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Motivational Monday: Work For What You Want with Guest Co-Host Robert Orfino
There Aren’t Shortcuts In The Real World
You keep asking me what Rob and I have been working on the last few years. This is it and everyone’s like, “Holy cow.” I’m like, “You don’t know how deep the rabbit hole goes.” The whole point here is let’s get some unsecured lines of credit. Let’s get some secured lines of credit, build the fund, all that stuff. I should have asked the question to people, “How much money do you need to be able to do the business that you want to do?” That would have been an interesting question, but I was in and out on the two days.
This came from one of the participants. It was completely mind-blowing. It was very likely one of the best events that I’ve participated in during my lifetime. The content, in my opinion, is beyond value. Thank you so much for inviting Merrill to our group.
That’s pretty good. It’s not a bad write up.
I’m like, “Wait until you see the next guy.” I’m going to try and get our accountant down here. Once you understand the level that we’re trying to play out here. I’m trying to get out of high school. It’s important that everyone with us understands that. That’s the reason we’re not teaching wholesaling.
I got into a little bit of drama. I always do this. I was very busy fighting with people on Facebook, which I don’t mind. It keeps things entertaining. I don’t think people understand the Jordan Peterson way of social media, if you don’t know JP, you might want to look at Dr. Jordan Peterson, when they come for the drama and stay for the content. I’d like to thank all of our new audience for showing up because I know there’s a whole bunch of you. There were a bunch who showed up on my Facebook Live feed. Welcome to the show. What I find so fascinating is I don’t do this to be right. The reason I started participating in a lot of these groups is I remember my real estate career when I was first starting out.
I paid all these real estate gurus and you hear all this great stuff and here’s a spreadsheet and all you have to do is fill in these magic inputs. I was that guy who was sitting across the screen reading some of the stuff thinking, “Is that all I need to do?” My business will go to the get going if I create this lease-option thing or I can do it with no money out of pocket or this owner finance. You realize that yes it works in the spreadsheet, but it doesn’t work in the real world or very rarely in which it’s difficult to build a portfolio or a business out of that. It was interesting, the other guys that were responding to some of these same posts where they said, “I bought $500. He’s right. This is not how it’s going to work in the real world.”
Taking that step back and trying to remember what it was like to be new, there are people who host clubs all over this country. They’re very friendly and affable. They make you feel, “This is going to be good for you and we’re going to bring in only the top-quality educators.” I can’t tell you how many times someone from REIA Club told me that, top-quality educators. You build this bond with the person running the club and when they bring someone on the stage, you think this is being done for my best interest. It’s not. The reason why most of those guys bring people on stages and do the Saturday one-day and they trade up for that $997 or $1,257 is because the host of that club gets half the money.
They’re promoters and there’s nothing wrong with that. That’s the world. If you have a stage, you always get half. I own the Paradise in Boston and a young band called Aerosmith comes up and they want to play, guess who gets half the house? That’s me. I own the theater and I promoted it. That’s how it works. The promoter has always played a role in our world, all the way back to the Roman Colosseum. The promoter always gets a cut, except you don’t know there are promoters. You don’t know the role that they’re playing.
If you go to any of the American Real Estate Meetup groups, we have all our disclaimers, “If someone is selling something in this room, we’re making money off it.” Otherwise, we can’t do this stuff. We’re not doing it for free. We’ve got to make a little bit of money on this thing.
What happens is you hear this guy and then they keep bringing people in month after month, and you’re like, “This must all work.”When you start adding creativity to business outside of marketing, it will fail. Click To Tweet
You believe that it must all work and it must all work in my market.
What happens is you get in this two-year funnel and you’re bouncing around. First of all, we know that 80% of people leave this industry. They are gone. The people who are hurt the most, whose credits are destroyed, aren’t the ones posting on Facebook. They’re gone already. They’re out. They’re embarrassed. They’re never going to post on Facebook.
They’re incredibly embarrassed and they’re the ones that text me. “I read that post. You’re right. I did this. I lost a bunch of money,” or “I did this and I got sued. You are right.” You have no idea when the controversy starts with the things that I say on Facebook. It’s not like we went out racing cars and did crazy stuff like not that controversial stuff. The real stuff where I get a lot of flak on the business side, which is good and the number of personal messages I get, the number of personal texts I get.
I’ve got a friend of mine reached out to me and we’ve talked a couple of times. He’s a commercial broker for the many years and a real estate investor. He said, “I’ve been watching your last couple of shows. We need to talk.” It’s always amazing for me to see the blowback I get online versus what happens privately. I start reading some of this stuff and I’m like, “I know I’m right,” because we end up having to fix all these people that buy the $997 package or they’re working with, “I’ve got this friend of mine and he does this.” I’m like, “How many of those does he do?” “I don’t know, but we’re working together and we’re partners in this thing.” You’re sitting there and you’re looking at this.
Blake and I were both on this thread. He’s a hard money lender in the state. They did my first three loans when I got started in this business. One of the guys asked me, “Can you guys go over creative financing strategies or creative real estate strategies?” I respond with Facebook Live. I said, “No.” When you start adding creativity to a business and it’s not marketing, you are destined to fail in that business. McDonald’s doesn’t start this morning and go, “That Egg McMuffin that we’ve made ten million of, let’s switch it up this morning. Instead of doing the Egg McMuffin as we’ve normally done, let’s put a little Sriracha on there. Let’s throw some extra beef and some lettuce.” That’s not how a business works. The real businesses out there are the most boring. What we do is incredibly boring. We get down to it.
To the point I would call us a number of geeks because we get excited over the stupidest stuff. We’re high-fiving each other on an 80% margin.
We looked at a deal that we’re going to buy and we’re going to build a whole story arc around it. Let me put it this way. This deal is one of those deals I’ve only been able to do a couple of times in my career. It’s a lot of fun as a case study. We’re looking at this deal and I don’t think you had to get out of the truck. It was like we’re sitting there looking at it go, “$60 a square foot.” I don’t need to see much more than that. I turned around and went back to the office. The reason I say that is why do we have to be creative in the actual business process? You have to be creative in marketing.
I didn’t see the post. I had to stop to get caught up with you and Blake. You told me someone said, “I found out I have to be a real estate agent and make $150,000 a year.” The answer is yes, but you also forgot you need $40,000 to $50,000 in the bank.
It’s funny, I get much from my advice and I’m like, “Go call your CPA with a bunch of failed real estate investors and tell me how it worked out for them.”
If you’re with us and you follow us along this path, we highly suggest that as an individual, you make $100,000 a year or as a household, $150,000 a year. You better have $50,000 in the bank. If you don’t, that’s okay. We have a whole world and stuff we do that’s going to be beneficial to you. If you’re looking to accelerate and get on that five, seven-year plan, you have to have money.The difference between amateurs and professionals is scale. Click To Tweet
You cannot retire in five years or less without any money or time.
Without no seed. Here’s the deal. I think that’s the lure of real estate investing, no money, no money down, no bad credit, all that stuff. There are hundreds of people that come into our worlds here in Houston every month.
Think of the amount of greed you have to have. I know you people don’t believe that you’re greedy, but I will tell you right now if you respond to this message, you don’t need money, time or expertise to retire in five years or less. Think about that. Your best thinking got you where you are now. Now you’re telling me I joined the seminar for $997 and I don’t have any money, I don’t have any time, I don’t have any expertise in this field. I will be able to retire in five years, despite the fact that you’ve been working as hard as you can in the last 25. I’m not saying you can’t, but it is a huge massive leap.
You’re in that world for a few years. You’ve taken all these $997 class or at least a day class for $97 or $50 if you member. You’ve got all this information around you and you still haven’t done anything. You get one deal and it’s not repeatable.
You get that what you think is a deal, you get on Facebook and you go, “How do I do this one?” Everybody comes out of the woodwork with a bunch of nonsense.
I’m not going to fault anyone for that. One of the things I don’t like about BiggerPockets is because they eat the newbies alive. It bothers me, don’t go there.
Here’s the problem. I don’t fault the person who’s posting that. Where I fault are people who don’t know any better, who start saying, “I’ve done it like this,” or “I’ve read you could do it like this,” instead of the adult in the room walking in, seeing the guy that’s done. I think I’ve got a responsibility now. When I see something like that, I’m like, “It’s not a deal, cut, bait and move on,” then you get all these junior wannabe real estate investors that start posting all this house, “I can show you how it could work. Let’s partner on it. We just need $100,000.” I’m like, “Don’t do this. Walk away. It’s too complicated.”
There was a guru on the thread who said, “You could give it to me. I will follow up on that lead.” I’m like, “I want to see those numbers.” You get in this swirl, all these guys are on stage and a lot of them are the same thing. It’s the paper or you’re playing a paper game on them. It’s lease-options, owner-finance, wraps and all this other specialty stuff. You’re two years and you haven’t done anything. You’re two years in and $25,000 in coaching and you haven’t done anything. They come to us all the time. I had the opportunity to speak to Dale. Dale had been in the business for one day. I gave him the spiel, “Don’t buy anything. Do your research,” etc. I’m sure he’s going to go out and buy some time because they always do. They don’t know me versus the other guy. The other guy wears a better suit than I do. Why should he listen to me? Forget it, fine, go. A lot of the people are coming to us, we’re sitting down like, “I need to sit down with Linda. I’ve been doing this for years and I don’t have a house yet.” That’s great, sit down with Linda.
What I’m saying is if you’re going to go through that swirl, that haze, that malaise, all of those problems out there, it’s going to come down to this. You need a job. You need about $25,000 to $50,000. You need to understand that wealth is created on appreciable assets. Cashflow is one thing, wealth is another. I still love single-family because we appreciate. I have a house with a $430 mortgage that I can sell for $700. That’s wealth and when we’re looking at cashflow at the age of 52 or I am now, I am very concerned with inflation and taxes. Because 10% I may be getting on a note is at best 3% to 3.5%. All of a sudden, I’m like, “I’m not putting my money into any deals.” My money, not my retirement money, not the Roth stuff. That Roth is protected from taxes. I understand when people come to us and say, “I want 12% or 14%.” If it’s your real money out of a bank account, not out of a Roth or retirement vehicle, I can get it.
Let’s explain that math a little bit because I lost about 1,000 people that are in that group. There was somebody that posted, “You can do a no-money out of the pocket deal,” and this is going to sound complicated for the radio show audience. This is why 99% of these deals don’t ever work. This is what they are doing. They’re buying a property using a private lender. The lender was allegedly lending to them at 4%, which right there was a huge red flag for me. I’m not even going to check your math. I know this is stupid and I will tell you why it’s stupid. They’re getting money from my private lender at 4% which by the way I think is less, then they are selling it on an owner-finance. They’re selling the property and they are lending their money to the end-buyer. They’re buying it let’s say for $50,000. They have an underlying note for $50,000, then they’re wrapping it with another note for let’s say $75,000.You may not like real estate but you can become good at it if you understand the process. Click To Tweet
They’re making money on the spread and it makes it sound like, “I’m acting like a bank. I’m printing money out of thin air and I’m going to kill it in this real estate industry.” The problem is operationally, that’s not how it works. Is that technically correct? You can do that all day long. I’ve done them, but you need to start asking yourself, “Why does somebody buying a $75,000 house? Why can’t they get a mortgage?” If there’s one thing I know banks are pretty smart and if they had figured this out, they’d be doing it. They leave these asset classes to real estate investors.
The part that got me was I’m going to bring in a doctor that’s going to lend me this money at 4% even 8% doesn’t make sense. I went into the thread and I said, “You don’t understand, inflation alone, my conservative estimate is 3.8% per year inflation.” I had all these junior economists tell me I’m wrong. I’m like, “Fine, go to Shadow Stats.” I posted the chart and I’m like, “If you don’t know who the guy who runs Shadow Stats, you might want to google him up.” There’s a whole wealth of knowledge out there that is way deeper than just, “I’m a wholesaler trying to figure this out.”
Here you are, you’re trying to get let’s say a 10% rate of return on your investment, inflation is at 4% so you’re down to 6%. That’s what your real rate of return is. You’re also going to pay taxes on 10%, another 2.5%. What are you making? Your real realized rate of return is 3.5% and it starts at 10%. I started explaining that and it went over everybody’s head. The reality is there we’re in your life when you become financially sophisticated enough and you start looking around and you go, “The cashflow is great, the return is great, but what is my real realized rate of return?” If you’re doing these things outside of a retirement vehicle, notes in particular, inflation erodes away at that quite quickly.
Is there a doctor out there who will lend at 4%? It’s not just that post, we’ve been told many times, “Robert, these guys are all used to getting 2.5% to 3%. If you offer them 5%, they will bite on it. I’m like, “No, they won’t.”
I used to work in healthcare. I’ve been to the doctors’ conferences. I’ve presented at them. No, that’s ridiculous.
I’ve never found the person who will lend to me below LIBOR because they’re only making 2%. They have to be at this point, the worst mutual fund on the planet. We don’t find that. I’m trying to get beyond all that. That’s an exercise. That’s mental masturbation. That’s all that is. It means nothing because the reality is you need $150,000 job, you need $50,000, you need access to the MLS, you need to be an agent or you can go through that nasty cycle for two to three years as a flipper. Every successful flipper or wholesaler I’ve talked to, and there was a couple of them, have all said, “I’ve got to start buying and holding. This is going to get crushed on taxes. The marketing costs are too expensive.” I’m like, “I got it.”
There’s going to be a path that you’re going to get on or saying stop on this nonsense, this $997 if you’re at that level. Stop trying to figure out deals because you can’t find the right deals that are trying to make it work on a spreadsheet. You’re flipping and you don’t understand the tax implications of a flip. At the end of the day, you’re getting crushed on all these things that we have already been crushed on. We’re trying to say to you, “Get a real estate license. Get six figures and put some money in the bank.”
I know that Rob said, “We’ve got to get it up. We’re kicking the tar out of people on here.” I’m like, “It will be fine.” They will get over it. They will be our new biggest fans. Give them time. I get it. You hate it when you first hear it. I am okay with that. I can’t tell you how many stages I got especially early on in my career and I’m like, “I know you bought the $25,000 backpack, but let me tell you why you’re going to fail. Tom and I would start our weekend retreats with, “97% of you are going to fail.” We got the music going and everyone’s like, “Woo,” then I get up on stage, “97% and you are going to fail.” It’s like crickets. Everyone goes, “Okay,” then I’d say, “Who wants to sign up for our coaching?” Everybody gets laughing.
I go, “Let’s talk about why that 97% fails.” I get it, you bought the $25,000 backpack and your coach is a good friend of yours. You bonded, you’re tight, your boys you hang out, you’re Facebook buddies and all that. Here’s why they’re wrong. Here’s how I could tell you they’re wrong because we’ve done so many of these houses. This is what real estate investing looks like. That’s why I get so involved in these things because I’m sitting there reading it and I could imagine myself a few years ago sitting behind the screen going, “That could work like that.” Now, knowing the other side, you’re like, “It doesn’t work. That’s not how the real world works.”
The point is if you’re coming to us with no money, you have no resources, we have one solution for you. Become an agent. We are not going to teach you any of this other nonsense and door-knocking and all that other stuff, forget it. The only thing we’re going to recommend is to become an agent. You can go and go do door-knocking on pre-foreclosures and there are people who make a lot of money on that, but we know there’s a 90% failure right there. Why would we recommend that? Can you succeed at it? Of course, you can. I’ve got good buddies in California that are killing it doing it that way. The other 150 people behind them who thought they could do it because Mark is doing it, they failed. We would never put that out there.There are no shortcuts in the real world. Click To Tweet
I’m sitting there hanging out with AC Ramos, which if you know his story, he’s dead broke, out of prison twice. He has a very similar story to Daniel up in Dallas and he had a new kid on the way. He made it and Daniel did the same thing, but both of those guys have an unordinary high-level of intelligence. They are sharp guys. They made bad decisions, but they are not stupid.
I think that those guys were at the bottom. There’s nowhere to go at the bottom.
That’s what he said. He’s like, “What? Are they going to put me in prison again?”
There’s a whole bunch of people who aren’t at the bottom and are not interested in taking two steps backward. “I’ve got to do what? I’ve got to spend how much? I’ve got to work extra?” They’re not interested in doing it. We’re not interested in teaching any of that nonsense. It’s not to say that a guy like AC isn’t real. He’s for sure real, but like many people that sat in his first class, whoever he went to, the other 25 people in that room, probably twenty of them didn’t do a thing.
We did a study not too long ago and did a “Where are they now?” for people that have gone to some of the ARM events. We found 80% were out of business in six months. 80% of the people that show up to these free events will be gone in six months.
We had all the sheets. We called all of the 400 people and over 300 of them were out of the business.
That’s the rate. They’re just out.
We’re not interested in teaching any of that stuff or promoting any of that stuff because we know there’s a high failure rate. We’re not saying it doesn’t work. Of course, it works. The success is on the outlier. The success is in the 10%, not 90%. Maybe that’s everything. Maybe it’s 80/20. For sure you have a better chance of success with a six-figure salary, $50,000 in a bank and a real estate license.
Here’s the other thing. Let’s go back. Daniel and AC are a good example, especially in AC’s case. You may not have any money. You’re dead broke like you literally have nothing, but there is one thing that you have that the middle-American family that’s working 60 hours a week doesn’t have. You have time. There are three components to any business. It’s money, time and expertise. The expertise you will learn by doing enough of it if you have enough time and/or money. If you don’t have time or money, there’s no point in starting. Jason and I work 80 hours a week. I got $10 in my checking account. There’s no place for you to go.
Gary Vaynerchuk will say, “What are you doing from 11:00 PM to 2:00 AM working on your, ‘Side hustle?’” I’m like, “That works but it doesn’t in real estate because real estate takes place during the day.” It’s from 11:00 to 6:00. The reality is that, and this is what irks me with a lot of this nonsense that I read on Facebook. Real estate is not for everybody and that’s okay. We’re not building a cult here. Real estate is not for everybody and it’s better you figure that out sooner rather than later. That’s why Rob says don’t spend more than $500 on a class in the first six months, because you may get in and go, “I don’t like this at all.” There are other ways to build wealth. You could build a business without real estate and build wealth that way.What you do in your personal life is going to be different than the way you're doing your business life. It's hard to run both the same. Click To Tweet
We’re going through it. We want to get to know the right set. Here’s the deal. I’ve got the same story. I was down $6,000 and I had the absolute worst thoughts that any human being could have in despair. I’m dead serious about it. It’s a horrible place and I’m still not out of the hole. It’s taken me years. I’m telling people I’ve done it with no money. For sure, I did it. I do it now, but it’s really hard. I used to do coaching and people come to me. I did a little $7,000 coaching program. It wasn’t a lot. I gave them twenty hours of my time. It was cheap. One woman sat down and I said, “Here’s what you’ve got to do. You’re going to make 100 offers every week. You’re going to have to call these 50 agents. You’re going to have to push or you’re going to have to get your MLS. You’re going to have to get your license so you get the accident less and do it yourself.”
She called me up after calling seven agents and said, “They don’t want to work with me.” I’m like, “That is correct. That’s why you have to call 50 of them every week to find one that will.” She’s like, “I don’t want to do that.” Weeks later, she’s posting her party girl stuff in Vegas and I’m like, “Okay.” She called me and said, “Can I get a refund?” I was like, “Absolutely, here’s your money back. This doesn’t work for you.” They think they can get in and do this thing with no money, no time and they’re going to change your life. None of it ever happens.
One of the things that you said that I thought was interesting is at least according to you and me, there were only two really successful real estate investors out there. The rest of us are doing what everybody else did for the last 200 years. One of them happens to be the President of the United States.
If you can go bankrupt multiple times and still own massive amounts of properties around the globe and become President of the United States, I will concede that you are a successful real estate investor.
That’s a high bar. You went through three marriages. Think about it, any normal human would have been destroyed. He’s the President of the United States now. The other guy is Sam Zell. If you’re not one of those two guys, you’re not that special. You’re doing it like everybody else. You’re just like any other guy or gal out there that try to buy some real estate. When people start thinking like, “I’ve cracked the code and if I do this one spreadsheet, this thing.” To go back to Jason’s question, “Would you and Blake put on something about creative deal-making?” I was like, “No, because our businesses are boring.” We buy a house or we buy a small apartment.
We fix it up, we increase the rents, we do short-term rentals or Airbnb, and then we move onto the next one. It’s so boring. Your first couple is exciting. The first dozen of these things are so exciting. You buy them. They’re all torn up. You’re taking pictures before. You’re taking pictures afterward. Your friends are coming over. It’s so cool. You get 100 or 200 of these things and you’re like, “Here we go. It’s a big piece of junk.” Robert and I pulled out to this project. He looks out the window and he goes, “I don’t need to go out and look. I already know what this thing looks like.” I’m like, “I knew what it looked like from the Google Earth.” We got around the corner and you could see how old the siding is and I’m like, “This is 50 to 60 afoot.”
Let’s get into the takeaway because real estate is not my purpose in life. My dirty secret is I don’t like real estate. I’m good at it because I understand the process. I took my lumps and I got kicked in the face so many times. I finally figured out how to do it.
That process doesn’t change because the deal is different. That’s what gets me. It’s like, “Here’s this deal. Let’s change the process.” No, it doesn’t work.
My purpose in life is to teach, to lead and to help others. If I can do that in the real estate world, it’s great. If I could do that in Airbnb, that’s also great. If I could do it outside on other simple stuff, “Where’s the closest restaurant?” These are the things I get up for every day is to teach, to lead and to help others. Those are the three things. Trust me, I spent a whole bunch of money on a crazy weekend and figured these things out in my life, but I figured it out. I like to teach, I like to be a leader and I like to help others. Those three things are what my life is about. It so happens that I’m in real estate. It means nothing.
We had this conversation with Merrill and it hit home when he said, and I know he was in part talking to the crowd and he was also talking to us, “You aren’t really in real estate. You are a marketing and media company and you’re building this.” I had this thought process that real estate is our investments. Our business is helping other businesses with their marketing and media. I had that thought. It’s been running through my mind and I’m like, “The guy is right.” Let me put it this way. If you’re listening to a radio show and you’re like, “Why would I get into something boring?”
For an investment, for something that’s going to earn you a return, that is exactly what you want. Because if it’s boring, that means it’s repeatable. We’re not repainting the Mona Lisa and changing it from oil to watercolors. We’re not making these widgets. You go into a house and it’s, “This type of flooring. It’s this type of granite. It’s this type of cabinet. This is how we pull comps. This is how we know what’s going to rent for it. This is what our Airbnb looks like. We order this Keurig, not this one because this one is better.” It’s the process and where you always make money is in the consistent process.
If you don’t believe that, I highly recommend you sit on a couple of business school classes at the graduate level because that’s all anybody talks about. How do I make this a repeatable process? It’s where Six Sigma comes from. It’s 99.99% of the time. It’s got to look like this. Could you imagine going in for a procedure at a hospital and here’s your surgeon going, “We’re going to do this appendectomy a little bit different. This is going to be a creative deal for you.” That’s not how it works. Go to the OR sometime when it’s knee day and here’s your ortho and there are seven rooms. The surgery tech set it all up and they rip you out like they’re making steaks for lunch.
When we started doing real estate training and we’re doing some sales training. I always thought it was hilarious when type-A salespeople would say things like, “These engineers and scientists, I’m not sure if they will be able to get sales training.” I’m like, “They will be fine, trust me.” They will be better because you tell them to do this and this is the process. They go, “Okay,” and then they go and do it. If you look at real estate investors, if you look at business owners, it’s the reason that people that are process-oriented are very successful. You will see that if you read The Millionaire Next Door. It’s what they talk about in there, teachers and engineers. It’s a process. We do this and then we do this. It’s that simple. Applying that process locally is where things get a little different.
If you need anything from us, it’s (281) 401-9008. We will be talking about our mastermind and a couple of things we have going on. Merrill is going to be online. If you missed it, there’s a chance to get still involved and watch him online. That was an impressive event. It shifted a lot of people and it’s hard to have conversations with real people who are calling themselves real estate investors. They’re falling along Suze Orman and Dave Ramsey. They do not understand that you’ve got to set up an entity that’s got to become fundable. That was a big a-ha for a lot of people. What you do in your personal life is going to be different than the way you’re doing your business life. It’s hard to run both the same.