought we’d buy $11 million in real estate in six months. That was also the culmination of our aggregate experience over the last handful of years.

We were talking about how to accumulate wealth. What’s that ceiling look like? What’s the reality of it all?

Can I become a billionaire in single-family? Probably not likely.

If you are already a billionaire because that’s what Warren Buffett did.

I hear people say things like, “Warren Buffett got rich on mobile homes.” I’m like, “No, he didn’t. He bought a manufacturer. That’s totally different. What are you talking about?” Warren Buffet is famous. You’ve got to listen to what he says but he talks his book all the time, it drives me crazy. I like Charlie Munger a little bit better. He’s the right-hand man up there. He’s old and he’s grumpy. He is this old, grumpy investor. He’s a couple of years older than Warren is. He’s great. They get him on camera, I’m like, “Yes, give that mic back to Charlie. Let’s hear some more wisdom grandpa.” He will belt something out. It’s pure genius, but it comes out so grumpy from time to time. Let’s go back to how big can you build stuff. Are you going to have a net worth of $30 million doing single-family real estate? Probably not. I don’t know a lot of single-family real estate investors.

I know a few in Utah and in Missouri. They own 800, 900 properties. It’s a big private REIT. That’s how they do their business.

For the mom and pop, that’s probably not going to happen.

Why would you want that?

It was funny, we were talking about Airbnb on our wrap up show. We do a wrap up show on Facebook Live. You guys want to follow the Texas Real Estate Radio Network on Facebook. We talked about Airbnb. How many doors are we going to have on Airbnb?

We are going to count beds. We’ll have about 25 in the South and 25 up here.

About 50 here over the next couple of months.

That is a challenge.

That’s running a business. If somebody said, “Why don’t you buy 1,000?” I’ve got other stuff I want to do with my life aside from managing Airbnb and that is management intensive. This isn’t a passive pursuit, but it’s a good little part-time gig. If you’ve got five or ten of these things, you’re making decent money.

It’s perfect for the folks that are semi-retired and they want to stay active. They just pick up four of them. Maybe twelve or fifteen beds and all that, they’ll do just fine.

Making $8,000 to $10,000 a month. This is a Texas thing. Everybody has their bed and breakfast streak, “I want a bed and breakfast in Fredericksburg. I’d like a shop that sells antique trinkets. People get up and I have my own wine.” It’s a Texas thing. It’s so funny. People say, “Jason, I want to retire.” “What do you want to do?” “I want to start a nonprofit and then I want to do this.” There are no stopping people. You never hear somebody go, “I just want to play golf.” I was actually chatting with one of my lenders. They sent me a pay-off on a duplex.

I followed up with, “What are you doing?” “We get out there four days a week at 6:15 AM sunrise. I’m out there on the golf course. Me and the wife are going to look at houses.” They do flips and they own some other stuff. “We’re doing this, we’re doing that. I never thought it’d be so busy in retirement.” That’s the point. You don’t want to retire. Somebody asked me, “When are you going to retire?” Retire from what? I’m going to do this business forever. We’re getting to the fun phase. We’re at the fun phase where it’s like, “I love doing the radio show. I love doing our Facebook stuff.

We’re going to do that podcast at the bar once a month. I like doing some of the speaking engagements.” Then I don’t have to do any stuff that’s not fun. I am out of the not-having-fun phase in this career. Especially when we get the rest of these properties stabilized, we’re doing the fun stuff. If I want to put on a class, we’re going to put our class. We don’t want to put on a class then we don’t do it. It’s that simple. Somebody asked, “Where will I sign up for your mastermind?” I don’t know if you’re a good fit. We’re not doing this for the money at this point. It’s doing this for fun. I was having a conversation with a buddy of mine, Brant. We had this exact same conversation. There’s a point in real estate if you do it right inside of a handful of years, you’re literally just doing the fun stuff. The things that bring you a challenge and the fun stuff.

What I encourage people to do is before they take that oath that they want to retire in five years or less, that they have a plan for what that looks like. You hear these real estate gurus that say, “What’s your why? Why are you doing this real estate? Is it your family? It is to give back.” I don’t think that’s important. What is important is, what your plan is when you do achieve that because you will actively work against yourself if you are uncertain about what your future is once you reach your goals. Let’s go back to the topic. How much wealth can you build in each one of these asset classes? For a single-family, $5 million to $10 million, that’s pretty reasonable over a career.

You may not be able to do that all in one market. It sounds like, “You moved to California.” I’m like, “Yeah.” “In California and Texas.” Yes,” this is where my business is taking me.

The most successful single-family guys I know are between $10 million and $40 million. $10 million is a pretty nice place to be. For multifamily, it’s $25 million to $50 million. I don’t see a lot of guys crack past $50 million in class C. I’m talking about the mom and pop retirement. I’m not talking about professional. You look at multifamily like, “How can I build real wealth?” If you want to get big, you have to run a REIT. You got to know a lot about raising money. All of the single practitioners, the guys at radio shows that teach real estate education on multifamily or single-family and all that, they very rarely crack $30 million, $40 million. You can’t do real estate education and run a big REIT and all that. There is not enough time of the day. The only way to get stinking rich is you’ve got to go on the money-raising side, start a REIT and start a fund. That is how it gets done because you have got to aggregate so much capital and then you as the owner, the manager is making that profit in between what you are paying your investors and what you are buying these deals for.

I don’t want to be stinking rich. It’s a lot of work to be stinking rich. It’s fun; you get the private jet. There is a lot of commitment at that level. For most people, they figure out how to make $25,000 a month, active and passive. If you have $3 million or $4 million in assets, you are good.

There is only so much you can build in a single-family. There is only so much you can build on multi-family but it comes to what it is you are trying to accomplish. Most people are not people like us who want to build a career in real estate. You said publicly, you are not even a big fan of real estate.

I am good at it. I know how it works. Let’s get it done but ultimately I want to be slope slide, a little breakfast joint in Colorado or Utah, sling some hash every morning and enjoying that life. Skiing and in the summertime, I enjoy the beach.

I will never forget one of the things that you told me. You and Catherine were at an event where it’s like, “What do you want to do with your life?” Your wife is ridiculously intelligent. She is one of those very highly genius people. You told me she said, “I just want to be a ski instructor.”

There are these gurus beating her up, “What do you want to do?” She’s like, “I just want to teach people how to ski. I want to be a ski instructor.”

She worked at Google, went to MIT and she’s like, “I just want to be a ski instructor.” It’s like, “I guess we can do that. That’s no big deal.”

We can figure that out and real estate will take us there.

There are two things I am worried about. One is becoming an arrogant jerk. I always think that is one thing at the back of my mind. I am always going to stay humble. The other one is you never want to have regret. I will tell you why regret is the worst thing in the world. You can’t fix it because it is something that happened in the past. “I wish I got into real estate.” You don’t want to wish that you started a career in real estate or you started investing in real estate because you can’t fix that. It’s one of my hot button issues. When I started in real estate full time, I wasn’t one of these guys that got laid off. I just left my career. The reason I did it because my wife said, “If you don’t do it, you’re going to regret it.” Even if it doesn’t work out, she said you are going to regret it.

That is Gary V’s big thing. At the end of the day, when you talk to people who are at the twilight of their lives, it’s like, “Do you want to make more money?” It is regret, that’s what hangs at you.

They call it death bed diaries. It’s, “I wish I started that business. I wish I took that trip. I regret all these things I didn’t do.” You very rarely hear someone say, “I regret things I did.” They all regret things they did not do.

“I wish I started real estate at the same time that knucklehead came from California.”

“I wish I went to whatever seminar Jason and Robert do.” The regret is incredible. The secret to life is growth. If you are not growing, you are not enjoying life to the fullest. I want to thank you. As always, we’ll be back. We’ll talk more about real estate investing, industry news and all that stuff.

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