Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books "Choose Bliss: The Power and Practice of Joy and Contentment" and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
Investing in short-term rental advertising could be a game-changer for your real estate business. In this episode, Moneeka Sawyer sits with Mike Denman, CEO of Better Than Awesome, to discuss the exponential benefits of using social media ads to reach more people and get more bookings for your business. Mike shares his start in real estate and short-term rentals, sharing how he gained massive ROI by investing just a few short dollars in an advertisement. Throughout the years, Mike has observed the evolution of how ads can and should be used in social media. Listen to hear about tips and tricks on setting up a system that leaves you stress-free and income-rich. Stay tuned!
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Watch the episode here
Listen to the podcast here
Excel At Short Term Rental Advertising With Mike Denman – Real Estate For Women
Real Estate Investing For Women
I am excited to welcome to the show, Mike Denman. Mike is an award-winning filmmaker based out of Colorado who has worked in marketing and advertising for video games since 2011 and real estate since 2015. He has been at the forefront of technological advancements in connecting people to content through the internet via apps like Instagram, Facebook, Pinterest, YouTube, and too many others to mention.
He launched STRAdvertising.com in 2022 to help educate real estate investors on the power of advertising. Adapting his real estate advertising tactics to encourage higher amounts of web traffic to short-term rental listings was possible due to his years of iterating on the process. He has been a real estate investor for a couple of years. Mike, how are you?
I’m good. Thank you for having me, Moneeka. I am very honored to be here on your show.
I’m happy to have you. Ladies, you’ve met Mike before. I played a panel that I did with Mike and Laura Powers. That’s how I met Mike. You’ve already read his great advice on real estate investing, and through that conversation, I realized he had so much more to offer you. I wanted to have them on the show. Mike, thank you for joining us again. This is going to be awesome.
I’m very excited. Honestly, after meeting a lot of these other real estate investors, I’m like, “There’s a lot of people out there. They almost know all the things and need a little bit of help and guidance to be able to see some of that success,” especially with a lot of the short-term rental investors that I work with directly. That’s where I’m buying most of the actual level of information flows that are not there. I’m like, “This has got to be something that we help people with.” I’m happy to help people learn how to do that stuff. It’s going to compete with the big boys.
You said it in the panel before but remind my audience, why did you choose short-term rentals?
This is completely not even me choosing it in the first place. My partner, Patricia, she’s an incredible real estate investor. When we first started doing real estate investing, we were renting out a room in our house and even Airbnb-ed our master bedroom to see what that would do. We were even able to get two different people to rent from us at the same time. We are sleeping in kids’ rooms with all those Schell Games moving around.
When Patricia and I started investing in property, we were doing long-term rentals. Here in Colorado, the market was challenging for rents. In 2021, we were assessing what our cashflow was. We were getting $400 a month, maybe getting out of the long-term rentals, charging thousands of dollars in rent even for these places. We are like, “Let’s make an assessment.” I did a bunch of spreadsheets mapped over many years. I was like, “If we sell it, what could we do with equity? Do we buy a bunch of long-term rentals?”
Patricia ended up reading Avery Carl’s book, Short-Term Rental, Long-Term Wealth. She was like, “I’ve got to do these short-term rental things, and this is a whole new way of approaching it,” and I was like, “That sounds great.” I didn’t even think too much about it after that. I was like, “Cool.” We started doing the whole real estate selling and getting the properties done. Through the appreciation game, we had like $250,000 to work with. We were able to 1031 exchange into some short-term rentals.
As Patricia was going through and finding different properties, she found this beach property that was in Texas in Crystal Beach that was put onto the market. Someone had looked at it. Our real estate agent is like, “You guys should check this out.” It was a gorgeous place. It was $925,000 and was on the beach. We are like, “This is crazy amounts of money.” Our own house that we live in is not even that much money. It’s valued at $660,000, but we bought it for $420,000. It was a different time. The appreciation in Colorado has been nice, so it’s been helpful.
For the short-term rental selection process, Patricia did AirDNA to see how well the prospective comparable properties are going to do in terms of how much revenue they bring in through Airbnb through Vrbo. We found this Crystal Beach property. We were like, “This is great.” We ended up getting another property that The Real Estate Robinsons or Tony Robinson was sharing on his Instagram. They had flipped a house in Joshua Tree. Patricia’s like, “Sold,” and then we ended up going and buying that house that they listed and flipped.
We bought the Real Estate Robinson’s second flip in Joshua Tree, and there was a whole bunch of stuff that we wanted to change in that. We wanted to put it in a second bathroom. We ended up launching the first short-term rental in its first place in February of 2022. The Joshua Tree one, which we soft launched in June because we had people working on it. We didn’t want to have that whole thing going.
The reason I stepped in is the whole short-term rental itself was after the first three initial short-term rental bookings, which Airbnb is like, “Twenty percent off and you can get these things,” and more people come to it. They dump about 3,000 to 5,000 people onto your listing when you first launch an Airbnb, so there’s a large exorbitant amount of people that see your listing.
Short Term Rental Advertising: They actually dump about 3,000 to 5,000 people onto your listing when you first launch an Airbnb so that way there’s a large exorbitant amount of people that see your listing and the potential statistical value of that large amount of people is that someone is gonna book those three bookings
The potential statistical value of that large amount of people is that someone is going to book those three bookings. That’s usually the statistic I use with advertising. Out of everyone I show it to, about 10% end up clicking on my links, and out of that 10%, maybe 1% to 2% of those booked save it or they will share it with their family, which I don’t even know about until after they’ve already booked. They are like, “We shared this with our family,” and then they tell me about it. There are all these anecdotal pieces of it.
Patricia came to me and was like, “We need to have bookings. We have these mortgages. What are we going to do?” I was like, “Isn’t this whole new short-term rental thing? I don’t know.” I didn’t know too much about the short-term rental ecosystems or how those even worked on the platforms like Airbnb, Vrbo, and Booking.com. I was like, “I will run some ads. It will be fine.” She’s like, “Don’t tell me you are going to run ads. This is stressful. Aren’t you taking this seriously?” I’m like, “It’s cool. I will run ads. I will spend $100 and take ten days. Let’s see if it’s viability.” I then started getting bookings. I spent $2.43 at one point, and I got a $6,000 booking.
That ROI is pretty good.
That’s pretty cool. Another time, I started running the ads, spent $4 and some change and got a $3,000 booking. I was like, “I do feel that this viability.” Some of them the ads show me that people are not interested in some of the photos I’ve used, and then I can see which photos I need to put up as the front photos. I also use ads as a market research tool for which headlines or titles work to get people to click. I try spreading that information back onto my Airbnb. It’s a cyclical piece of the puzzle. I ended up having this inform this, and then I tested it out here. I throw a bunch of things out to test it. Me, getting into the short-term rental game was because we needed to get more bookings. I was like, “I could do that.”
I have been doing real estate marketing and advertising for a while but I’ve never done short-term rentals. I started talking to other short-term rental people and was like, “People are having a hard time with bookings.” I know exactly how stressful it is not to be able to feel confident that you are going to be able to pay that several thousand dollars mortgage.” If I don’t have money coming in to pay for it, I have to pay it off my own pocket. I don’t think that I want to have that going. I put the effort into dialing in and focusing on how to help short-term rental people get those bookings.
I have been helping people. I’ve gotten over a few dozen different campaigns I have been able to run for folks getting bookings. I do a lot of other assessments of where the people are coming from so they can find where their clientele’s coming from. Through ads, you can shape and create the ways in which people are introduced to your own system. What you offer is different from other people but when you look at it on the Airbnb system where there are all these familiarities, and some of them are super similar.
For example, people who invested in the Smokey Mountains in Tennessee. Some of those cabins look very similar. There’s not a lot of differentiation. When people are scrolling through Airbnb and looking at all this stuff, the hard part is they get analysis paralysis like, “I don’t know which one is better. They all look roughly the same. There are A-frames and all these other cabins.”
What the advertising does is it takes people from other platforms and then it puts them into your listing because they are not even seeing other listings. That’s one thing that is helpful because I’m able to charge more money per night on my listing, so I run ads. Over the summer, the highest was $379 more a night than comparable listings in my area. I’m like, “If I’m bringing people to this and those few out of 10% like my place and the 1% or 2% book, I’m getting my rates. If people don’t book with me and are looking around in that local area, then they are booking with my neighbors.” I have an indirect benefit to the area that I’m advertising to because the person to who I showed the ad to didn’t meet my criteria. They still are looking now for a vacation when they hadn’t even thought about vacation beforehand.
It all started with this whole need, and then it ended up being something. I was like, “This is a viable thing.” That’s when I started the business. I was like, “This is going to be something that I can have, and I help.” It’s not even my main thing but now I’m starting to do it more and more. I feel like it’s more fun and exciting because I like helping people, especially helping them make money. That the blissful side of things is when you have those systems in place, and they are working and doing what they are supposed to do so that way, you are not stressed out. Watching Patricia go through some of the stressful moments and I’m all casual, “No worries.”
Short Term Rental Advertising: When you have those systems in place and working, they’re just doing what they’re supposed to do so that you’re not stressed out.
That probably drove her crazy.
I felt bad. I was like, “I’m not trying to be all like hunky dory about it. I will run the ad. It’s what I do.”
It’s funny that you talk about putting in the systems to make it less stressful. I’ve said on this show before that systems are the key to bliss because when you have a system done or processes, you know that things are going to be handled. You don’t have to reinvent the wheel. You can hand it off to a VA if you so choose or to somebody else to help you. You also have a pretty good idea of what your results are going to be like. Certainly, you have to revisit the systems and results like things that are constantly changing and expanding but I have said many times that it’s a system and process that creates the bliss because it reduces your stress exponentially.
It does. When we feel the stress of paying our own mortgages sometimes, and even though we work and have jobs, we have the money, and it goes in, that’s the system. The job is the system to then facilitate the housing. All these things are already built into our own ecosystems. On the investing side, it is how you make investing work for you. You listen to the experts and take a lot of information in but those systems are all in the same thing.
You build out your Airbnb, Vrbo, and Booking.com. You then have an OwnerREz that connects to those that create one calendar so that way everyone is not double-booking a calendar piece. Having a double-book weekend is expensive, and it can take away your Superhost status if you end up canceling things. There are challenges that you want to avoid. Those systems create the ease of operating that way so you can do far less and enjoy life more. You then can see, “I’m getting far more than I would through my stocks.” It’s different.
Real estate is the number one way to increase wealth in America. If you want to increase it and succeed, you got to do something. I always think back to the Pareto Principle, the 80/20 Rule. Eighty percent of businesses fail in the first two years. These investment properties, when you look at them, they are little mini businesses. If you don’t treat them like a business, you are not going to see their success of it. It’s going to be stressful, and you are going to be one of that 80% that fail. The statistic I saw from BiggerPockets was that over 60% of Airbnb owners sell their Airbnbs within the first year of doing business or something like that.
That’s an interesting statistic.
Patricia will say this all the time, “It’s not for everybody,” and I can account for that. It is a job, and it is being hospitable. If you are not good with people and hire someone that is good with people. You have to have that system or whatever your faults are and ailments in terms of dealing with the hospitality side of things as we go to town on towels. We have more towels than reasonably possible in our short-term rentals. We’ve gotten many people who are like, “I want to leave a ten-star review because of the number of towels you guys had.
At this moment, we are like, “When we go into this short-term rental stuff, how do we want our vacations to appear, and how blissful would it be if this was available for other people?” That’s why we stock that many towels. With hair and all those things, sometimes you need multiple towels to do stuff. If you’ve got kids, you get all these wranglings. There’s a whole bunch of stuff. You can’t have like one towel to use. You must think about how you want to be perceived, especially as a business owner and a hospitality provider.
What makes your property special? That’s all marketing. I used to run Airbnb too out of one of my bedrooms. We used to rent a couple of bedrooms. That was one of the things that we did. People loved the towels. We always had fun towels. I had Polka Dots or Paisleys, and they were plush. People love the towels. It was the weirdest thing. I was like, “What is this?” They are like, “Where did you get these?” It’s so funny. You said you do Airbnb and Vrbo, and what was the calendaring system that you used?
It’s called OwnerRez.com. It’s Owner Reservation. That is our main connecting piece. It does the automation between the different short-term rental platforms. For pricing, calendar, availability, images, text, and all of those elements, you can change on those individual platforms but it takes time and effort. You can even pay OwnerRez for $500 or something like that, and they set all the stuff up for you.
There are emails that come out of their automated emails when you have a lease agreement you need to be signed and all these different things. There are cool features in that. If you pay a little bit more monthly, there’s a direct booking site, so you don’t have to pay half a separate website built out there. For direct booking sites, it’s a formidable experience doing it.
You are literally becoming the hotel. That’s all the liability and scariness of that. There are things that you have to pay attention to for direct booking, which is why I’m like, “I send most of my traffic to Airbnb now.” When I send traffic to Airbnb, I’m inorganically increasing the traffic flow to that listing view page. By increasing the views of that, I’m telling Airbnb’s search algorithm, “This is a popular property.”
It will put it on the top.
It raises in rank and makes you successful in terms of both organic searches as well as your ad searches. That way, the ads are influencing the ability of Airbnb to see you as a viable property. Since Airbnb changed things in the summer of 2022, it’s crucial to have some ways in which you can stand out on the Airbnb platform. What Airbnb wants now is unique places with very strange experiences. They want to promote all those things more so than the run-of-the-mill places that are perfectly reasonable to vacation in. Each of the systems is a different ecosystem. There’s a whole different Oprah episode that we can go into those things.
I don’t think that the Vrbo clientele leaves reviews quickly enough, so I don’t even push my Vrbo. Although, we get 30% of our bookings from Vrbo for the Crystal Beach property. I don’t get any of those bookings from my Joshua Tree property. There’s a difference in the type of person who’s using those things. Airbnb is almost like Kleenex in terms of brand recognition for the short-term rental game itself.
As investors, when we are going through it, we want to be in all of them. Whatever one you are on, you are going to have an opportunity for people to find you. In the Venn Diagram of the internet, there are all these people that go to certain sites or all of them. That’s a way in which you can stand out by standing up for all of them.
I want to start digging into the actual advertising piece. First of all, thank you for the algorithm update because I was not aware of that. As with everything else, whether it’s Amazon, Google, Facebook or whatever, everybody is updating their algorithms, and they have a definite slant on how things are going. I wasn’t aware of that update. Thank you so much for that.
It was a massive one. They call it the summer release. It was detrimental. I couldn’t even find my property listed on Airbnb after that. For their beachfront or ocean view category, they didn’t show my property at all. There are all these other things about those systems not working to their full effect of what they should do when they make those changes. Doing ads is what I have been succeeding at. I don’t even need to worry about being on that platform as much. The location is now findable but in those moments, it’s a little freaky when my name just dropped off.
I’ve had that happen too. I was a Superhost, and my property was always in the top three, and then suddenly, it disappeared. I was like, “What happened here?” It was interesting. Anyway, so let’s talk about advertising since that’s your genius. Talk to us about creating a digital presence to compete effectively. You’ve talked a little bit about it already on a high level but give us a little bit more on what to do.
I published a little book, and it’s very tiny and thin. It’s only 37 pages. I made a quick little guide on how to excel at short-term rental advertising. When you think about the digital presence and what people succeed at like “Where are people hanging out online?” We have a few different areas where people are online. Meta has Facebook and Instagram, and some other different websites that are all in that circle and sphere.
You have other ones like Pinterest, YouTube, and TikTok. TikTok is a great landscape because many people are on TikTok now. It’s excessive amounts of people. I have a friend doing syndication stuff as well. He’s going to start doing content on TikTok, teaching people about how to do syndications, where you all pull money in, and you can buy a property together. There are a lot of different avenues with that. They are also being used for NFTs, the Non-Fungible Tokens. Those are other areas that I have been helping people with as well. Not just with the advertising.
For the ad systems, you can operate on ecosystems like Meta, which is what I like to use for a lot of the short-term rental or real estate investing stuff, in general. With Meta Ads, I can literally create an advertisement that has an image or video. I usually choose up to 10 images or videos for 1 ad campaign. I then have five different pieces of text. I like using people’s reviews.
Whenever someone stays at your property, if you have a short-term rental or an investment property that is like commercial property or something else, you have some statement of actual patron or a customer of that and they are like, “I love this. This is amazing. I love staying here.” People trust what other people are saying more than what we are telling them as the actual owners. It’s not necessarily like, “Come visit my thing. It’s the best,” but it’s like, “See what people are saying about this,” and then you make your decision based on that. That helps people make those eccentric.
You run ads with a bunch of different combinations of text and little calls to action and create those little moments to use that digital presence to then tell people about it. Oftentimes people will say, “You have to be active on social media and all these things.” I’m like, “I don’t have a lot of time, and I’m not very active on some things.” I know the viability of being active on a social media platform like Facebook if I have a business page. If I post a bunch of things there every single day, I can’t even promise I would get much action or activity out of any of those posts.
People are oftentimes like, “I don’t see the viability of it,” but if you run ads, your posts are getting to people instead of them having to find it through all the different things. Facebook from 2018 is when they made the change. The first thing you see is events in groups. The things your friends are doing, the groups that you are in, and people are talking about stuff that you care about. You then see your friends’ stuff, and then below, all the way at the bottom, you see business pages.
Those business pages, that’s the viable thing that used to be what worked and tell people about stuff. I now post a few things on there and treat it like a digital billboard. Ultimately, I have enough information and photos on that Facebook Meta page where people then say, “This is what this is.” If it’s a short-term rental, they see where it is, the photos of it, some of the things to do in the area, and also the link to go book.
I use ads to tell people about the booking page. I literally don’t point them to the Facebook page. I tell them about the link. They see the Facebook page in the ad so that they can click on it. This is funny because I use a lot of different KPIs or Key Performance Indicators to see whether or not these ads are working. From the Facebook side of it, it’s the number of clicks I have on the ad is one thing but then the number of shares, interactions, responses, reactions, loves, hearts, all those little things, engagement with people talking about it, commenting, telling their friends, and tagging them in it. There’s all this activity that happens, and it’s lovely.
When people save the posts, I’m like, “This is golden,” because someone saved it. They might not be a client of mine now but they are probably going to book at some point. If they are aware of it and since they clicked on my ad, I can target the people who’ve clicked on my ads. I can say, “Remember the ad you clicked on. You should totally take a vacation. You deserve it. You are amazing.”
When you have those moments, these ads are doing all the posts for you. You could set up an ad campaign. All the different combinations of modular like texts, images, video, and all those things Facebook’s algorithm will put together for you. It will find the most performing, the most clickable, the most liked, the most effective, and a combination of all those things. With that, you can see a lot of cool data. You can start seeing, “What are people interested in?”
Short Term Rental Advertising: These ads are just really doing all the posts for you.
When I was starting with my Crystal Beach place, I was like, “This is a luxury place. It’s got vaulted ceilings. It’s great. This is better than anything I’ve ever lived in myself.” When I started using luxury or things I would normally do for luxury real estate, people weren’t clicking on it. When I used family-friendly or fun for the whole family, people clicked on those things in droves. I was like, “I see who my clients are.” They are people who have kids and families that are bringing people together. Ultimately, those little friendship circles are also a part of that too so it’s not families.
Those are popular keywords that I then put into my listing titles. That way, I’m like, “This triggers more people to click on this. If I update my listing, it’s going to then match what my ad said.” The ads inform what I put onto my listing itself, and the top photos go to the forefront of those listings. On my Instagram page we don’t have much activity in terms of us posting on some of our Instagram pages.
Our Joshua Tree property, that LA, San Diego, and Las Vegas crowd who usually rents in Joshua Tree use Instagram more. That’s something that we organically post on Instagram for those ecosystems to work a little bit more. I don’t see the viability of it quite yet but it’s nice to have some of those things working out.
Those markets for the Joshua Tree property like Instagram. How did you figure that out as opposed to Facebook?
When Facebook runs any of the ads, it’s going to send them out to Instagram and Facebook. It has all of those arranged. With Instagram, I saw the clicks were far less. I spent money straight up on Instagram $100, to see the viability of it. Out of that $100 spent, I didn’t get any results in terms of bookings. That made me feel that it wasn’t necessarily a viable source for new bookings from those ads. That’s something that might change. There’s an ebb and flow to things.
I’ve even started doing ads on Pinterest, and I can talk about that a little later but there are ways in which you can reach the audience that you are trying to reach. There are mechanisms that they are paying attention to online. You even mentioned TikTok. There are a lot of people on TikTok but I’m not necessarily sure how many people are going to be booking vacation rentals or even doing real estate investing. It’s the demographic of who is booking. When they are clicking on your ads, those things all come into factor.
I put a lot of effort into Facebook for a while, the beginning parts of my business. It’s not for real estate but more for real estate investing for women and bringing women together and the community. What’s interesting is that the level of effort that it took to try to get things moving was so massive. It’s not my expertise, and it became such a chore for me. It was not fun. I was spending too much time there, as you said. We are all busy.
You put in time and energy, and you want to see some results if you are going to continue. I found that with Facebook, I was not getting the results that were helping my ladies. On Instagram, I spent a lot of time on Instagram but I don’t post a lot anymore because, for a huge amount of time, I wasn’t getting any following or whatever. I’m a little bit of a social media fail, which I’m okay with. I decided it’s okay to be a social media fail. It’s interesting to me that you are talking so much about ads, and you don’t have to be active on social media and still, doing the ads is effective.
You are not a failure on this stuff. All of the efforts that you put in, even though you don’t see the value, still have some value to someone out there. When those people find you and go back through your past posts, they are like, “I get a sense of this,” as more of a rapport with you because you do that stuff. That heavy lifting up front is viable.
For ads, you can set this up. Facebook figures it out. It’s probably going to deliver over 3,500 different ads. When you think about the thousands of advertisements that are going out there and people being shown based on their interests and demographic area, sometimes I will target one city or different cities. I rarely target the whole United States.
I will go in and find specific areas where there are certain investors, people looking for certain properties or different things of that nature. I will find where the guests are based on a large blanket area and set the ads. I then see where the clicks are coming from as specific cities. I drill in and only advertise to those cities. I try to make it that way.
I’m learning stuff with the ads. Even with Facebook itself, if you have some posts that have bigger interests or video posts, there are some things you can test out on social media without running them as ads. I like to run them as ads to test them out before I put them on social media. You can do both but it informs me of the other.
One of the best things now is that the videos are portrait-size. Those videos are more converting for Facebook’s own statistical analysis of how people are interacting with content. I usually talk to Facebook’s ad support team a couple of times a week. This summer, they have been promoting Reels. The most effective ads now are the fifteen-second ads that go between Reels. They are fifteen-second ads like a video, portrait size with your phone and film it is saying what you do and where you are at. Even if you are an investor trying to get other investors to pull money for a syndicate, there are different mechanisms that you can do to tell people about what you are doing.
That’s the number one thing about real estate stuff. No matter what real estate thing you are doing, you talk about it. If you talk about it, you don’t know who else might be interested in it, who else might be doing something in that or who else might be interested in investing money with you that you can use their money to do things with.
Short Term Rental Advertising: That’s the number one thing about real estate stuff. No matter what real estate thing you’re doing, you talk about it. You don’t know who else might be interested in it or might be doing something in that, or might be interested in just investing money with you that you can use to do things with.
There are all these different options that are viable ways of making money that you don’t even have to be doing all the hard work. For those people who are doing that syndication thing, there are beautiful opportunities. For the people doing short-term rental stuff, there are amazing opportunities for people to be reminded of taking vacations. You are like, “I provide this luxury experience for people who have vacations.” There are all these people doing amazing things with their own properties. They have galactic game rooms, the Patrick Swayze room down in the Palm Springs area. He’s with STR Nation.
There are all these different companies that are building themselves out by designing the different experiences of what makes a cool vacation. Now that we are all thinking about it, we spent some pandemic times not going anywhere and going to some of these places, and the viability of some of the short-term rentals went up during that pandemic because a lot of hotels closed but now hotels have been doing smear campaigns. They are like anti-Airbnb and other short-term rentals. They are like, “They are spooky, and you have to take out the garbage yourself and all these things.” They will say the worst-case scenarios.
I’ve seen some people who have minimum night stays that have not seen much results from advertising. If your property is not viable for whatever variable the person needs to have like calendar availability, location or the number of beds you have. I can’t guarantee that there will be bookings with any of the ads I do but we can try and find out. Also, the added benefit of not having to run your own social media makes it easier, and you have something running.
In advertising, I spend $10 a day for each of my properties. It’s $300 a month for a property. If I run people’s ads, I usually charge them 1-to-1 based on what that is usually of the ad spent. For the most part, I’ve spent $700 a month on advertising. I’m like, “I got X amount of money in bookings by telling more people about it.” It’s a justifiable cost for me. When I think about the time I save by not having to post a bunch to get people to even pay attention to it, I had all that time to spend with my three-year-old daughter, which is far more important for me to ensure that I’m paying attention to her than worrying about posting on my Instagram and Facebook pages.
You said something that I want to go back to. It’s the vertical video. Are people posting them in their Reels and lives or are they posting them in their groups? How are they doing that?
When they post them live, it goes onto stories. That’s a viable solution for those. When they post them, even as a story on Facebook or Instagram, it does different things. You can take the same video and post it to Facebook Stories, Instagram Stories, TikTok, and YouTube. There are all these different places you can put that same video. That same video could act as a trend rolling. I like YouTube for a lot of this stuff as well.
I don’t know the viability of what people are booking for on YouTube but if you are looking for other real estate people or doing investing, there is a lot of information on YouTube. They are making YouTube Shorts, which are essentially the same thing as the Stories on Facebook or Instagram. Snapchat is where that all originated from but that’s not a viable ecosystem for this. This is good for video games.
TikTok is where everyone is now. Even if, as investors, they are like, “I’m going to try that out.” TikTok has an advertising opportunity. You create an ad account, pay them per view, and you have to submit a whole video. It’s usually a pretty simple process but I have been doing ads for so long online. It’s not easy for a lot of people. Even setting up Facebook ads takes some effort to get some things going because it is a tricky regulated system. Sometimes you have to submit your business information to be verified. That way, you can advertise. Facebook is getting touchy about things, especially if it’s around any political season about ad accounts in general and what you are advertising. It’s crucial.
Is a Story the same as a Reel?
No, but it goes in the same spot. A Reel is a minute or longer video that lives in the Stories environment. Story environments like Facebook Stories and even Instagram separated out Reels into their own section now. It’s still being put into the regular post areas. Everything with these platforms changes. It always adapts to new things. If someone has a cool new product idea, they are like, “Let’s do that everywhere.”
There was a whole Clubhouse thing that came out while we were all at home during the pandemic. Everyone is talking and having voice chats. All of the platforms started having that thing as well. The hot thing now is Reels. If it’s a minute-long version of a video that’s shot in that 9X16 format, that is all that you need to do. If you are not doing those Reels, you can post a little bit.
If you don’t want to post those Reels and have it done through ads, you make the ad that’s a 9X16 video and then submit it up to be included as a Reel, and then all of those will show up. This leaves you not having to worry about doing it and not doing a lot of them. You can have one doing most of the work for you. It takes a lot of that stress of having to create a lot of content.
My partner, Patricia, was getting stressed. She’s like, “I have to make content and all this stuff.” I was like, “It’s okay. Make 1 or 2 that you like, maybe even 5.” I’m a big fan of testing. I like to spaghetti test everything. If I’m going to throw a bunch of stuff at a wall, then I’m going to see, “The 2 or 3 things worked well, and I’m going to keep doing those things.”
If you iterate on the process and make it even better each time, I can’t guarantee that it will always be the same thing that works well. After people work with me, I’ve got at least a good idea that I can flip a switch on, and then all of a sudden, they have ads running and a bunch of traffic going to their listing. If the listing has things on it that make people want to book it, then great but if they have anything on it barely, they have low information, low images, and bad images, we can find out pretty quickly if that’s a viable listing.
I’ve worked with a couple of guys over the course of running ads. They determined that it was the property they needed to sell. They were able to find out quickly instead of having months and months of mortgage costs and ultimately draining some of the reserves. They can find out, “This is not a viable product,” or maybe they need to do a different type of investing. Maybe it’s long-term or midterm.
I love the midterm investing stuff, especially because of the traveling nurse mentality. There are many resources that those people have that we, as investors, provide. I know several investors that only invest within 500 feet to 1,000 feet away from hospital access. They have patients as well as nurses who do traveling nurse stuff and stay for more than 30 to whatever timeframe. It’s usually pretty decent money for that thing. It’s not some of the short-term rental money but you can get three times the actual cost of the mortgage and rent.
As an investor, you must figure out, “Which one of these areas you want to do it in.” I’m still a big fan of long-term rentals. We have 4 doors in Iowa, and they are 2 duplexes. Patricia went out to Iowa to close on one of the properties. I had a buddy who moved out there. She’s like, “You got to invest in Dubuque, Iowa.” We are like, “Dubuque, Iowa. That’s weird.”
We have two of these like little duplexes that rent $1,500 a month without having to do much. That’s just cashflow. When we started our journey, we had $400 a month cashflow. We are like, “This is tricky.” We are able to get a second job’s income on a monthly basis coming through moving some of that money to long-term rental. That ecosystem is a little bit different, and I don’t do advertising too much for that. We only do ads when we are placing people in there, which is 9 to 12 months at the time. It’s not too crazy.
It could go on forever. We didn’t get to do our three rapid-fire questions or anything. I always have to make that judgment call on myself about, “Do we move this along or do we go with the flow?” In your case, what I’m finding is there’s so much knowledge in your head, and you speak in this stream of consciousness, so we get all these jewels that came out. Those were off-topic but amazing. Thank you for that. Ladies, I hope that that was okay with you. Every time I would like to say, “Let’s get to this next question,” then he would say something, and I was like, “What?” and I would lean in. I hope you ladies had that same experience.
Before we sign off, we are going to talk about Pinterest. Mike has had a lot of experience as he’s talked with Facebook, YouTube, and Instagram but he started working on Pinterest. I wanted him to share with you that experience because we’ve never had anybody talk about that on this show. We are going to be doing that in EXTRA. Stay tuned for that. Mike, could you tell the ladies how they can reach you?
You can reach me at STRAdvertising.com. I’m pretty active on Facebook. I have a Facebook group, Short Term Rental Marketing Advice (Powered by BTA) Better Than Awesome is my main umbrella company. I’m happy to provide help. I have a lot of free resources. In fact, I normally charge for this but I’m going to give your audience a copy of my eBook on how to excel in short-term rental advertising. It’s a quick and dirty little walkthrough on how to do this with my processes, how to iterate on things, and a lot of my methodology. I talk about my own experience of getting into real estate stuff but it’s very short. It’s 37 pages, and there are lots of pictures.
Essentially, it’s a quick, easy start guide to get you into it. I have a little extra bonus in there. It’s a digital presence quick start guide that tells people, “Once you are over quick and dirty. This is the platforms you should get onto. This is how the ad is set up. This is a demographic you want to look at,” but I will be able to send that to everyone that has an eBook offer. We will make sure we have a link for you guys.
That’s STRAdvertising.com/moneeka. Thank you so much for giving my ladies that book. I know it’s out there, and it’s normally $9.99. It’s so sweet that you are giving it to my ladies. Thank you for that, Mike.
You are incredible, and I love what you are doing here. My mom raised me right. I’m trying to be a good ally. One of the most deserving populaces to be able to have better information and compete at the higher levels, as I said earlier, even the big boys club, that nomenclature is totally inappropriate. Let’s make that into something where it’s the big players club where it is something that people don’t have an association of gender with it. It’s very important that, as a cis White man, I use whatever privilege I can to impart some benefit to people who are not in the weird privileged state that I am by societal inheritance.
I don’t do much to earn some of the things that people inherently give me as I walk into the room but what I do have and gained from that I can impart with some pretty solid wisdom that’s actionable and can help make money. I genuinely feel pretty confident. Everyone that I’ve worked with teaches how to do this or even uses the book to do it. They are all very pleased with how short and concise it is, and it’s not a bunch of BS.
Thirty-seven pages are awesome. I wrote a 37-page book also. You have to get good at making your point. It’s hard but it’s good for the reader.
I started making TV commercials as one of my first video jobs. That highly complex thing into a short-distilled conversation piece is what I’ve specialized in.
Thank you so much for all that you’ve offered at this portion of the show. I can’t wait to talk in EXTRA about Pinterest.
Thank you so much for having me again. I appreciate everyone. If you guys have questions, feel free to reach out. My group has a lot of great people, and I have been helping with as well. They all have a good insight into their own stuff. I like information sharing, so let’s get everyone in there. I have been banned from other groups on Facebook for sharing free information. There’s a thing out there, and people are not interested in what I’m doing because it’s working and competing with what they have. That’s unfortunate but everyone deserves to compete at some of those higher levels without having too much.
Thank you. Ladies, stay tuned. We’ve got more. We are going to be talking about Pinterest in EXTRA, so if you are subscribed, stay tuned. If you are not but would like to be, go to RealEstateInvestingForWomenEXTRA.com, and you can subscribe there. For those of you that are leaving us now, thank you so much for spending this time with Mike and I. I look forward to seeing you next time. Until then, remember, goals without action are just dreams. Get out there, take action, and create the life your heart deeply desires. I will see you soon.
Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
Self-directed IRAs have grown in popularity over recent years. They offer more flexibility, including the ability to use your IRA funds to invest in things other than stocks and bonds. However, they are not as common as 401Ks, and there’s yet a lot to understand about them. That’s why in this episode, Kaaren Hall shares her expertise in self-directed IRAs and how women like her can thrive in real estate investment. Kaaren is a Self-Directed IRA Expert and CEO at uDirect IRA Services and OCREIA. Tune in now and learn how to start self-directed IRAs!
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Watch the episode here
Listen to the podcast here
Self-Directed IRA: How To Keep Your Retirement Funds Secure And Invest In Anything You Want With Kaaren Hall
Real Estate Investing For Women
I am excited to welcome back to the show for the third time, Kaaren Hall. For those of you who have not checked out her shows before, let me give you a reminder of her bio. This is what we have. Despite being in the midst of a recession and mortgage market collapse, Kaaren Hall founded and made a resounding success of uDirect IRA Services. She discovered a strategic way to put her twenty-plus years in mortgage banking, real estate, and property management to use.
The solution was an untapped market for both her skills and for investors, which is self-directed IRAs. Through uDirect IRA, she has guided tens of thousands of Americans through the process of diversifying their investments using self-directed IRAs with $1 billion plus under management. Learn more about Kaaren and its thriving company at UDirectIRA.com. Kaaren, you are very distracting.
I’m so sorry. You have to have fun because it’s serious business. We like to keep it light.
How are you?
I’m doing super well. I saw you. That was lovely. All is well.
Kaaren is incredibly generous with her time in her business as well as in her personal life. She has been putting together these boss lady retreats. For some of us ladies that don’t have the time to do stuff, she puts it all together. We show up and have this luxurious time with all these powerful women. We don’t talk business. We are not there to talk shop. We hang out and get to know each other’s hearts. It has been so much fun to hang out with Kaaren and some of the other ladies that were there. She also invited me to this formal event where I got to dress up in a beautiful gown. Who gets to do that? It was so much Fun.
How many gowns do you have? People don’t do gowns but it was so much fun.
There was so much eye can be there with all the men in tuxedos. It was so good. We had a great time. That was not too long ago. It’s so nice to connect with you again.
I’m happy we can be talking because the IRAs have always been a hot thing. There is some stuff on the griddle, if you will, coming up. It’s a good time to talk about it.
Why don’t you start with that? That’s a great lead-in.
When you read my bio, and you talked about an untapped market in 2009, it was an untapped market. Many people had no idea what a self-directed IRA was. These things were created. The IRA, in general, was created in 1975. It has been around for so long. It’s tried and true. In 2009, all of a sudden, it was recession time. There was money. You can’t get a loan from a bank, especially for real estate investing, because it was such a tough time. That’s when I opened uDirect. People discovered the self-directed IRA as they know it. That’s when they discovered it because they could tap into other people’s IRAs to raise money for their deals.
I want to interject one thing here that I’ve done. Every single time you talk about this, I want to put it in here, too. A lot of people say, “I’ve got a self-directed IRA,” because they’ve got it with Fidelity, Vanguard or whatever. “They let me direct as much as I want.” They let you direct on certain vehicles, usually mutual funds. They will let you do some REITs if you are interested in real estate. They will mostly stock.
They are stock market-type vehicles. They won’t let you invest, for instance, in real estate. What Kaaren is talking about is a true self-directed IRA because you can invest in other things that are not stock-based. That’s the big differentiating factor between a true self-directed IRA and a, “I’ve got a self-directed IRA in my 401(k).”
It is self-directed. IRAs are IRAs. An IRA is like a bucket that holds assets. What makes it self-directed is the asset you choose. When you talk to your financial advisor, they are licensed. You know this. You are licensed. If you are licensed to sell market-correlated assets, that’s it. You can advise on that but you can’t advise outside of the stock market. We are all about the alternative asset. What makes it self-directed is that you are choosing the asset. We are not telling you what to invest in. We don’t offer anything for sale. It’s truly self-directed.
Self-Directed IRA: IRA is like a bucket that holds assets. What makes it self-directed is the asset you choose.
Back to the recession, it was great to see and witness the grassroots level of capital raise. There was a huge need for capital and projects. There were so many houses that needed to be rehabbed and fixed. One of the solutions was IRAs. IRAs were a grassroots person-to-person way to rebuild our economy. In retirement accounts altogether, there is nearly $40 trillion in retirement. That’s an enormous amount.
Let’s put that money to work, making everything better. My IRA loans your business some money. Your business pays my IRA back the loan. My IRA purchases a house. The renters pay the rent to my IRA. There are private placements and precious metals. There are so many different kinds of assets. That’s when it came to the forefront of most people’s minds.
Self-directing has been around for a long time. As you and I were chatting about off-camera, not a lot has changed in the years since I have been in the industry. A few things have. A couple of Case Laws have passed, drawing lines because the IRS doesn’t always make things clear. With the IRs, it’s always, “It depends.” We’ve received, in many years, a skosh of clarity from them but hardly any. It’s largely unchanged.
We are looking at a couple of possible changes again on that griddle of IRAs. One of them, and this has got bipartisan support called the Secure Act 2.0. The biggest thing that we will see coming out of this Secure Act 2.0 is an increase in the RMDA or Required Minimum Distribution Age. Why do you care? It’s not a big deal. This is why you care. If you were at a level where you needed to take money out of your IRA, that’s fine.
Self-Directed IRA: The biggest thing we’ll see coming out of this Secure Act 2.0 is an increase in the RMD, a required minimum distribution age.
If you were at a level where, “I’m doing good. I want to leave my money in my retirement account, so it could continue to grow because I don’t need it now,” it was 70 and a half, and then Secure Act 2.0 passed, and it became 72. It’s going to go to 75. Your money can keep continuing to grow all those years before you are required to take it out. Isn’t that great?
Yeah. This is the key. We get a little bit confused about it but people don’t realize that in IRAs, there is a required age. If you are 70 and still working, you don’t need all that money. You are still required to take out a portion at 72. I have known many people who are like, “I don’t want to take it out yet. I’m not ready. I want it to keep growing.” Yay on them at 72 that they are like, “I’m still going strong,” but the government didn’t give them any option. It sounds like there’s a possibility of a new option, which I love. That means you can take it out younger than 70. Is it 59? What is the lowest?
59 and a half is when you can take it out without penalty.
That’s a good start if you want to.
The required minimum distribution is you have to. That brings up another good point about the Secure Act 2.0. If you forget your RMD and don’t take it, the penalty is 50% of what that RMD would have been. It’s so big. It’s bad. What the 2.0 is looking to do, and it’s in writing. We will see how it comes out. Secure Act 2.0 would lessen that penalty to probably 25%. That’s what they are talking about. I know RMDs are probably far off for a lot of people but this is important, maybe for your parents or your other family members that have to take this money out. It’s good to know that things are going to become more lenient in that regard. I’m happy about that.
When you are deciding where to put your savings money or you are investing money away, those are things that you are going to consider. If I want full liquidity and full control, I may not want to put it in an IRA of any sort. IRAs have limits on how much you can put in and all of that stuff too. As you are making your financial plan for your future, some of it you are planning for retirement, for cashflow, for now, for vacations, and for life happening. Which portion do you continue to put into your IRA, and how do you decide to utilize that? How much are you going to prioritize? The more flexibility we have on that, the more likely we are to prioritize that as a possibility. Wouldn’t you agree?
Completely. What you said brought up a point. You are using that money. When you are investing using an IRA, why do you do it? Why would you use an IRA? It’s because of its tax-protected status. If it’s like a SEP, a traditional IRA or a 401(k), chances are it is tax-deferred. You are not paying tax until you take the money out. If it’s a Roth, it’s tax-free, assuming you need two qualifying conditions like being 59 and a half and having a Roth for five years.
It’s the tax treatment. That’s the reason you use an IRA to invest. You are not going to pay the tax in a typical IRA, the traditional or SEP IRA, for example, until you take the money out. You can make a huge killing. Maybe you bought a building, and 1 year or 10 years later, you sell it. Maybe you made $100,000. We don’t need $100,000. You need $10,000. You want to take up $10,000, so you don’t have to pay tax on that whole cashflow experience. It’s the amount that you need. You pay the tax as you direct per diem.
When you are putting your financial plan together, it gives you more control. For me, I’m all about choice. I want control over my money. That’s what it’s all about for me. Choice in my money gives me a choice in life.
Plus, when you contribute, unless you make too much and hit a certain amount, you can also perhaps take a tax deduction for your contribution. This 2022 or coming up in 2023, the contribution limits went up because we see inflation. We saw the biggest increase. If you have a solo 401(k) in 2022, the cap is either 25% of your income or $61,000, the lesser of. In 2022, the contribution limit was a lesser of 25% of your income or $61,000. You can make that 2022 contribution all the way until your tax filing deadline. There’s an end to that but you can do that and make a prior year contribution.
For 2023, here’s where the contribution limits had a very surprising increase. It went up $5,000, which is very unusual in this arena. It’s 25% of your income or $66,000, the lesser of. If you have a solo 401(k), that is a huge advantage to you to be able to contribute $5,000 more and, hopefully, most likely get a tax break on that.
I know a lot of people reading do not remember what a solo 401(k) is. Could you define that really quickly?
Sure. We know what a 401(k) is at work. It’s a savings plan. Unlike an IRA, this is a 401(k). It’s a different animal. It’s the same purpose but a different animal. An IRA is one thing like a SEP, which is a Simplified Employee Pension. An IRA is one thing but the solo 401(k) is two things. It’s an employer portion and an employee portion. It’s two buckets.
If you are self-employed with no full-time employees in any of the companies that you own, then you can have a solo 401(k). You qualify for it, and you can contribute more. It has two buckets. Those are the employer and the employee bucket or we call it the plan and the participant. In the participant portion, which is the smaller portion, that can be all Roth. That’s one of the great things about the solo 401(k).
Another great thing about a solo 401(k), if you qualify for it, is that you can take out a plan loan. You can borrow from your solo 401(k) for your personal use. That is maybe to buy a personal home, take a vacation, pay for college or whatever. You must pay your 401(k) back over a five-year period, either monthly or quarterly, at a market rate. It’s like a little investment. The loan turns out to be an investment for your plan. You can have that for personal use. It’s huge. You can’t do that in an IRA.
There are other benefits. If you have an IRA and want to invest in real estate, that’s great. Many people do. If you have a solo 401(k) and invest in real estate, that’s also great. If one of these accounts wants to take a loan, it’s a solo 401(k) that is not subject to the UDFI tax for an acquisition loan. We all love the power of leverage. In our personal lives, leverage is yay. In an IRA or 401(k), typically, the proceeds that the account earns because of leverage are subject to this UDFI tax. If it’s for acquisition, then this solo 401(k) has an exemption. That’s another great thing about the solo 401(k).
Tell me about that tax.
We will break off solo 401(k) for a second because it’s a great account if you are self-employed and have no full-time employees. It’s the bomb. There are two times an IRA can be taxed. We use IRAs, 401(k)s, and all these plans to save on tax. It’s not income tax. It’s UDFI and UBIT tax. That is what it is. If you want to jot something down for our readers, it’s IRS.Gov Publication 598. You can go deep there on Pub 598.
We will use simple numbers. Your IRA purchases a house, and it’s $100,000. That’s great. In your IRA, you only had $70,000 to put in, so you borrowed $30,000. Thirty percent of that acquisition cost is leveraged. Your renters pay the $1,000 rent on that $100,000 house. 30% of that $1,000 was earned because of leverage. That 30% that was earned due to leverage is subject to the UDFI tax or Unrelated Debt Financed Income Tax.
We are talking about your IRA owning a house and a renter. Here’s another situation where the UDFI tax comes into play and catches people by surprise. That’s private equity. If your IRA loans money to a private equity capital razor, that’s different. If your IRA has an equity position and ownership position in private equity and that asset sponsor is taking leverage in the deal, then part of the money your IRA earns is because of the leverage the asset sponsor took. You are going to owe UDFI, and you might not know it. That’s one of the things when you do your due diligence on a private placement. Always read it. Always have your attorney review it. Take a look and see whether this asset sponsor is taking on cap or taking on leverage.
Self-Directed IRA: When you do your due diligence on a private placement, always read it and have your attorney review it.
It’s not the end of the world when you file a 990-T, which is the tax form. You get to take a deduction, so maybe there will be no tax at all. You still have to file. Maybe it’s a wash, and it’s not a big deal but you want to know. That’s because if you need to file the 990-T and you don’t, the IRS will come knocking eventually and say, “Why didn’t you file a 990-T?” They are going to know because the asset sponsor is going to issue a K-1 to you. They share that K-1 with the IRS, and the IRS knows, “Red light here. This is what we should expect. We should expect a 990-T because there was income earned because of leverage.” A lot of people don’t know that.
That was an awful lot of good information. It blew up my brain. Can I ask some questions?
Please do.
We have a lot of boss ladies that do syndication. Let’s say, for instance, we invest with one of our ladies. For many of them, their minimum is $50,000. My audience, you know what we are talking about. Let’s say you put $50,000 in a syndication deal, and it’s got a five-year span. Your preferred rate is 7%. Your IRR is supposed to be whatever it is. We get our K-1 every year. Let’s get specific. How does that work? I know you explained it to me but let’s break it down a little bit more, so I can understand what you said. Is that okay? I know you are not a tax consultant. I’m clear about that. What you said was interesting, and I’m afraid I missed something because I’m in that situation.
Some of our friends, I invested with them too but I’ve invested as a note investor like a lender. I don’t have to worry about these taxes because my IRA doesn’t have an equity position. My IRA is the lender. It’s different.
You are not a preferred partner. You are just carrying a note.
That’s correct. I like to think I’m preferred.
There’s something. Your preferred rate is 7%, 9% or 10%, and then they are going to refinance and give you back your capital and then some. You get part of the rent every month, and then eventually, they are going to sell, and you are going to get some of that equity. You then have a gain because you’ve taken depreciation. There’s all this good stuff.
That’s the beauty of making money right there.
That was pretty cool. When you say that you are just carrying a note, is that not the same as what I said?
It is similar but I don’t have an equity state. I’m a lender, not an equity owner.
That’s also interesting. As an equity owner, for instance, like what I’ve got going on, how does that translate? Do you know?
If your IRA is an equity owner and your IRA earns money because of leverage, then it kicks in this UDFI tax. It’s a tax on unrelated income tax. It is related to investing. I don’t quite get that definition because you are investing but that’s what it’s called. It’s the IRS. Go figure. The thing about it is that if your IRA earns capital due to leverage. It’s not money that you contributed. It’s not money you saved. You are not earning a certain percentage of that return because of your savings. You earn that return because of the leverage that the asset sponsor took out. It’s subject to tax. You would talk to your tax advisor, show them the K-1, and have them file a 990-T.
Self-Directed IRA: If your IRA earns capital due to leverage, you’re not earning a certain percentage of that return because of your savings. You earned that return because of the leverage that the asset sponsor took out.
That’s only if it’s invested with an IRA.
With a retirement account. That’s correct. I’m all in the bubble of retirement accounts. That’s all I speak on. It is inside the bubble.
That’s interesting. I didn’t know all that. That’s cool.
It’s a good thing to look for because so many people are caught unaware.
What were some of the other things you were headed towards?
It’s hard to remember but we talked about the Secure Act, what’s happening with RMDs, and the possible changes. When you and I were at this event, we heard economists speaking about what’s on the horizon. Nobody has a crystal ball but it certainly could lead to perhaps lower-priced real estate again. We might see that again. If we do, that might be a good time to acquire real estate again. Buy low, sell high, I don’t think that’s giving investment advice. Everybody knows that. We may have an uptake in people investing in brick and mortar and sticks and bricks real estate again, having tenants, and going through that. Why don’t I talk a little bit about what it’s like to own real estate in an IRA?
Please, that’s what I was going to ask. Tell us how that works.
Do you know how we buy a stock where we go online? That’s what I do anyway. I click and I’m like, “I want this many shares,” and it’s there. There’s no problem. The first is buying a house. Let’s say that’s what we are doing here. You got to go through escrow. You got to do all that title. You can’t get away from that part. Your IRA comes in with the money.
If you need leverage, we talked about the non-recourse loan that your IRA would take to borrow money. We are there. We are at the closing table. The offer has been made in the name of the IRA, either you have leverage or you don’t. Maybe you’ve got two partners buying it together concurrently and are ready to close. That’s great. You then close on real estate.
I want to clarify. Let’s say, for instance, we are talking $50,000 again. You are buying a $200,000 piece of property. You put in the $50,000 from your account but that controls much more. Your 25% controls four times as much in the asset. That’s the way real estate leverage works. There’s a special kind of loan that can be given to an IRA that’s not given to the rest of us. That’s what she was referring to when she said non-recourse loan. Those are the loans that you can get if you’ve only got a certain amount of the value of the property to invest.
It threw me off but that’s true. You’ve got this property, and you are buying it. We could go off on so many rabbit holes but I’m going to stick with it. Your IRA, let’s say, owns 100%. You didn’t use leverage. It bought the building straight out with your savings, whatever building it is. What do you do with it? There are things called prohibited transactions. One of the things is that you cannot offer what’s called “over-contribution of sweat equity.” You don’t want to offer an over-contribution of sweat equity because it’s prohibited.
You’ve got this property in your IRA but what you can’t do is hammer the nails. You can’t do the work yourself because it’s called an over-contribution of sweat equity. It’s a prohibited transaction, which is something you want to avoid. That’s why we always talk to people. We give a free consultation so we can talk to you and say, “Tell us about your deal. We will help you learn how to avoid prohibited transactions, so you are not going to do that.” What you can do is you can still hire third-party vendors. You can select the property, close on it, and do all that without it being sweat equity. You can vet the renters in the property and hire third parties to do the work without it being considered sweat equity.
You are allowed to property-manage. What you cannot do is take any fee from your IRA for anything, including property management for an IRA on property. That’s great because your IRA is there. You’ve got tenants. You’ve done your homework. You’ve got a cashflow going. You can use that cashflow to build your retirement. All expenses must be paid for by the IRA, and all proceeds must go back to the IRA that owns that asset. That’s how that works.
For instance, let’s say you put in all the money from your IRA, and suddenly, you’ve got some maintenance things. A fridge goes out. The sprinkler system breaks. Something happens. All the money from the rent has been going into that IRA, so you’ve got this extra money that you can utilize for these other things that you have to do. It comes up with real estate.
That’s why we ask our account holders to leave a 10% pad in their account because you don’t know what you are going to need. There are the closing costs, the rehab, the property tax or that new refrigerator that you need for your rental. It has to be a rental property. You can’t have any personal use of it. All those expenses have to be paid for by the IRA. You need to leave a pad. Let’s talk about what happens if you don’t have enough money.
Let’s talk about that because that’s what everybody is thinking.
There are a few things you can do. You can write a check and contribute to your account. That’s probably everyone’s first go-to. Your contribution depends upon your age, your income, and your account type. You can then write a check and contribute. Maybe you already made your contribution, so what can you do then? Maybe you’ve got another IRA someplace. You will liquidate that to cash, send the cash over to the self-directed IRA, and make it up.
You could take on a debt partner. That’s somebody to give you a non-recourse loan to your IRA account so that you could then come up with the money to do what you needed to do if you had to. If all else fails, you would need to sell the asset. If you didn’t have enough to cover the expenses, you would need to sell the asset because you can’t pay for those things personally.
When someone gives you a non-recourse loan to make up the difference, are there certain percentage restrictions? Does it have to be another IRA that’s making that loan? Tell me a little bit about what that other loan might do because that’s interesting. I’ve never heard that before. How can you utilize that?
If anybody would like a copy of my list of non-recourse lenders, and it’s not the people I necessarily endorse because it’s as a courtesy but if you want that list, I would be very happy to send it to you. You can reach me at [email protected]. That is my email address. You could also go to UDirectIRA.com. There you go. I will send you the list. It could be an individual. It could be a bank. I don’t know if a bank would make a loan if you are in a hard place but it doesn’t have to be IRA money. It could be somebody else’s personal money.
What it can’t be is a disallowed person. It’s not going to be a lineal ascendant or descendant. That is parents, grandparents, you and your spouse, children, and grandchildren. They are not going to be making this loan. It’s also not going to be a 50/50 business partner. They are disallowed or any fiduciary like your real estate agent or your CPA. That’s somebody who has a fiduciary duty to your calendar and this asset. They would be barred from doing that. You could have a third party make a non-recourse loan to your IRA.
That’s interesting because that gets us out of trouble in a situation like that.
It might be the final straw. That would be my last go-to but it’s available. We are in real estate. We bought the property. It’s the whole lifespan. Let’s talk about the timing of the lifespan of something like this because that’s something people always wonder, “How long will it take?” We know how long real estate takes. Let’s put it there. Real estate is an imperfect world. It’s always, “I’m sorry, but.” It can also have a glorious outcome. In some way, there is going to be a train wreck at some point along the way because it’s a house.
It happens. I don’t like to call it a train wreck. There are challenges and tears.
Challenges and opportunities, that’s what it’s. It’s to say that you are going to have a pitfall, so you want to know what to expect. First, you open an account. That’s the first thing. How long does it take? It may be a day. You fill out a form, give us a setup fee and your ID, and there you go. You’ve got an account. It takes one day max.
The second step is putting money in that account or funding it so you can make a contribution. You can do a rollover from a previous employer plan like you are moving the money from that previous employer’s 401(k), 457(b) or 403(b). That takes about two weeks if it’s a previous employer plan. You transfer an IRA-to-IRA transfer, which usually is much faster than a rollover. It usually takes a week tops.
When it’s open and funded, then you invest. You select the asset that you want to invest in. It could be precious metals, private equity or a loan. There are many different things. You give us what we call the supporting documentation, which is a general way of saying the contract. There’s some agreement, even if it’s an invoice to pay a vendor or it’s the actual note and deed of trust for a secured loan.
Whatever the documentation is for that asset, give that to us along with a simple, quick form like who you are, what you want to do, how much, and all that. We then review it. It goes through a review process. We say 3 to 5 business days to make that happen but oftentimes, it happens a lot faster. The majority of the time, it happens a lot faster. Sometimes more but mostly a lot faster than that.
You open the account. It might take two weeks to fund it. While we are waiting for that money to come in, we are reviewing your documents and getting everything all queued up so that you are ready to pull the trigger when the money comes in. We will send a check or a wire, and you’ve self-direct. That’s how that works.
That’s true for real estate, too. I’ve heard that to buy real estate. You have to open up an LLC in the name of the IRA.
That’s an excellent topic. I’ve got a lot to say about that. That’s called the IRA-owned LLC. You probably heard it called the checkbook IRA. It’s not what it is. People get the misconception that when they open a self-directed account that a checking account comes with it. That is a misconception. That is not how it works. You have a retirement account that’s self-directed. You open it, fund it, then you have a third party create a special-purpose LLC. You are not going to do this yourself.
People will say, “I have a 401(k). We will put it in there.” You can’t use the LLC that you created yourself because you own it. Your IRA cannot purchase an asset you own. It has to be a third party that creates this special purpose LLC. The IRA is open and has money in it. The IRA buys 100% of the initial units of that special purpose LLC. The money goes from the IRA into the LLC’s checking account. Your IRA is like the umbrella, and your LLC sits under the umbrella. The IRA owns the LLC. That’s how you can have checkbook control of your IRA funds. It can be handy in some situations, especially when you are investing in tax liens that are transaction-intensive.
When you are buying properties at an auction where you have to have the money, there are some useful purposes. You don’t have to have an LLC to purchase real estate. You will hear some attorneys say, “It gives you great asset protection. It does this and that.” That all may be true. I’m not a lawyer and can’t give legal advice but people will do it for that reason too and to separate out their assets. There are a lot of reasons to do that.
I live in the State of California. Every single LLC gets taxed $800 every single year. That continues. It’s not like it’s exempt from that because it’s owned by an IRA.
It’s for the privileged. Nobody else has that high tax as an annual fee. That’s another good point. If you think, “I don’t like this $800 in California. I’m going to open a Delaware LLC for my IRA,” you still have to register it in California. You would still pay in Delaware and California.
I found that out the hard way.
Sometimes, it’s worth it to people that do that. A lot of people do that to protect their assets. That’s a great conversation to have with your asset protection attorney.
One of the questions or comments that I get from my ladies is, “I don’t understand it.” When people are confused, they don’t move. They get stuck. Some of this stuff helps us to mitigate that feeling of not knowing. What would you say to people that are hesitating? For instance, my husband is like, “I’m going to keep it all in the 401(k). I understand it. I’m good.” He’s got some rollover money. We were talking about self-directing it. He’s like, “I want to do it this way.” There are a lot of people out there that are like that. They don’t understand it. They are afraid to move everything over or roll it all over. What would you say to those people?
I would say that you probably want to have a return on your investment. You want your money to grow. You take a look and say, “How can I make my money grow?” Let’s say you decide you are going to invest in it. You were like, “Maybe I will throw it out to a private equity like a Reg D offering.” Whether you do it personally or in an IRA, you can still make the same return. If you do it in an IRA, then that return is either tax-free or tax-deferred. That’s one reason to use a self-directed IRA.
Let’s assume you’ve got those two buckets of money, which are personal money and retirement money. If you only have retirement money, you have a different question to ask yourself, “I want to invest in these assets that I know best.” In this case, we are using an example of private equity. You are like, “I know private equity better than the stock market. Do I want to invest in market-correlated assets, or do I want to invest in alternative assets?” We are assuming that those are the assets that you understand and have your head wrapped around.
That’s a different question. Is it the stock market or alternative assets? Are you going to invest personally, with your IRA or with your retirement account? These are questions you need to ask yourself. Where are you going to get the best bang for the buck tax-wise? Sometimes, in real estate, you get the most bang for the buck buying it personally because there are so many write-offs to buying real estate personally. That could be the case but you don’t know if you don’t pencil it out. Meet with your CPA and get some financial advice.
There are some people that would say this, “I don’t want to put my retirement stuff in anything that would be a high risk that I could lose money because that’s my retirement money. I don’t want to risk it with that.” I would love to hear your feedback on this. If you think that there’s a high probability of losing money, it’s probably not a good thing to put in your IRA. It may also not be a good thing to be investing in personally unless it’s your play money or only a certain percentage.
If you are having that conversation with yourself, you might reconsider. I’m super conservative, so if I’m having that conversation with myself, I’m not going to invest it in anything. If I feel like I can invest in it, then it’s something I could do in my IRA. The stock market is not a guarantee, either. People lose money in the stock market every day of the week, unfortunately. It’s not because it’s in the stock market that it’s something that people understand or it’s something where you have quick liquidity. Making decisions with the push of a button doesn’t necessarily mean that it’s protecting your money.
You have to make wise choices about investing, to begin with, and then it’s what vehicle you are going to use, what your tax situation is, and whether your tax benefits are going one way or the other. You want to pencil it out with pros and cons. You can simplify your decision-making process that way.
Kareen, that was so amazing. Thank you much for all that you’ve offered so far in the show. That was awesome.
Thank you. It’s a privilege to be able to share this information so that people can grow their retirement. That’s what we want.
You are so amazing. We all love you. How can people reach you?
The best way is UDirectIra.com, our website. You can click and schedule a consultation. You can read our free report that’s out there to learn about some different asset classes. There is a lot of information there. You can also email us at [email protected]. We will give you a free consultation. We will say, “Tell us about your deal. What are you looking to do?” We will discuss that with you, and then you can make your decisions if that’s the right thing for you.
You also offered earlier that if you go to [email protected], you will give us a list of non-recourse lenders. You could ask for that, too. Thank you for that. I’m excited. We are going to talk at EXTRA about how to do your due diligence on investments that you want to do in your self-directed IRA. Stay tuned for that in EXTRA.
If you are already subscribed, you are going to get it right after this. If you are not and would like to be, go to RealEstateInvestingForWomenExtra.com, and then you can get all that information on doing your due diligence. It’s a little bit different from the way that Kaaren talks about it because she’s talking about it as far as putting it in a self-directed IRA. I’m excited about that conversation.
For those of you that are leaving us, thank you so much for spending this time with Kaaren and me. You know how much I appreciate you. I look forward to seeing you next time. Until then, remember, goals without action are just dreams. Get out there, take action, and create the life your heart deeply desires. I will talk to you soon. Bye.
Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
Generating passive income does not only mean earning money without playing an active role in your investment. This will also allow you to keep your W-2 job, giving you multiple income sources. To discuss how to do this the right way, Moneeka Sawyer sits down with David Vernich. He shares how he got proper mentorship to get into real estate, borrowed money from a banker, and started renovating homes and building family rental properties, all while continuing with his regular day job. David also discusses their partnership program, where he helps other aspiring real estate investors emulate the same strategy he did when he began.
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Watch the episode here
Listen to the podcast here
How To Generate Passive Income Without Quitting Your W-2 Job With David Vernich
Real Estate Investing For Women
I am so excited to welcome the show, David Vernich. As a banker for many years, David has loaned money to all kinds of businesses, but one stands head and shoulders above all the rest to generate passive income through real estate investing. Several years ago, David sought a mentor to teach him how to invest in real estate and found the perfect husband and wife team to show him the ropes.
After doing one single-family flip and coming to the realization that finding and fixing up houses was not something he enjoyed, David pivoted to a team approach. Using his financing expertise, he became the guy to firm the purchases and renovation for starter homes to build passive income for the whole team and share in the many benefits of owning 1 to 4-family rental properties. Welcome to the show.
Thank you. That’s several years condensed down into a paragraph.
I love that. You did a great job. Many times, I get these bios that are a whole page long, so thank you for that. You started as a banker, and I can relate to that, as I was a business loan officer. You moved into real estate investing. Give me a little bit more clarity. As a business loan officer, I never did business loans for real estate. Talk to me a little bit about how that transition happened for you.
I didn’t get into banking because I wanted to be a banker. I got into banking for two reasons. 1) My wife worked for a bank and didn’t like working at the bank and thought I would fit in. 2) I hated my current job. If you hate your job, you’re open to other opportunities. If your wife says, “This might be a good job for you,” you listen to her. That’s how I backdoored my way into banking.
I thought, “I want to own and operate my own business one day.” I would think being a banker is probably a good position to be in. It will introduce you to all these small business owners and get to talk to them and know them as friends. They’ll tell you the good, the bad, and the ugly, and they did. That’s why I stayed a banker. It looked like it was going to be extremely difficult to do what they did, and they were always frustrated with making payroll and having multiple employees and government regulations. I thought, “I’ll stay being a banker.”
That was fine until I hit the age of 45. At that time, I was still married to the same wife, but she wasn’t working at the time. We had four sons at home. I was making about $80,000 a year when I was 45 back in 2007. I always looked at it as a football analogy. Everybody knows about halftime. Halftime is half the game is over, and people make halftime adjustments. Are you ahead? Are you behind? What are you going to do for the next half? Twenty years into your career, when you start at 25, you get to 45, and you’re going to retire hopefully at 65. You want to take a look at where you are or what your score is.
I pulled up all my numbers as a banker, filled everything out, and realized, “I’m behind. In fact, I’m so far behind. If I don’t do something different, then I’m going to have to live in a van down by the river like Chris Farley did on Saturday Night Live and eat government-subsidized cheese.” I wasn’t going to be that bad because I was saving. I saved every year from the very first job I had at age 22. I started my 401(k).
I never stopped saving, but the pile of money accumulated over the years was nowhere near enough to generate anything close to maintaining my standard of living, so I knew I had to make a change. That’s what motivated me more than anything else to find something that would fill the gap. When I looked at my loan portfolio, the only people I would trade places with were the people to that I had lent money in the past that were real estate investors.
That’s how you got turned onto real estate.
I avoided real estate for so long because my problem is I don’t have two thumbs as far as being able to do any work whatsoever. If you gave me a hammer, I might not even know what end to use. Assuming I figure out which to end to use, the end result is going to be a total disaster, and I’m not kidding. I’m terrible at anything about fixing. In fact, I joke with my wife my favorite tool in the tool belt is the checkbook because I’d rather pay somebody to do it than do it myself.
I am so with you. My husband is fairly handy. A lot of the little stuff he’ll do, but I am all about the pen and checkbook. That’s my favorite tool. My favorite tool is the pen. I write a note, and I write a check.
Pay the professionals. They do it once, and then you get to enjoy whatever you want to do with your time.
Talk to me about what happened next. What are the results? You started with zero.
I started less than zero because typically, one of the biggest holdbacks for people into real estate is, “I don’t have the money to buy a house. I need to have 20% or 25% down. I’m afraid of debt, so I want to have 100% down,” so they look at their checking accounts, “A house costs $100,000. I don’t have $100,000,” close the checkbook and done, but I was a banker. I said to myself, “I don’t have $100,000,” and that was my goal. I wanted to buy a house and fix it up for $100,000. Remember, this is 2007, so this is several years ago.
In which market?
It’s Nashville, Tennessee. I looked at my checkbook, and I didn’t have $100,000, but I did have a W-2 job as a banker, so I made $80,000 a year. I had clean credit. I had a good credit score and my secret weapon. I knew the easiest bankers in the city. I know which ones had the lending authority of $100,000 for newbies that liked me that would trust that I would pay it back.
I called this individual and said, “I’d like to borrow $100,000 unsecured.” He said, “What are you using the money for?” I said, “I’m going to buy a house, fix it up, and put a renter in there or sell it.” He said, “You’re working at another bank now, right?” I said, “Yes.” “How much do you make?” I told him, and he said, “Check box one. You got a job with an income. Check box two, I got good credit,” and then number three, “If you don’t sell the house, I’m going to have to take it as collateral and put a mortgage on it.” I said, “No problem.” He said, “Come on up, I’ll give you $100,000.”
That was how I got into real estate. I borrowed the entire amount from another banker. I had that in my back pocket because I wanted that first. The next thing I had to do was find somebody who would show me how to do this. Step one was to have the money or know where you’re going to get the money. Step two was who’s going to show you how to do something you’ve never done before.
I started thinking about people I’d let money to from other banks because I’d been through, at this point in my career, seven bank mergers that had been bought out. I’d leave at a bank, go to another bank, and start fresh with another bank. Some banks like real estate loans, and some don’t. I would lose track of some of these folks, but I remember them. I helped a lot of them get started.
I called this one individual and said, “Let’s go to lunch. I want to ask you a question.” When I took him to lunch, I said, “Can you teach me how to flip a house?” He looked at me and said, “No,” and I was like, “What?” I would’ve bet money because I helped this guy get started. He goes, “No. I get up at 3:00 AM, and I’m in my pajamas. I can’t show people to do this, but you don’t need me. You need these people because these people have a formal class, and they used to be one of your customers too, Dave, so wake up and smell the coffee.”
I’m like, “Lunch number two,” I went to lunch number two, and they said, “Yes. We will teach you how to flip a house.” What we do is we have a class in a house. It was a husband and wife. “We’ve been doing this for several years. We have 144 houses. We have a full-time property manager on staff and a full-time repair and maintenance guy on staff. You come into our house. We’ll take six Saturdays and go through all the lessons, and then your final exam is to do your project house, which we’ll help you with, but you’re responsible for coming up with all the money because that’s what real estate’s about.”
I said, “Sign me up.” I went to the house for six classes in a row. I had the money lined up. We fixed the house up before we even finished it. Somebody said, “I’d like to rent this house.” Quick story, that person moved in and has been the same tenant ever since in that house for several years and not one turn. After we finished, I said to them, “Time out. I’ve done everything you said. The whole time I was doing it, I was biting my tongue because I either wouldn’t, couldn’t, or didn’t want to do 95% of what you were teaching me, but I did it. I didn’t complain.” They said, “Why in the world would you do this? Why would you spend this money and all this time if you’re not going to do what we taught you?”
I said, “I needed to know what value I brought to the chain because if I can’t bring value, I can’t be a part of real estate investing.” What they said was, “How do you want to work this?” I said, “Here’s what I propose. I don’t want to ever flip another house. I never want to find another house. I don’t want to manage the house.” “What do you want to do?” I said, “No, I will bring you unlimited amounts of capital, so you don’t have to put any money in the house. You just do all the work because you guys are pros. You’ve got a system already. I want to plug it into your system. What I bring is unlimited capital.”
They looked at me and said, “We see you’re driving a Toyota Corolla, Dave. You’re not rich.” I said, “You’re right. I’m not. I borrowed $100,000 for this first house. However, I know people who are doctors, dentists, and business owners who have plenty of money but no time or desire to learn how to do what you do. They don’t even have the time to take the class with you that I took. If I bring these people in, you do the work, and I get a piece of each property, we can build a very successful team. We can do way more houses as a team than we can do individually.” That’s what we’ve been doing for all these years.
That is an awesome story.
It wasn’t something I planned from the beginning, but I had to figure out that if I didn’t bring value to this equation, I couldn’t do real estate. I knew I didn’t want to do the hard parts, which I couldn’t do, but I did know there were people out there that were very good at it. If I could take something off their plate that they didn’t want to do, like talk to bankers or investors and gather their money which was a walk in the park for me, then I could say, “As long as you can perform and get base hits on every house that we don’t lose money, I can find you unlimited amounts of money.”
Have they?
They have. Now, with all the partnerships I’ve been involved with doing the same thing for several years, we have 119 properties.
This same team is the one that does the actual legwork for it. Is that true?
They were my original team. They’re still partners with me on the majority of my houses in Nashville, but as you probably have heard in the news, Nashville is a hot real estate market. The numbers stopped working for new purchases. My first purchase in Nashville was $70,000 for a 3-bedroom, 2-bath house, 1,400 square feet. That house is now worth $325,000. It doesn’t work in Nashville, so I had to find another group of people to do the same thing in another city.
I moved 42 miles Northwest of Nashville to Clarksville, Tennessee, which is home to the 101st Airborne Army Post. I did it with an investor lady up there who was extremely good at it. I did the exact same pitch to them. I did it with another group that I found in Memphis, Tennessee. I then branched into Little Rock, Arkansas. Essentially, I can find teams in different cities that are good at what they do, and then I bring the capital as I did in Nashville originally. These are cashflowing markets.
How are you picking the markets?
Basically, the numbers have to work. One of the things I feel strongly about is that I have two mandates with what I’m doing. It has to be profitable, or I won’t continue. That’s a given, but there are two major prices that are brewing that will never be fixed in our lifetime. The first one is the retirement income crisis. The issue with the retirement income crisis is people like myself, when I looked at my 401(k) statement at age 45, are not able to save enough money through a middle-class job to replace their current standard of living.
I’m not talking about having their lifestyles rich and famous and lighting cigars with $100 bills on their yacht. I’m talking about I want to maintain the same living standards that I have now. I read a report that over 50% of Americans are retiring are around $40,000 a year in income, and most of that is from social security. They’re having to scrape and cut expenses.
W-2 Job: 50% of retiring Americans only have around $40,000 annually, most of which comes from social security.
The second thing that we all probably are familiar with is there’s an affordable housing crisis. Builders cannot build anything that even approaches “affordable” housing for most individuals. When I say affordable, there is no such thing as affordable housing if you don’t have an income. You have to have a base of income, and that’s why I named my book Middle Class to Millionaire, but even the middle class is feeling squeezed in housing now.
What we tend to focus on is finding 20 or 30-year-old houses that you wouldn’t want to move into because they’re not that good-looking, but putting the money in them to fix them so that they are livable and rentable, but because we’re buying an older house and fixing it up, we’re not tied to new construction costs. We are now trying to build a brand-new starter home in Nashville with a lot already paid for because we owned it. It’s probably going to cost $225,000 for a starter home, and if you add the lot, that’s $325,000. That’s the bare bones and nothing fancy starter home. That’s where we are in this country for a lot of the people.
You’re picking markets where you can go in and the numbers have to make sense. You can get older homes that you feel you can fix up and still make a profit. What kind of returns are you looking for cashflow-wise?
Cashflow-wise, it’s roughly $200 to $250 per month after all expenses. That’s why I say this, these aren’t home runs, and you’re not going to retire in one. When I originally got started, I thought to myself, “This was my plan before I had the plan that I have now.” Let’s say I can hold my nose, stumble through this, and have ten houses. I’m going to get one house a year for ten years. I’m going to put a twenty-year loan on the first house. When I turn 65, that house is going to be paid for every year after that.
If all my houses are paid for, and I am bringing in $1,000 after all expenses, taxes, insurance, repairs, and maintenance. That’s $120,000 in retirement income. That was my original goal when I decided I hated this as much as I thought I would. I need to find mentors. The original deal I had with my mentors, who did all the work, was I was going to get 25% of each house. That meant for me to do the same amount of houses, I had to do four for every one, but instead of me doing the whole house hating it, having blood, sweat, and tears, mostly tears in every single house, they would call me and say, “Dave, we found a house. We need $80,000 to buy it. We need $20,000 to fix it up. Go get the money.”
W-2 Job: Look for mentors before jumping into real estate. This will make it easier for you to build passive income, with mentors doing all the work and you getting 25% of each house.
I then would make a few phone calls and a few emails, and minutes later, I’d have the money. I was done. I was like, “I’m going to get paid on this house for as long as we own it, and I’m going to get my portion of the cashflow for years, and it only took me fifteen minutes.” That’s why I decided I could keep my day job. I don’t have to quit it. All these things started happening, and I saw the money coming in and thought to myself, “This is cool.” Everybody needs to hear about this.
You took my breath away. That was amazing. There were two things you needed to do. You need to find the money and a mentor. Those were the first two things that I also did. Initially, my mentor was my dad, but I had that in the can. I had to find the money. Those were my first two things. I knew I needed those. What were the other obstacles that you faced getting started?
A big one I’ve alluded to multiple times is how inept I was. I always thought you had to be able to do everything. It was good to do a whole house once by myself because I knew for a fact I didn’t want to do property management. I don’t want to fix the house up. I would have to work with contractors anyway, and they would know I don’t know what I’m talking about. They would probably rip me off six ways.
In the back of my head, I thought, “Surely, I can find these houses.” This was in 2007. There were foreclosures everywhere. I was shocked and dumbfounded at how difficult it was to find a house. In fact, I had to cheat after a while because I would go out on my lunch hour or one-hour break from the bank, and I would be driving for dollars looking for houses. These were houses that had clearly been marked as foreclosures.
It wasn’t like I had to uncover any secrets or anything. I’d write down the name of the sign, call the real estate agent, and say, “I drove by this house, and I want to buy it.” They would ask me a few questions, and eventually, they’d figure out I was an investor. They knew it wasn’t retail. That turned a lot of them off. A couple of them would say, “I’ve already sold that house to a buddy of mine who’s an investor, so you can’t have that one.” I’m like, “Why do you still have your sign-up?” He said, “Looking for people like you to add to my database,” and I’m like, “That’s wasting my time.”
A few times, I’d get a real estate agent, and they would say, “That house you’re trying to buy in the market it’s in is worth $100,000, but it needs about $20,000 worth of work, so we’ll sell it to you for $80,000.” While doing my six classes, I knew that I should be able to buy that house for $60,000 and then put $20,000 in it, and then I could sell it for $100,000 if I wanted to flip it. The agent told me, “You can’t do that.” I’m like, “Yes, we can,” and then I got hung up on.
I was like, “This is hard. I can’t even find a house.” You got to kiss a lot of frogs to find one that works. Finally, the light bulb came into my dense little head, and I said, “I’m going to call my mentor,” and I said, “Winter’s coming, and I want a house. I’ve got the money lined up. This is frustrating. You’ve been doing this for several years, I bet every day your phone rings, and someone’s offering you a house because they know you’re a known commodity that can put cash on the barrel head. Would you please do me a favor and help me get the first one? By the way, take me to other students that were doing the same thing I was.”
The first one was tearing wiring out of the drywall. My eyes were big because I couldn’t even find the wire in the drywall to pull it out. The second house that went to someone was on the roof with a sledgehammer and was taking down a demoing of the chimney. I looked at them, thinking to myself, “There’s no way I wanted to be this heavy of a lift of my first one.” I was happy to break even to say I did one. I told them, “I’ve got a scale from 1 to 10 on how hard a house is, and my scale is the low-end under one. It would be a vacuum cleaner and a paintbrush. On a ten, they would be a sledgehammer and a bulldozer.”
On my first house, “Please find me a two.” That’s the highest I want to go. I told them, “We can break even on it, but I don’t want to do a heavy lift.” The next day she called me and said, “Dave, we found your house. That’s a two,” and it was. I’m like, “I’m terrible at finding a house, fixing them up, and managing them.” That pretty much left me with the money guy.
There are some things I want to highlight there that are valuable. There’s a thing that I do that drives my husband crazy, and that is that I’m constantly asking. It’s not that I’m asking questions like how this work and how that work. I’m asking for an exception. What that looks like is we’ll go to a café, stand in a long line, order our lunch and our coffee, but we forget something. We go, and we sit down. Usually, that something is something simple. We forgot our waters. The way that the café might work is that you have to stand in line again because it has to get in line. They’ve got their systems, and you don’t want to interfere with the systems. I understand systems, and I want to be respectful.
However, if there’s a 20-minute line and I’ve got a 30-minute lunch, and we’ve already waited in line, I don’t want to do that. I’ll go to the back or the side and say, “I’m very sorry. I did not ask for our water while we were in line. Would you consider giving me some water?” Invariably, the answer is yes. If you’re at Starbucks, they’ll always be like, “You should stand in line, but we’ll do it for you.” You get a little gruff, but I’m not afraid to ask. There are times when it’s not for a cup of water but for other things. They’ll say, “You need to stay on the line like everybody else.” They’ll say no. That philosophy of asking in spite of the fact that you might get a no is a superpower.
David demonstrated this perfectly. These teachers have lots of students. They’re teaching a particular system, and he was like, “No, that’s not going to work for me. Let me ask some questions. Could you do this?” Not only, “Could you do this,” but, “Could you do it this way?” He went so much deeper. What happens is so many of us are even afraid to ask.
I’ll have tenants come through my houses, and they’ll say, “I don’t have good credit. If I apply, are you going to say yes?” What I’ll say to them is, “I can’t say yes unless you apply.” Nobody can say yes to you unless you ask the question. You’d be surprised how many people will if you do. What I love is how David is, “No, this is not going to work. This is what will work. I’ve got mentors. Let me ask the question.” Many of us are too shy to do that.
To give another example in daily life, the other day, we stood in line, and I forgot to order a coffee. These people at this café know me a lot. This is the other thing. They know me and know that I will ask. They still love me. You’re afraid if I ask the questions, they’re not going to like me anymore. They think I’m imposing, it feels bad, they’re going to judge me, or whatever. They love me there. I go up, and I’m like, “I don’t want to stand in line again. I forgot my husband’s coffee. Would you mind giving it to me now, and he’ll pay later?” “Of course.” It’s just asking questions.
These are menial things that I’m talking about in my daily life. David did that on a bigger scale with his mentors and with his real estate. I want you to see and start practicing this. Start practicing asking for what you want. Do it kindly, gently, and respectfully. In everything you do, start building that asking for what I need muscle. Get it to a point like you are with David where he needs to make this business work. He knew he was behind, but he wasn’t afraid to ask questions.
You can build the asking-the-question muscle in your life to then when you find a mentor and find a situation where you need to ask a question, then you are willing to ask it. I’ve been asking financing questions like crazy now because I’m trying to hold onto a piece of property that I would rather not sell. I’m getting no all over the place. I’m still asking because I’m not afraid to ask. There’s a way to do this, and if there’s not, it’s not going to be a nightmare. I’ll sell the property. I would rather not, but I keep asking questions.
Even though my loan, the situation, and the property are difficult, I never get a, “I won’t look into this.” I get a, “Sure, Moneeka. Let’s take a look,” because I ask respectfully, and people like working with me. There are times that they benefit from my ask in this particular case. Your team and mentors have benefited from your ask. The cafe benefits from my ask because I keep coming back and bringing everybody with me. They get a ton of business out of me. Let them benefit from your ask, but don’t be afraid to ask. David, your story is so perfect for that lesson. I hope it’s okay that I took the time to share that. Do you agree with me?
Yes, definitely. That’s what holds a lot of people back because they’re so timid and thinking that was an option, they would’ve told me. Believe me, everyone’s busy doing what they’re doing, and they’re so focused on what they’re doing. They don’t have time to stop and consider that there’s another way sometimes. I have 4 sons, and 3 of them would take whatever I said as, “That’s what dad said. I’m not going to move,” but my third son would always negotiate. The other boys would look at him, “That’s not fair,” and I’m like, “Sure, it’s fair. You have the same opportunity as he did. He just took it.”
It’s true for me and my sisters too. I will ask, and the youngest one will go with whatever they are told, like you said. If there were a different option, they would tell me the other option. The problem is there are 100 options. They’re not going to go through all of those. You think of the option you’re interested in and ask if it’s available.
Essentially, if he threw an option that I didn’t like, I would say no to that too, but occasionally he would come up with something that I was like, “I didn’t think about that. Let me think about that.” He would get something that he was wanting. Anybody can do this, but having it done to you versus you being the person asking is a different strategy.
I love that. Talk to me about investing in 2022. Can we still do this and still make passive income?
Yes, you can, but you always have to keep your eye on the numbers. There was a recent article in your Apple Newsfeed that said there are four markets in the country that still have affordable housing based on the population. That’s Detroit, Michigan, Memphis, Tennessee, Tulsa, Oklahoma, and Oklahoma City, Oklahoma.
There are always markets that have affordable housing based on the numbers like, “This is the average person’s income. This is the average rent.” Do the math and see if it’s affordable. You have to reverse engineer and say, “Can I make this work by buying a house for X, adding this to the renovations? This is my maximum number,” and run the numbers on the debt and say, “It cashflows $200 a month.” I can do stuff all day long until those numbers change. When the numbers change, which they do eventually, then you find another market that’s affordable.
W-2 Job: There will always be markets with affordable housing based on the numbers.
Don’t get married to a market. That’s another thing too.
Yes. I started in Nashville, and the numbers do not work in Nashville at all.
You started in Nashville because you live in Nashville. Is that true?
Also, because the numbers worked. If the numbers didn’t work, I’d give up. Luckily, sometimes I didn’t even know the questions to ask until I had the experience to know what to ask. When I first started, even though we bought our first house for $70,000, that was a house that literally nobody wanted. That makes you nervous, saying, “Other experienced people don’t want this house. Should I be buying it as a rookie?” but the numbers worked.
When the numbers work, you have to say, “If there’s a renter out there that will pay what the market rent is and I can run this at this cost, and if the numbers work when I put a loan on it where I’m going to make $200 a month.” You’re not going to retire with that, but that first house will get you started on the path to retirement.
What is it that you know now that you wish you had known when you started?
The mindset issues keep people from doing things that they want to try. The fear of failure, the fear that this won’t work for me, and the fear of being scammed, everybody has those same fears. No matter who you talk to, relatives or friends, “I’m thinking about doing X,” there’s always somebody that can pull a bad story out and say, “Don’t do that because I knew a person and they did it once, and they’re living in a van down by the river now.”
Having been through banking and doing commercial loans, I’ve seen people in every type of business succeed, but I’ve also seen people try to do the same type of business and fail. Typically, it’s not the system. It’s whether you are cut out to work in that system. I was a small business administration loan officer, so I’d get every single person that hated their job that woke up on Monday and say, “I’m going to go see the bank and tell them about my dream, and I want them to give me a loan for it.” I would try to talk people out of it and say, “Your business is a half-baked idea.”
A lot of people would say, “I want to start a restaurant,” and my first question was, “Have you ever worked in a restaurant? You are literally cooking and cleaning all day long. It’s hard work. I would rather go try it before I bought it and put my house on a mortgage to make sure it was something I wanted to do.” These mindset issues are real to us individually, but if things are done correctly and if people have been there before you can show that instead of going down that path which has a cliff that you got to climb, walk over here, and there are steps, it makes a huge difference.
I love that. I’m all about the mindset piece. That’s right up my alley too. The biggest asset that we have is real estate between our ears. If we grow that into a good valuable asset that supports our life, everything else is so much easier.
I told you at the beginning that I avoided real estate because of all the things I knew I couldn’t do or wouldn’t do. I kept coming back to the one thing that motivated me more than anything else, which is this is working for people. Housing is such a basic need. Everybody is spending money on housing. It’s not like you’ve got to introduce this new concept of, “Come out of the woods. Let’s live in this nice heated box.” That’s nothing you have to do to convince people they need a house. You have to provide affordable, comfortable, and safe housing. If you do that, there are plenty of people that will pay for you to live there.
This conversation has been amazing. Thank you, David.
Thanks for having me.
I want to let you ladies know we do have more coming up for EXTRA. David’s going to share with us the four Fs for success in real estate. He’s got a little system he wants to share with us, so stay tuned for that. David, can you tell everybody how they can reach you? Also, you’ve got a special gift for everyone.
There are two basic ways to reach me, and it’s not through Instagram because I take no pictures, and it’s not through Facebook because I only post once a year. My obligatory, “Here’s my family and what they look like at the beach,” that’s the only post I do with those two. One that I am active in and one that I’m targeting the book towards are W-2 employees and self-employed people, and most of those people professionally would be on the LinkedIn website.
If they can connect with me through LinkedIn, my name is David Vernich. I’m in Nashville, Tennessee. As far as I know, I’m the only David Vernich in America. It should not be that hard to find. The second way is I do have a website called MoneyScoreboard.com. It doesn’t make sense unless you read the book, but there is a little money scoreboard that can be filled out to show you how far away you are from being able to retire.
Tell us about the book.
The name of the book is Middle Class to Millionaire: Making the Leap to the Next Level. It is trying to get the knowledge I’ve obtained for several years into the general public. For anybody that likes Seinfeld, I call it the Festivus for the Rest of Us because most real estate shows tend to focus on, “Do it all yourself A to Z. Be the superwoman or superman. Go find them. Go lift bales of hay. Go chop trees down. Draw all this stuff,” and then the rest of us who are W-2 employees are like, “I don’t want to do that in my free time.” There’s way more of us than there are of them out there, the superstars.
The normal middle-class people, if we can band together and do things like teamwork and each take a small piece of the deal but essentially band together, then not only do we minimize our downside risk, but we greatly increase the probability of success. That’s what I’m trying to get across in the book. Real estate investing can be, when added to your retirement account, something that will supercharge the amount of money that you’ll be able to receive, not only in retirement but way before retirement. I don’t want to wait until I’m old and crippled to start pulling money from my retirement. I want to enjoy life now when I’m still young. This is a way to do it.
The book is called Middle Class to Millionaire. David has very generously offered for my community to give you a digital copy for free so you can get to know the way that he works and has done this. If you want to do that, go to BlissfulInvestor.com/MiddleClass. You may be middle class now, but you can become a millionaire too. David, you shared with me one of your goals. Could you share that with my audience, so they know where you’re coming from?
Middle Class Millionaire: Making the Leap to the Next Level by David Vernich
I never looked to be a best-selling author. I just wanted to get this information out there, but I was pushed by several groups and friends to come up with a hard and fast goal on what I wanted to accomplish by releasing this information. I feel like I can help a lot of people to fill the hole of the retirement income because that’s a big crisis coming down the pipe for people that are getting up in age like myself as well as an affordable housing crisis. This fixes two major problems for a lot of people.
However, I’m only one person. I don’t have a big staff of people. In order for me to help as many people as I can, I’ve got to limit what I can do. I feel like I can help 100 individual investors obtain at least ten houses, and we do that in a partnership program. I’m holding their hand along the way. They have to qualify and bring value to the process, but I help them see the value they bring. Frankly, some people won’t have the necessary ingredients to do it, but most people would be surprised that they’re already ready to make this next step.
David is looking for partners that he can help to build their wealth together. I love that. Thank you so much for sharing that, David.
I’m glad to help.
Are you ready for our three rapid-fire questions?
Hit me. Let’s go.
Give us one super tip on getting started investing in real estate.
They’re already doing it by reading this episode. To me, there are a lot of shows out there that can teach you, and you’ve got a great one, Moneeka. Talking to somebody like yourself is a free and easy way to do it on your schedule and time and to hear real-life stories, not fake stories, not scams, but real-life people doing it every day. That, to me, gives you the belief system that this can be something that you, too, can do, which will take you to the next level.
I love that. Thank you. What is one strategy for being successful as a real estate investor?
You alluded to it earlier, and that is asking questions. A lot of people keep everything to themselves. They might read or hear something but then don’t say anything. You’d be amazed if your radar is on. In any social engagement whatsoever, how often can you probably insert something having to do with finances, retirement, or real estate investing? You got to be listening for the clues. When I’m in a group setting, and somebody has not said something that triggered, I can talk to them about real estate.
A lot of what you’re saying is asking it in your own mind. When you’re listening, that’s how you know if you’re asking those questions.
Plus, a lot of people in the back of their minds are trying to figure it out too. If you can be somebody that can provide one piece of the puzzle that they were looking for by offering something that you learn from a podcast or a book, that opens the door to some great conversations and maybe even some partnerships.
What is one thing that you do every day that contributes to success?
I eat my own cooking. My goal is as I continue to grow my portfolio of real estate, I’m always looking for my next purchase. For example, I try to do one thing every day that moves the needle in real estate. My last partner and I have known since I was nine years old. We’re 50/50 partners, and as 50/50 partners, we bought two houses on the same street in Little Rock, Arkansas. We used cash to buy them, which was our own cash, but we didn’t want to keep it tied up there.
We had to go to another bank and finally had the loan closing to pull out 80% of the cash we had invested in those houses. Here we are at the restaurant, and we have a check for $134,172.40, which was the refinance from one, and a check for $115,229.40. I said to him, “Would you have ever believed when you first met me, when we were nine years old, that we’d be sitting at a restaurant at this age swapping six-figure checks?” He said, “No.” He then got his brand-new convertible Corvette car and drove off. He looks way more successful than I am because I drove away with my Toyota CHR with 200,000 miles on it. However, I was so happy for him because a lot of the money he made was because of our partnership.
I love that. Success looks different to everybody.
He asked me if I wanted to get in the driver’s seat, and I said, “I don’t think I could get back out. It’s so low to the ground, so thanks.”
That doesn’t look like success to you.
Trying to crawl out of a car in the parking lot would be very embarrassing. I’m like, “I know how far my knees could go. I’m good. I’ll stand and look at you. I’ll admire your car from a standing position.”
That’s a funny story. David, this has been a great show. Thank you for all you’ve shared.
My pleasure. I do appreciate you having me on here. I hope this helps your audience knock out some of those limiting beliefs that they might have in their mind that they can’t do this because I know they can.
I know they can, too, and your book will help. Ladies, remember to go to BlissfulInvestor.com/MiddleClass and get that book. We’ve got more in EXTRA. We’re going to be talking about the four Fs for success in real estate, according to David Vernich, so stay tuned for that if you’re already a subscriber. If you’re not, please go to RealEstateInvestingForWomenEXTRA.com, and you can subscribe there. If you’re leaving, David and I now, thank you so much for joining us. I look forward to seeing you next time. Until then, remember, goals without action are dreams. Get out there, take action, and create the life your heart deeply desires. I’ll see you next episode.
Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
If you want to live your dreams after retirement, you have to track your personal finances. And you can start doing that right now with Play Louder. Play Louder offers everything from coaching to a financial independence roadmap made exclusively for you. Find out if you are investing in the right real estate properties and how much you need before you retire. Join Moneeka Sawyer as she talks to the Owner of Play Louder, Joe DiSanto. Discover Joe’s story of how he embraced his relationship with money. Learn why real estate investing is the best way to earn money without much risk and why it’s best to start thinking about retirement as early as you can. Start mapping your destination number so you can start investing and saving your way to it. Financial planning and budgeting are essential to how you want to live your best life. Treat your life like a business today!
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Play Louder: Your REI Financial Independence Roadmap With Joe DiSanto
Real Estate Investing For Women
I am so excited to bring to the show, Joe DiSanto. Joe spent his childhood riding BMX bikes, break dancing, and memorizing A-movies, but the carefree days of youth wouldn’t last long. By thirteen, he was working as a busboy helping his recently divorced mom and picking up some of his own tabs. A valuable lesson he learned was if you don’t deal with your money, your money will deal with you. I love that, Joe. Thank you. I love that even in his bio, he’s offering nuggets.
From that point on, he made it his mission to learn everything he could about making smart money moves, and it paid off. By age 30, Joe had wiped out $70,000 in student loans, bought his first house, and started a post-production company in Los Angeles. Over the next decade, the company grew to 30-plus employees with over $5 million in annual revenue while producing two critically acclaimed documentaries and an Emmy award-winning HBO series.
During this time, he and his wife also transacted on fifteen residential and commercial real estate properties, but nothing had a more life-changing impact than the birth of their son. After a successful nineteen-year run in LA, the couple decided to slow down and invest in their new family. They cashed out on their business and bought in a small-town life on the Florida Coast. Having semi-retired at age 43, Joe’s efforts are now focused on his education blog Play Louder, where he shares a lifetime of fiscal know-how to help individuals and business owners navigate their finances, increase their net worth, and plan for a better future. Joe, that is an awesome bio. Welcome to the show.
I appreciate it. Thanks for having me.
Normally, I start with could you give us a high-level story but that was everything. I love it. I’m sure there’s plenty more but I want to get into the meat of this conversation because I think it’s so valuable. Joe, I want to jump into budgeting and tracking finances. We talk about this high level on this show. We’ve done it a lot but it sounds like for you, you can give us some good meaty stuff on how to implement these ideas.
Let’s first talk about tracking finances. The reason I want to talk about this is because this is a subject most people hate. They don’t know how to do it. They don’t know how to get started. It’s overwhelming like, “How am I going to track every single thing?” Could you talk to us about that, why is it important, and how to do it?
I started tracking my finances as a young person toward the end of college because my debt was racking up. I was trying to get a handle on things. I remember thinking to myself, “I might have read a book.” It was like, “You should write down everything you spend in the day because it’ll help you be aware and then be able to make changes.” I was doing that for a little bit in this little notebook. I had to add it up at the end of the day.
After a while, I was like, “There’s got to be a computerized way to do this.” There was, as it turns out. This was in the late ‘90s. Nowadays, you can say, “I wish there was a way I could,” and of course, there’s always a way you can with a computer or an app or whatever. Back then, the main option was Quicken which I still use. You had to go to Staples and buy it on a CD and all that. It’s much easier nowadays.
What I started to realize, almost subconsciously, is that your personal finances are like a business. Later on, I started a business. When you start a business, it’s a given that you’re going to track your finances for the business. If you don’t do bookkeeping for your business, you even think to yourself, “There’s a good chance I will fail if I don’t know what’s going on.” You can’t borrow money if you don’t have bookkeeping done for your business. In order to be an effective business person, you have to track your finances. You have to look at the data, look at the results, and then make decisions based on that information.
It’s no different with your personal finances but for some reason, there’s generally no thought amongst the general population that they should be paying attention to their personal finances, and running their life like a business. Your life is income either from your job or business, whatever. It’s an expense. You want to have a net profit at the end of the year. That is essentially your savings. If you don’t do that and know that you do have a net profit and you are accumulating savings, you’re at a great disadvantage.
The thing is some people make so much money that they far out-earn the need to do this, but that’s very rare. Also, the more money you make, the more money you tend to spend. You’d be surprised how many people make a mid to high six figures a year and spend it all and save nothing. It happens all the time, and that’s the saddest thing. Savings could have been so easy and you could have set yourself up so easily and you missed it, and then your prime earning years disappeared on you. You’re like, “Bummer.”
It’s worst than a bummer. That’s a major bummer because you end up with, “I made all this money. I developed a particular lifestyle and now what? Either I keep working until the end of time or now I’m playing catch up. I’m not making as much money.” Later, after you turn 50, you do not get raises.
They’re looking to get you out of there because you’re the highest-paid employee.
That’s right. If you need to continue to work, your job satisfaction goes down. You’re not getting as appreciated financially by your coworkers or your bosses. There’s a lot that happens. I know because we’re going through those now ourselves. We love working, but it’s a very different experience than it is when you’re in your prime earning years. You want to utilize this.
Sometimes you get tired too. The funny thing about getting older is you’re making more money so you’re more a target for a layoff and you also want to work less. You’re the worst possible employee for the business. Someone who wants to work less, take more vacation and get paid more. The employers are like, “I like you, but I got a young eager 25 or 30-year-old that I could pay half the price and will show up on Saturdays without an issue.” It’s supply and demand at play. Who knows? Maybe there are some amazing altruistic employers out there that don’t think that but I doubt it.
Anyway, back to your question. The funny thing was as I was doing this, it was making sense to me. The irony of doing my personal finances is once I started a business, I taught myself how to do good bookkeeping and financial management by using Quicken. I was astounded at how good I became at using this desk personal finance software. There’s a great benefit to doing it if you do think you want to do a business down the road. It’s a great do-it-yourself way to learn how to manage a business.
You look at your life like a business. It’s got to perform well. If it’s not performing well, it’s a business either that you don’t want to be in essentially. You got to take it seriously or in the case of your life, you can’t get out of it so you got to make adjustments. You want to take it seriously and put the work in. That’s the part that people, unfortunately, don’t like to do. I’ve come to look at it a little bit like an area of interest. Some people love to exercise. They would do it even if it wasn’t good for them, but it turns out it’s a good hobby to have because exercise is good for you. It helps you to live longer.
I happen to like managing money. It’s fun for me or maybe not fun. It’s meditative and relaxes me in a weird way. I don’t mind doing it, but I realize that for a lot of people, it’s like their kryptonite. It’s the last thing that they ever want to do. You do have to ask yourself, “Is that me? Is this going to be hard for me?” If it’s going to be hard, either commit to it like committing to exercise or a good diet or whatever and say, “I know this is good for me. I just have to do it,” or you seek help because it’s so important.
Doing it can help you to save so much money that you could probably outsave the amount of money you spend having someone else help you do it. Maybe that would be a financial coach or whatever or do something in the middle. It’s much like you get a trainer at the gym to keep you accountable. You can get a financial coach that you check in with once a month. They look at the numbers and they make sure you did your homework. They help you analyze it and you’re accountable to somebody to make sure you get this done.
Using software now has gotten easier and it all connects to your bank. It downloads everything automatically. Over time, it slowly memorizes where you spend money. It gets to a point where it’s quite automated. You can keep up with your finance tracking in an hour every couple of weeks personally. That’s about what I spend on it these days. Not only does it keep you more inclined to save but it shows you what your habits are. It gives you all the easy places to make small adjustments to save even more.
That’s one thing. The other thing though is the reason you’re doing the tracking is because you’re ultimately trying to do a good job toward your long-term goal. Your long-term goal is ultimately savings, then investing, and then eventually, getting to a retirement state that you can afford. Nowadays, kids call it financial independence, which sounds sexier than retirement, especially for a young person.
Play Louder: You’re tracking your finances because you want to achieve your long-term goal. That goal is ultimately your savings, investing, and getting to a retirement state that you can afford.
It is helpful to keep you motivated to do the tracking if you have a goal in mind. It’s more important to first sit down and think about what your goal is, where you’re headed, how much money you want to save, how much you’re going to need, all these things and have a plan. As you’re tracking, you’re looking at the results and seeing if they live up to the plan that you set out for yourself.
Maybe that sounds terrible to some people. Maybe it sounds like something they want to get in and do for themselves because they know it’s a good idea. Whether it sounds good or it sounds bad, like you said in the beginning, if you don’t deal with your money, it’s going to deal with you. You could stick your head in the sand and cross your fingers, and hope that when you’re 65 and you get fired and you’re not hirable, and you want to stop working anyway, that you have enough money and you don’t end up in a trailer park, or you could take it seriously and have a plan, and see that you’re accomplishing your goals or the year.
I always say hope is not a plan.
Hope is not a plan. I’ll admit, I’m the hard-ass coach when it comes to this stuff. I’m like, “If you want to be a baby and pretend it’s going to work out for itself, good for you. I’m going to be over here prepared and living a nice retirement.”
I’m with you. Let’s talk about if people do want to do it. For me, it’s not a fun piece of my life. I do love talking about money. I’m Indian. We do that. That’s one of our things. It’s in our blood, but I don’t like budgeting. I don’t like all those things and yet, I’ve done it my entire life. It’s part of why I’ve had the success that I’ve had.
Not because I get to live this highfalutin lifestyle but because I’m paying attention to what I’m spending and how I’m spending it. I want to make sure that I’ve got more money to contribute each year to causes that I believe in. It’s not about what nice purse I can buy. It’s about who else can I help or how can I help my nephews, all three of them, with their different educations and those sorts of things.
That’s also some decisions about where you want to spend your money and why you want to make more money. I do still budget. I started at some point and I will admit, I don’t remember.Why don’t we talk about how you start creating a budget? What do you do? You talked about some software. Give us some tips on that.
I mentioned that I use Quicken. I’m not affiliated with Quicken or anything like that. I just like it. I think it’s the software that you can grow into. As you mentioned in the beginning, we owned a lot of real estates. I track all my real estate in there. I track all my brokerage accounts there. It’s all in one place. Even in my business, in which I’m a business consultant and fractional CFO, I organize my business all in this one place. It’s nice and convenient, but there are plenty of other options out there like Mint or Personal Capital. There’s a bunch.
The important thing is I don’t think you should do it in a spreadsheet or anything like that because it’s way too manual. With software, over time it gets easier. Spreadsheets don’t ever get easier because they can’t memorize anything for you. When it comes to budgeting, the truth is you could go out and set up a random budget for yourself, arbitrary or your best guess. That’s honestly not all that helpful. It’s nice to do a budget after you’ve done some tracking of your finances for a couple of months.
You see how much money you need to spend in order to live your life, then it’s a good time to be, “I see all the averages of what I spend over a few months.” You create a budget based on some data from your tracking. You look at it and go, “I spent $1,200 eating out last month. Maybe I could spend less there or I spent $2,000 on groceries,” or who knows? You can see some easy targets to maybe work on a little tightening of the belt. You have a budget on a column of what I spent in the last couple of months on a per-month basis, and this is what I’m going to try to do this month or the next month. I’m going to try to tighten the belt.
You only know if you achieved your belt-tightening goal if you track the finances and go, “I set out to only spend $800 eating out and I did it.” Not going out those three extra times made the difference. Back to the importance of the data, if you were a real-life business that had employees and people relying on you and all these things, you would pretty quickly see that having the data about what’s going on in your business is pretty much mission-critical.
Again, back to treating your life like a business. That’s the starting place for me, committing to that. Once you have your budget, I look at my budget every year. I put it in a spreadsheet. Every year, I look at what I did the year before. I pull a little report in Quicken. I put in some numbers and I go, “I pretty much stuck to what I thought or I spent more here.” I’ll copy and paste that and say, “I’m going to try to spend less on these things in the next twelve months.” I’ll maybe check on it through reporting in Quicken every 3 or 6 months or something like that.
You get so used to that thing that you know your spending habits. It’s like going to the gym. At first, you start with a trainer and they give you a plan. You don’t know what you’re doing, and then over time, it becomes second nature. You don’t even need a trainer anymore. It becomes part of your routine. You have to want to do it. Wanting to do it, for me, is like seeing a goal at the end of the road knowing where you’re heading, and understanding what doing all this work is going to get you to at some point in the future.
I agree with you on this. How does it help you emotionally? What does it do for you financially and emotionally? There’s a huge emotional impact on budgeting. There’s a huge emotional impact on not doing it. Let’s talk about that on both sides.
With the people I’ve coached and helped, I find that as you get older and it seems like when people get in their 40s and they haven’t been doing it, they start to panic a little bit. It’s like, “I think I should have been paying more attention to my finances because I’m getting tired. Now I have kids and college is coming up. I have no idea what’s going on if I’m going to be prepared for these big things.” I think it gives them a lot of stress and anxiety. It’s like a dark cloud hanging over your head.
For the people who embrace it that I’ve worked with, it tends to give them a greater sense of relaxation around money and knowing that they have control over it and they know what’s going on and all that. The flip side of knowing if you’re greatly underprepared is that sometimes people avoid this because they’re worried about what the results are going to tell them.
Play Louder: Some people avoid tracking their finances because they’re worried about the results. The only way to solve that problem is to get your head around it and then take it on.
It’s going to show them that, “I don’t make enough money or I haven’t saved enough money or I am not prepared. I’m a little late in doing this.” That’s frightening. I feel for people in that situation, but the only way to be able to solve those problems is to get your head around them, and then take them on. Usually, what happens is people do realize after doing this that they need to make more money if they’re going to reach the goals that we set out.
I mentioned to you before we started that I have a course on all this called the Financial Independence Roadmap. In that course, I go through all these things I’m talking about. Mainly, we start by creating a destination. Where do you want to be eventually? Whether it be financial independence, retirement or whatever you want to call it. By what age and what do you want to be doing? We figure out how much money you’re going to need., and then we reverse-engineer it.
It’s like, “You’re going to need that much money, so you’re going to need to save this much for so many years. Whatever you save, you’re going to need to invest. It’s going to need to make this minimum return in order for the plan to come to fruition.” Usually, we look at that and people are like, “I need to save more, which means I need to make more money.” How do you do that? You either need to make more money in your job. Maybe you get into a side hustle thing. Maybe you convert from the work you do into doing it in a consulting capacity where you can charge more per hour and have more control over your time.
You need to essentially get entrepreneurial in your thinking about the revenue for the business of you. That’s the number one thing you should be spending your time on. Almost even more than the tracking, when you’re thinking about money. It’s how do I make more? The best defense as they say is a good offense. When it comes to financial planning, saving, and getting to your destination, the more you make, the easier it’s going to be.
I talk on my website about the three pillars of success. One is the personal finance pillar, which includes this tracking, budgeting, planning, and having a plan and a roadmap that I like to call it. One is the entrepreneurial pillar, which is being entrepreneurial. Either being entrepreneurial at work and focusing on getting more income at your job or improving your position at your work so you can make more. Maybe getting into a side hustle to make more money on the side. Maybe starting a business. Whatever that is, focus on the income piece of your life.
The third pillar, once you’re making more, then tracking your finances and saving more. You have to invest those savings in order for them to grow and multiply while you’re at work and/or sleeping. The vast majority of people are not going to save their way to financial independence. They have to save and invest and get a good return on their investments. That’s the third step. You got to get the first two in order first, get some savings going, and hopefully, you can put yourself a little bit into learning about investing and understanding the value of it.
For me, I enjoy that stuff. I would be researching it anyway. I guess I’m lucky in that sense, though I hate exercise, so I’m not lucky in that sense. Exercising for me is the worst. I hate it. I’m suffering from that syndrome, but I’m doing it anyway because I know it’s important. For me, the investing component has mostly been real estate up until now. In the past two years, I’ve been adjusting my portfolio to be a little less real estate-heavy and more market-heavy. For me, real estate produces superior returns for less risk overall.
The other thing about real estate is it’s a great hedge against inflation. One of the things that I’m noticing now is when David and I were young and perky, we are still perky, we started talking about planning for our future. We had a certain number in mind. The idea was we would have that much money. This is how a lot of young people think.
We have all this money and we can invest it and get 5% or 7%. In those days, you could even talk about 10% consistently. That’s how old I am. We would live off the interest and so we were never taking out the principal. If there were emergencies or anything like that, we could take out the principal. That was the way that we would sustain our life for the rest of our life. What we didn’t think about, we thought about it a little bit but didn’t calculate in, was inflation.
If we thought we needed $3 million back then, now it’s significantly a different number based on the lifestyle that we want to make. It’s not number centric. If we thought we needed $2 million, so we’d have $200,000 a year. That bought a particular lifestyle that now might take $500,000 a year or whatever. That’s an exaggeration. I don’t know what the numbers are, but you get the point. What was interesting is by design but by mistake, my dad taught me about real estate and so we jumped into real estate.
What happened was such an interesting thing. Because real estate is such a good hedge against inflation, our appreciation went faster than the inflationary numbers. Our values are growing. Rents are keeping up with inflation. Our increase in income is keeping up with inflation. I don’t need to ask anybody for a raise but myself. I ask myself for a raise each year and I get an inflationary raise, so I’m keeping up with inflation. My assets are growing faster than inflation. Now when we take a look at our inflation-adjusted numbers, even though they’re significantly higher, we are far ahead of them because of the real estate investments.
I know that sounds a little bit complicated. If you talk to Joe at some point, he can explain exactly how that works. Real estate is an incredible hedge as long as you buy it in the right locations. That’s important, and you do it the right way. Not all real estate is that way. With us getting hit in 2001 and 2008, we lost 20% once and 50% the second time. Even so, because of the locations and the decisions that we made, and because we were able to hold on, now our inflation-adjusted income is significantly different.
What’s interesting is if you look at that, my husband is a W-2. His money has increased significantly over the years, but it has not kept up with inflation. We can still only afford the same amount of mortgage in the house that we could afford twenty years ago because his income has not increased at the same rate of inflation. They get their cost of living increased by 3%. Inflation is closer to 8%. Our real estate has kept up with it but his income has not. There’s a lot to think about and it seems a little overwhelming.
I wanted to put those seeds in your mind as you’re thinking about this. Getting a coach to explain all of those pieces, they’ll get you started at the place where you can handle it because you don’t want to get overwhelmed in the very beginning. David and I didn’t. We just made some good choices based on advice from people that had made similar choices, and experience success in retirement. You want to have somebody that you can talk to about this stuff or tune in to this show and you’ll get it by osmosis. Those sorts of things are the things that you look at later. That’s why I advocate real estate investing. It’s that hedge that allows you to get to retirement. Do you agree with me on that?
I do. I think real estate does all the things that you said. As I mentioned, it does it for less risk for greater reward. I’ll stop there. I agree. I will say though about the coach thing, you can learn so much today from websites and podcasts and all that stuff. Your audience is here, so good for them. Where the coach helps you, you generally have to pay them, but they distill everything for you. You get it all in a condensed period of time and that’s worth a lot. Time is one of the most valuable things we have.
It’s something you can’t get back. You can always borrow more money. You can’t take back time.
You want to have more information about this stuff sooner because that information will affect your decision-making and the things you spend time on. You want to be looking at the right things, the most valuable things, spending time, and thinking about the right things. If you spend a little time with a coach earlier on, they’re going to hopefully, distill down for you the most important things to be thinking about and doing. You don’t have to listen to endless amounts of books and so on.
I’m a big advocate of mentorship. When you’re talking about budgeting and saving, compounding is the miracle of finance. The sooner you start and the sooner you can get that all distilled into a plan, the longer you have to benefit from simple compounding. It’s like the magic pill of finance.
People need to make time for this. Hopefully, in any couple, at least one of the people has an interest and/or understanding that paying attention to the finances is critical. In my family, that’s me. My wife focuses on other things like the health component. She’s always trying to get me to exercise. I take our budget over her and our spending and be like, “We spend a lot of money doing this. We should maybe think about that.” FYI, I’m not frugal at all. This is not about always being frugal. I like to spend money and travel and all that stuff, but I want to spend money on the things that are most important. Why waste money on things that aren’t that meaningful to you?
There are different ways to do things. My husband like to go out to eat and we love to travel. We used to go on dives. That was our adventure. We’d find a new dive for every date night. Now, we go to a nice sit-down white tablecloth type of restaurant. When we were broke and traveling, we would backpack and stay in youth hostels. We were in dorms with shared bathrooms, but we got to see the world.
Now, we get to stay in hotels or rooms for just the two of us. You can also choose those passions that you have. You can choose how you do it. You don’t have to eliminate all of these things. You can choose, “I’m going to still have this adventure. I’m going to still do these things that I love. I’m going to do it in this way now so that I have access to more later.”
For example, for me, I’m not into cars. I go to CarMax. I buy a three-year-old used car. We have a Pacifica minivan. I don’t care about cars, but I love traveling. In the summer, we were on a six-week trip from LA to Seattle to Michigan. It was amazing. No expense spared. That’s the place we like to spend our money. Traveling and cars are the same things. The money’s gone once you spend it.
It’s good if you can find or get into the hobby of investing in real estate. It’s a fun activity but those are assets that can produce income and wealth for you down the road. Traveling and cars are examples of things that can’t. You also want to have that balance too. Am I spending my money on things that are income-producing assets first? The stuff that’s more discretionary comes second. You know you’re prepared and have enough to spend there.
Play Louder: Get into the hobby of investing in real estate. It’s a fun activity that can give you assets that produce income and wealth for you down the road.
You retired early. Let’s talk about how that was possible and how people can get started, so the planning for retirement.
I semi-retired or downshifted from my extreme 50, 60 and 70-hour work week down to maybe 20 hours a week. The reason I call it that is because we have a certain amount of money for our investments. A certain amount of passive income, but it’s not enough to live the lifestyle we want. I don’t want to live a meager lifestyle so I cannot work. I like working. I just want to work less intensely and in a different way. I ended up starting this consulting thing.
We make a portion of our money from my consulting and a portion from our investments. That’s part of why I call it semi-retired. The other reason is that I’m also not concerned particularly about saving more money. Not that I don’t want to. I’m happy to. I’m paying attention to my finances just like I recommend everybody does. If we don’t save money or increase our “savings” in a year, I’m not worried about it.
We have enough where if it grows at a normal clip over the next twenty years, we’ll do full retirement and be set. That’s why I call it semi-retirement, to be clear. That’s how I think about it. How you get started is by doing all the things we were talking about. You have to start paying attention, planning and then doing the work. There is no way around it. The only way around it is to completely out-earn any need to do any of this. If you can do that, congratulations. You’re in a very small percentage of people in America.
Even those people have other things that we don’t know to think about. That’s interesting. I like to say becoming job optional rather than retiring. My branding, there’s been an awful lot about live your bliss, retire early. What I’m helping people to understand is retire early for me doesn’t mean that suddenly you quit everything you’re doing.
A lot of people love what they’re doing. They love their jobs or they love whatever they’re doing. A lot of people don’t. They want to spend more time giving back or spending more time with the children or whatever it is. We’re all over the map. For me, it’s about becoming job optional. What I like about what you’re saying is that being semi-retired is job optional. You could trim back and live on your retirement income, but you choose not to. You would rather grow that and continue to live a lifestyle that you enjoy.
When we talk about job optional, there are also different reasons for that. Either it’s the fulfillment or it gives me a little bit better lifestyle, and I want to continue to sustain that. When we get to that point where all of our needs are handled, and many of our wants are. For me, when I look at my number, it does include eating out and travel. It does include medical care. I’ve needed a lot of personal medical care because I’ve had some horrible car accidents.
I want the medical care I desire. I’m with Kaiser, but I pay for an osteopath. I pay for an acupuncturist. I pay for a physical therapist that’s not at Kaiser. Someone that I prefer. I will pay out of pocket to get the healthcare that I need and want. That’s going to increase over time as I get older. That’s not going to go down. That’s one of those expenses that will not go down. What are those things that we need to take care of? What are those things that we want to take care of? What’s the icing on top that makes life fun to live? You want to include all of those in that final number when you become job optional. What does that entail?
The job optional, AKA financial independence, in that course that I mentioned, we create a budget for you in the future. Where do you want to live? What do you see yourself doing? Are you working at all? Does that bother you? Do you want to be no work? You got to think about healthcare and all that stuff. We take what would be an annual figure that you’re going to need. We say, “How much of an investment pot will you need in order to produce that income from cashflow, interest, dividends, real estate cashflow or whatever it may be?
You’re not just saving a pot that you’re going to chip away at. You’re creating a pot of money that’s going to produce an evergreen stream of income. As you mentioned, one of the steps in this is to adjust that number for inflation twenty years from now. That can be a pretty scary step because when you adjust something for 3% or 4% or 5% inflation over 25 years. You’re like, “What? How am I going to come up with that?”
Those are the important moments to realize that’s what you’re up against, and how important it is to have a plan and be ready to deal with it. That’s why I say to everyone. If you have kids, you got to get to them early. The earlier your kids even think about this, it would affect which profession they might go into. I know it’s hard to have them make decisions about good financial sense. “Do you want to do that career? It doesn’t pay that much.” If you get them in the habit of looking at these things and understanding how it works, it could influence their decision-making process when they get to college and what they study and these things.
My kid is only seven, so there’s only so much you can do. We talk about investing a lot. I’m always talking about that and I like that stuff. I’m teaching him a little bit about that. He likes the idea that he could have a few dollars and invest it and it could magically turn into more dollars without him having to come back out in the backyard and help me build the back deck or whatever. He’s intrigued by that.
By the compounding aspect. It’s money magic.
The sooner you get to thinking about all this, the safer you’re going to be. Unfortunately, what happens is people don’t start thinking about it until they have kids. They’re getting a little behind the eight ball. College is coming. They’re getting tired of their job. All of a sudden, they’re like, “I get it now. I think I know what the whole retirement planning thing is about. I know that I’ve blown it off. Twenty years have gone by since I was 25 and I don’t know.” Usually, I get a lot of emails from those folks. They usually hear me on the podcast and they’re like, “I need help.”
There are things that you can do. Don’t fret.
There are. One other thing I recommend people do to get them enthusiastic about this process is to get a subscription to International Living Magazine. I’m not affiliated with it. I ran into it one day because before my wife and I semi-retired, we were thinking, “We might want to retire early. Where would we retire? Maybe we should buy some real estate in a town we think we might retire to. Who knows? It could work out.”
We went looking for the best places to retire or something. This is probably fifteen years ago. Up comes a bunch of these articles from International Living Magazine. It’s been around since the late ‘70s. The point of the magazine is to help people learn about places to retire outside the United States that are significantly cheaper. The reality is retiring in the United States is quite hard because the cost of living here is so high. That’s obviously why people move to places like Florida where there’s no state tax and whatever.
There are all these great international places even in Europe and South America where you can live on $2,000 a month. A nice lifestyle. Healthcare is super cheap and affordable and all this stuff. The people who end up researching this are in their 60s. They haven’t saved enough. They can’t work or don’t want to work. Your health can deteriorate on you unexpectedly.
It can happen on a dime.
They don’t have enough money to live a reasonable lifestyle in the States. This magazine is all about providing info, but it’s also a defacto and awesome travel magazine because these editors go travel all over. They learn about how much it costs to live here or there. They talk to expats. We’ve used it mostly as a travel magazine and we’ve gone to many destinations that sounded super cool in this magazine. It also puts in perspective what’s going to happen when you’re 65.
You read these people’s stories and they’re like, “I only had $200,000 saved. That’s not going to last me that long. I moved to Ecuador and I live on $1,500 a month. I exercise more. I shop at the local fresh market. I have an expat community. I’m so much happier than I was in Wisconsin.” You’re like, “This is interesting.”
One, it’s a fun motivational thing to think about traveling and maybe seeing some different places. Two, it also helps take the pressure off a little bit like, “If I don’t save enough or I’m close to retirement and I haven’t prepared, there are options. I could go live in Europe in some places for far less than I could live here and have an interesting life.”
There are a lot of inspirational stories there. It made a big impact honestly on our life. I would say to people, “Get a subscription.” It’s $40 a year or something like that. You get one magazine a month and it’s all sorts of dreamy inspiration. It helps you be motivated and put the whole retirement planning thing in perspective. That’s always one of my first recommendations to a coaching student. Get that magazine and everybody loves it. They’re always like, “It’s so much fun to read that.”
I love that. I’m going to go get that. Thank you. We’re running out of time. I want to talk about what you’re offering my audience as far as how can they get in touch with you. I want to let you know, ladies, that we’ve got a special website that you can go to so that you can get 10% off of whatever he’s selling and that sort of thing. It’s going to be BlissfulInvestor.com/roadmap, which will take you to Joe’s website. Tell us what they’re going to find when they go there.
We’re going to send people over to that course that I mentioned. It’s called the Financial Independence Roadmap. It’s a step-by-step condensed process. The value of paying a little bit for a course like this is that you get all the condensed steps. You don’t have to read a whole bunch of articles and put it all together yourself. In there, I walk you through the steps to think about the retirement thing and what you might need, calculate the numbers, and reverse engineer what you need to do to get there.
Play Louder: The Financial Independence Roadmap is a condensed step-by-step process where you can find how much you need to retire. They calculate all the numbers and reverse engineer what you need to do to get there.
It includes some spreadsheets that I made for myself to do all this for my own benefit. It explains and walks you through the process. It’s all video-based too. I walk you through all my spreadsheets, show you how to use them, and explain what you’re looking at. I have a handful of videos and getting you started using Quicken if you want to get into that. It’s completely critical to success with this stuff.
I walk you through how to get that and set it up and get going. In the course, particularly with Quicken, you can have a starter template file to make it nice and organized. I provide my little template file so that you can start from there. It’s nice and organized. It matches up with my budget and it makes perfect sense.
You don’t have to go and customize all your categories and various things. If you’ve never done that, that probably sounds completely meaningless. If you get excited about this and you try to start using Quicken. You’re going to be like, “That is extremely helpful.” Usually, people sometimes buy the course for that because they want to use Quicken more, or they’re using it a little bit and need some help. They’re like, “I wanted the template file because I could see it would save a lot of time.” I think it’s pretty great. You can buy it and tell me what you think.
It sounds great to me too, which is why I’m so excited. I want to encourage people to go and get that. Go to BlissfulInvestor.com/roadmap. He’s got three courses that you’ll see on his website. If you want any of them, you can get 10% off on any of them. Use the code BLISS. We make it all uppercase. That sounds great. First of all, thank you for that. Thanks for the discount code. Thanks for talking about it. This has been an amazing conversation.
You’re welcome. I’m happy to be here.
Are you ready for our three rapid-fire questions?
Let’s do it.
Can you tell us one super tip on getting started investing in real estate?
Start looking. It depends on where people are. I think your first real estate investment very likely is you should be buying your own house. I consider your own house an investment. All of them have paid off handsomely for me. I do think if you’re going to treat your house like an investment, you got to look at it slightly differently. My tip to everyone who hasn’t bought a house is to start looking. Work with a realtor. You don’t have to buy anything right away. You can look for a year. Your realtor might end up getting a little disappointed with you if it goes on that long, but go get your feet wet. See what it’s like. Get your head in the game of that.
Even if you’re not ready now, it’ll help get you motivated and get you thinking, “I have to prepare. I have to be ready. I know what I’m up against and I’m going to execute it.” If you’re waiting and sitting on the sideline and saying to yourself, “I want to do that but I don’t know if I’m ready, so I’m going to wait until I’m ready to go look at it,” that’s a mistake. You got to sink yourself in and get your head in the real estate game as quickly as you can.
I love that. What is one strategy for being successful as a real estate investor?
Do the math. It’s not the only component of being successful in real estate or in business or in your personal life, but I do think you have to do the math on these things. Real estate is exciting. I know you always hear, “Half the billionaires in the world did it because of real estate.” That’s probably all true but they’re all smart. They all do the math. Not every real estate invests going to pay off. You can do the math on real estate and you can map it out for 30 years and see how it’s going to go under certain conditions.
Speaking of this, I have a course in real estate where I provide you with my spreadsheet of doing the math. It does exactly that. It shows you how your real estate would perform over 30 years. You can change the metrics on inflation. You can change the metrics on rental increase percentage and all these things. It auto-calculates and says, “If that was the reality, this would happen. If that was the reality, this would happen.” That’s another course I have and I walk you through all that but do the math.
You can get 10% off of that one too.
Do the math, know what you’re getting into, and execute the stuff that mathematically works.
What is one daily practice you would say, Joe, that contributes to your personal success?
It depends on the day. Some things that have contributed to my success are I personally am a little bit OCD. I’ve put that to work for myself. Once I start on something, it’s hard for me to stop. I get invested. I do a lot of research. I get pumped about learning and getting stuff done. I can’t, in some ways, take credit for that because my mind and body take over luckily and it works for me.
Something that I work on though more deliberately is being positive. I find that being positive is so critical in life to one being happy, but the more positive and happy you are, the more things you’re going to try. The more people you’re going to talk to. The more everything that you’re going to soak in from life. Positivity improves your success. It does give you a greater chance of being successful for all those things I mentioned.
I do this gratitude journal because I took this little course in Insight Timer about cultivating happiness. That’s been good. Every night, I write three things that I was grateful for the day and try to keep myself in a positive mind frame as much as I can. I can’t say that I’m in a positive mind frame every day. I’m human but I’m trying. It takes effort.
It does take effort. It doesn’t just happen for sure. I loved this conversation, Joe. Thank you so much.
It was nice to talk with you. I appreciate it.
Thank you. Ladies, thank you for joining Joe and me for this portion of the show. We appreciate you and look forward to seeing you next time. Until then, remember, goals without action are just dreams, so get out there, take action, and create the life your heart deeply desires. I’ll talk to you soon. Bye.
Joe DiSanto is a fractional CFO and consultant to small businesses and high-income individuals. He also founded the blog Play Louder (https://www.playlouder.com/ref/15/), which serves as an invaluable resource to help individuals and business owners increase their net worth and plan better for their future.
Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
The journey to cash flow and growth can be difficult. It is time-consuming and requires a lot of effort and dedication. How can you break the cycle of working from 9 to 5? In this episode, Sief Khafagi, founder of Techvestor, builds a mouse trap that allows you to create a cash flow through passively investing in short-term rentals, aka Airbnb. Having short-term rentals on your portfolio for the cash flow can be a powerful wealth-building strategy. Are you interested in getting extra insights from Sief? Then don’t miss this episode!
Passively Invest In Short-Term Rentals (AKA Airbnbs) With Sief Khafagi – Real Estate For Women
Real Estate Investing For Women
I am excited to welcome to the show, Sief Khafagi. Isn’t that the most amazing name? Sief is an ex-techy turned real estate investor who has helped thousands diversify into real estate after spending nearly five years at Facebook. He syndicated acquisitions totaling more than $100 million while designing and developing more than 25 properties. Now, he’s the Founder of Techvestor, which helps real estate investors and busy professionals passively invest in the emergent asset class of short-term rentals, AKA Airbnbs. Sief, welcome to the show.
Thank you so much for having me. It’s amazing. Your energy is infectious.
I love that, and I loved our conversation in the green room. I feel the same way about you.
I’m very excited to be here, so thank you for having us.
Talk to me a little bit about how did you come up with this idea of Techvestor? You go from tech. I’m from the Silicon Valley. I now live in Sacramento but I was originally in Silicon Valley. We lived very close to Facebook, Google, and LinkedIn. How did you go from tech to real estate and then come up with this idea? Could you share?
A fun fact, I was living literally across the street from Facebook’s campus when I was at Facebook. During the times I wasn’t there, I was doing a lot of traveling, opening up offices, recruiting teams, and generally, we stayed in Airbnbs. A bunch of those Airbnbs was pretty shitty, to be quite honest with you. The design sucked. The host experience was weird.
The whole journey was always top of mind. I was like, “I’m going to stay in another Airbnb.” It’s because we are staying in these cities sometimes for a little bit longer than a day or two and you want that local experience. Sabrina and I, when we started Techvestor, we were starting it for ourselves. We were like, “How can we buy our own 6, 10 or 12 short-term rentals?”
We were all traveling as much as before the pandemic. We were used to working remotely. To do that, we started building technology. No surprise. We are building technology to help automate the process of understanding where we want to buy. We wanted something that was great cashflow, great equity growth, good occupancy, good rates, and places we wanted to visit. We built our software. We started as a software company.
We shared it with everyone around us, and everyone loved our software to basically help find short-term rental opportunities. No one wanted to do the work themselves. They were like, “This sounds great but I don’t want to do it but can I give you money, and you can go do it yourself?” We were like, “Okay.” We did about 6 or 7 that way for clients.
When we got them all in a room or a virtual room because of the pandemic, Zoom, etc. they were all like, “I like yours. I would wish I had a piece of yours and that one.” They were describing a syndication, a fund, a portfolio or something along those lines. We pivoted to this portfolio short-term rentals or a fund, for lack of a better word here.
Our investors were super excited about that. We announced it around Halloween of 2021. In our first month, we raised $7 million. We went viral and went with it. To date, we’ve raised $20 million. The idea came from this pain point of understanding being the user. Also, coming from tech, we saw so much opportunity. Those iPhone 4 camera photos you see on Airbnb or the host that’s not getting back to you. You walk into a bedroom, and it’s a mattress, and that’s it.
We were like, “We could do this better.” A lot of low-hanging fruit, so we looked into it. Coming from a technical background, we understand the product of Airbnb and the user journey. We built a private equity real estate concept backed by the premise of understanding the user journey of a technical product. While it seems complex, that’s where we come from. That was our perspective.
It was interesting. When I lived in Mountain View, we ran an Airbnb out of our house. I became a superhost very quickly. As a matter of fact, I got a full-paid trip to Paris for Airbnb, the big shindig that they have every year.
The Superhost Party.
People said this over and over again, “This place is so nice.” We literally had a bedroom and a bathroom attached. It was my little library, so we decorated it the way that I would like my library like a guest room. I was surprised over and over again. We created experience. We provided coffee. We did some things that I would want in the morning but nothing special. It was interesting to me how people were like, “We will pay you more. Hold the room.We want to come every month or whatever.”
It blew up. I was completely surprised by this whole thing. We didn’t do a lot that was special. You were telling me this experience gives me a little more perspective. What was funny was that the guests would not tell me why. They were like, “Your place is nicer than everybody else.” They didn’t want me to raise my rates, I’m sure.
They were like, “We like these rates.”
I paid more than our mortgage. We cashflowed one bedroom in the house. This is in Silicon Valley with this room that was kept like a sweet guest room. It is interesting what we can do with Airbnb if we pay a little bit of attention.
However, if you go back to that experience, I would be willing to bet. The downsides of what you described as a host are the cleans and the guest communication. Everything that you have to do to earn that cashflow. It’s a job. We can both agree that it’s a job. Someone has got to do it and make sure that the guest is having a good time.
Part of that was the experience, the room, the pricing, everything but it was a job. Techvestor, what we are doing is solving that part. We’re saying, “If you want to invest in short-term rentals, you want to earn that cashflow but don’t want to have the headaches or the time, energy, know-how to do this or the want but want the benefit of it. You can do so passively. We are one of the first options to invest in short-term rentals passively for the busy professional. We will clean the toilet, and you collect the cashflow.
I love that because you are right. I turned it to where you had to stay at least three nights. I got tired of changing sheets.
They got to be worth your time.
Fortunately, most of my guests stayed for about a week, so I was only doing it once a week, and it was fantastic. There was a lot that we did. I would say I probably spent about ten hours a week doing that, which is not a lot of time considering that it paid for my entire mortgage and cashflow but still, it was time out of my schedule. Maybe not ten hours. Maybe closer to five, and we did other things. I enjoyed meeting the guests.
I would take them for a walk around the neighborhood and show them where to go get good morning coffee rather than the drip that I was providing at home. We did a little bit of that stuff, so that took a little time too. You are right. I wouldn’t say it was a job because it didn’t take that much time but required time.
During the holidays, I did not want to have people in my house and did not want to be dealing with this. I’m so with you, Sief. Why I have you on this show is because I know that side. It’s what made me stop. I’m interested in what you are offering. It’s amazing. I’m curious. You gave me a little bit of an idea of why you focused on short-term rentals. I know you’ve got some stats on why that makes more sense. Could you talk to me a little bit more about why you chose short-term rentals and how that works?
The first thing for us was our personal motivations for why we got into short-term rentals. Sabrina and I were working in tech in the Valley, making these big cushy compensation salaries that everyone jokes about. We were both single, and each of us was sharing a home with people we were working with. Making more money, handing over piss that we knew what to do with.
It was a privileged position to be in, for sure. It gave us this opportunity and perspective to think about, “What else can we invest in that’s not your typical 401(k), equities or whatever”? Crypto wasn’t even like that hot back then, as much as it’s now. We started thinking about short-term rentals, and we wanted cashflow.
For us, it was also about breaking away from the 9:00 to 5:00 or at least the feel of being in a 9:00 to 5:00 as quickly as possible or having the choice to and the time freedom. The fastest way to cashflow for us is short-term rentals. It was also the easiest to get into because of the lack of competition. When you combine those things together, you are like, “Great margins. Little to no competition.” That’s like the heaven of any business you are going to enter into. Supply and demand are completely in your favor. We looked at our own experiences of what we could bring to the table, and we were like, “This is something that we could add a lot of value to.”
Short-term rentals, from an industry perspective, you are going to generate, if you are doing it right, 2 and a half to 5 times the long-term rents of a property. Typically, if you are understanding where to buy, what to buy, and how to best operate. It’s a three prolonged approach. Some of that stuff we’ve built proprietary software around to understand what to buy and market-mapping certain things.
The operating side is the experience of our fantastic team, which I know we are going to talk a little bit about later. Having an operating team that understands how to price, how to communicate with guests, where to build automation, where not to build automation, how to make it feel human, how to design, and how to rank right. Airbnb is very much like Google. If you rank on the first page of Google, guess what? You are going to get clicks. If you rank on the 100th page of Google, you are not going to get clicks as much.
How do you rank in it? Therefore, by understanding these things, that’s why we decided to focus on STR. It was also such an emerging market. Here’s a fun fact, over 50% of all short-term rentals came online after 2020. People are starting to recognize that short-term rentals are something that everyone and their moms have started to want to do.
It predominantly kicked off probably around the pandemic when you look at the data. Everyone was like, “I want an STR. Low-interest rates, I can do this.” What you are realizing is that you start to see this churn of hosts. It’s easy to be an Airbnb owner and an Airbnb host. It’s hard to stay one. That’s where people like us who come from a professional perspective understand what it takes. We have the operating capabilities to do so, the design capabilities, and it’s also diversified for us.
We also wanted something where we could be easily diversified instead of owning three single families in a single area. It’s like, how can we own 100 of them in 10 markets? You and I both know Airbnb is seasonal. You have your ups and your downs. We wanted winter, summer, and fall months and all these types of things to allow great cashflow throughout the year.
Short-Term Rentals: Airbnb is seasonal. You have ups and downs, so we wanted winter, summer, and fall months to allow a great cash flow throughout the year.
What I’m noticing is that one of the big reasons that I did not continue with Airbnb when I moved back to the San Jose area is the tax rates in San Jose, for instance, with Airbnb. They suddenly started charging you with all the same tax rates that they do with the hotels. Are you noticing that’s happening across the country? How is that affecting profits for Airbnb owners?
One of the things that we see in most markets is 90% plus of the markets. Airbnb is going to collect those the hotel and occupancy tax that you are talking about for you as a host. At least now, that cost is typically charged to the guest. In fact, even in the hotel industry, it’s typically charged to the guests. It’s not an uncommon thing for Airbnb to do.
We don’t see it affecting us at all because it’s a common thing. You expect to pay some tax or fee. Whether you are booking a hotel or an Airbnb, you are booking the same thing. For us, we feel it significantly less because most of our homes are larger homes, 4 or 5-bedroom homes. We don’t focus on things like condos or 1 or 2-bedroom homes.
When you think about the economies of scale that we get or the economics for a family who’s traveling, and I’m a dad of two, I can’t imagine my wife and I, going and staying in a hotel with two kids. She can’t do it. There’s no way. That would be such a chaotic experience. How are they going to get entertained? Where are they going to go play? Where are they going to go run around? We don’t have a kitchen.
There are certain things that we need, and the economics of an Airbnb make way more sense when you are in a group of 4, 6, 8 or 10, versus if you are traveling alone. You are like, “I’m going to a conference. Is it for business? Is it for pleasure? I want to stay downtown.” What matters? Amenities matter to bigger groups and that’s what we focus on.
Most of the Airbnbs that I was seeing, especially, for instance, in Mountain View, my competition I checked out might be a four-bedroom but they were little. They had single beds set up and a shared bathroom type of thing. I like your idea of more of a luxurious experience. Maybe not fully luxury but a luxurious experience where people are not like, “I’m on this bunk bed. This is horrible.”
It’s amazing what we do with our design. I will have to send you some of our listings after. You will get a sense. We have the front of a Volvo car. We cut the front of a little Volvo car and stuck it in one of our living rooms to create a tiki Volvo bar. We have basketball courts, hot tubs, pools, and iconic Instagramable moments where you can take photos with your family or for yourself.
These are things you are not going to get in a traditional Airbnb or you are going to get into a hotel. We believe we are building the next generation of experiences through these amenities and designs. You and I can both agree, your space matters, your office, where you sleep, and where you eat. Especially if you are relaxing on vacation and traveling, your space matters even more. We hone into that ethos. We see it. We drive higher occupancies. Fifty percent more occupancy than our competitors. We are driving typically almost 40% more revenue than our competitors because we are giving people what they are craving but they can’t find.
How would you say your pricing compares to hotels? When I was in the Airbnb games, it was early on. For us, my pricing was less than the local hotels. I’m hearing more in the industry. That’s not the case anymore. How do you price in comparison to local hotels? Do you even consider that? What are your considerations around pricing?
We look at hotel pricing and other accommodations but 9 times out of 10, we are always more economical than hotels. We are cheaper than hotels, and it’s because of the type of asset we focus on. For each market that we enter, we have what’s called a Buy Box. There are specific types of properties we buy, for example, in a market like Scottsdale. I will never buy something as of now, based on the price-to-rent ratio. That’s not a four-bedroom or higher with a pool. The reason for that is because, at a four-bedroom or higher, it makes incredible economic sense. The margins are fantastic. If it doesn’t have a pool, it’s a non-starter for me in that market. We know what to buy.
I spoke to a hotel speaking at a conference in the Midwest in January 2022. It was $684 per room. We booked 2 rooms, so it was $1,300 for 3 days for 2 people. It gives you some context there. There were those fees that you talked about. Now, if we were traveling with a group of 8, would we have booked 8 different rooms? That becomes expensive at that price point versus getting a fantastic Airbnb in that market and being able to all stay together. Walls defeat experiences. That’s our belief. That’s a thing. If you’ve ever traveled with your family and have stayed in a hotel, what happens when everyone goes to the room? It’s almost like a pause in your trip.
It’s almost like it interrupts your trip. For us, we focus on bigger groups. I’m going to say bigger groups. I’m talking about typically six plus. When you are six plus, it’s way more economical to do an Airbnb 9 times out of 10 with us. You get more for your money, a better location, better amenities, easier check-in, privacy, and a lot of different things that are going to matter more to you at that point.
It’s interesting to me that you choose pools. I do the opposite for liability reasons. Do you want to speak to that a little?
The ability to have a pool drives your ADR significantly. ADR, for those who aren’t aware, is your average daily rate, which is whatever you are able to charge on a nightly basis. We have insurance in place for those types of things. We have proper gates for kids, for example. To us, the risk is well worth the reward. It’s more about being protected. There are pools everywhere. I don’t think we can control what happens at an Airbnb. We are not there. We obviously try to prevent anything that we can but some things aren’t preventable, unfortunately, but the liability is a liability. That’s a liability for us that’s worth taking on.
Do they usually have hot tubs?
A lot of our properties. In fact, back in Scottsdale, it’s a priority for us to have hot tubs as an example. In every market, we know what needs to be had in terms of the amenities and how they should be designed. For example, our clear water market, compared to Scottsdale, is very different in terms of the amenities that you would expect to have.
However, both pools are 100%. Other amenities are very different. In Scottsdale, we have a baby pink house. That’s like bachelorette heaven. We have a play on Tiffany’s home. In Scottsdale, you got clear water, and we have a sunset home. It’s more appealing to families. We have a room where there are all these animals that are handcrafted on the wall. Why? It’s because kids are going to more likely stay there than they are in the Scottsdale-type market. It’s understanding your client and catering to the experience that they are craving.
Short-Term Rentals: Understand your client and cater to the experience they’re craving.
A couple of more questions. How many markets are you in?
We are in nine.
We are going to talk, ladies, in EXTRA about how he chooses those markets specifically. He uses his software. This is interesting stuff that he can help provide for you but we are going to talk deeper in EXTRA about that. Why don’t you give us a high level of how they can utilize your software, then we will do a deep dive in EXTRA?
Our software allows us to do a couple of things. We market map over 257 different markets. Market mapping is understanding the supply of that market, what comes into the market, and what’s needed in that market. It’s giving us all this raw data. We then take that raw data and map it to the highest performing Airbnb’s in that market.
We simply do what we call copy and paste. What we want to do is we don’t believe we are going to reinvent the market. We believe we can operate better but we don’t expect to. We simply take what’s the best possible property we can buy in this market at the specific price-to-rent ratio. We add the amenities that are required for that property and copy and paste them over to ours.
We believe we can operate it better because 95% of the time, we are competing against mom-and-pops who are not using technology or automation, have our design experience, and have our capital backing. Therefore, we are able to go in and increase the ceiling of that type of property. Therefore, driving the best risk-adjusted returns. We are taking what’s working, and our data tells us what’s working. We are taking our operational excellence to improve it, and that’s what allows us to create our general alpha about that.
One of the things that come to mind for me is, as an Airbnb host, the reason that I was cashflowing on the mortgages in the Bay Area was that I did not hire a company to handle it all. I hired cleaning and all of that stuff but when I looked at Santa Cruz. There are all these companies that popped up to run Airbnb for you remotely but they took such a high percentage. It’s like having a management company in California. You don’t even breakeven in a lot of cases. Talk to me a little bit about what fees you charge and how that translates as far as profitability for owners.
One of the things that we do that’s interesting and predominantly because of that is with high-interest rates, high inflation, all these things are going to eat into your operating profits. It’s because we run a portfolio on behalf of our community. We don’t charge an ongoing property management fee. In fact, what we do is we do what we call property management buy down.
We buy down your typical property management rate from the industry average down to zero. Let me explain what that means. The industry average is 20% to 40%. It’s high. If you are driving $100,000 in revenue, let’s use 30% here as an even number, you are going to pay $30,000 of your gross revenue. Not profit but gross to said property management company.
To be quite honest, it’s probably worthwhile for many people because it’s a lot of time, energy, and resources to get it done correctly. What we do is instead of charging an ongoing fee, we project to hold our properties for about five years. We collect the property management fee on day one. That’s equivalent to a percentage of the property purchase price, and that’s it.
That’s the only fee that we collect. That goes towards managing the properties for the next five years. Many people would be like, “Why would you do that?” The first reason is what you described. If you are optimizing for cashflow, the two biggest things that will impact your cashflow will be your cost of debt, your mortgage, and the cost of management.
We can’t control debt. It is what it is. It will go up. It will go down. Your leverage, 9 times out of 10 is usually a good thing when it’s responsible debt. One thing we can control is buying down the property management rate as far low as possible, as close to zero as possible. By doing that, you increase your upfront cost with that property.
We can do that because we are running an institutional-size fund. It allows for increased cashflows over the short-term. It allows us when we sell to sell based on revenues of higher NOI. When you sell something based on a cap rate. Those are some of the reasons why for us, we’ve chosen this model, and everything is a trade-off in business.
Everything is a trade-off in investment, so we are choosing cashflow. We are picking the model that allows us to operate with the highest yield possible because that’s what this investment is for. If you want tax benefits or high equity growth, or those types of things, you are going to go invest in some other asset class but for us, that’s what this asset class is good for.
You must come in with more cash if you buy down that management. It’s buying down your rate. I pay 1 or 2 points. You have to come in with more cash to create the cashflow. Is that true?
We are doing that but we also have the ability to do that because we are vertically integrated, and our fund is eight figures. For us, we have the capital to do it. Now, as an investor, if you were to work with us and invest with us, you would get the benefits of that. That’s things that we are able to negotiate and execute at scale. You can’t do this very easily, if at all, as an individual owner with a property or two.
This is where that scalable component is in working with an institutional fact operator like us. It gives you this flexibility of doing. It works for both sides because that capital goes to funding the property management for those five years, the technology that drives better occupancy and revenue team, all those types of things. It aligns interests on both.
Sief, you do not manage properties for other people.
Now we don’t.
Talk to me about your business model. What is it that you do? It sounds like you’ve got your technology. Do you sell the technology to people so that they can utilize it in their own businesses? Talk to me a little bit about how your personal business model works.
We run a fund, again, for lack of a better word. In a fund, there are typically a couple of parties. There is a general partner, and there are a lot of limited partners. Oftentimes, there are things like property management or affiliated companies. We are the general partner. We find, design, furnish, and operate the properties. We work with limited partners who give us money, give us capital, and we pull that money together. Our minimum check size is about $25,000.
We can work with 200 people who give us $25,000 as an example. They put all this money into a pool. We use that pool to buy these properties. We run and operate them. Our investors are going to get what’s called a preferred return. They get the first X percent, 6%, 10%, whatever that rate is going to be that we agree on in our PPM and things that we talk about.
We, as a general partner, are going to share above that preferred. We are incentivized to deliver the best possible returns. I can give you an example. Let’s say the preferred return is 8%. After you get 8%, the general partner starts sharing in the profits above that. That could be 50%, 70% or 80% of the profits. What that split looks like is how we generate money as a general partner.
If we are managing the property, we have affiliated business lines, for example, property management revenue, software revenue or those other types of things. That’s, in a nutshell, generally how our business works and we are highly incentivized to drive the most profitable returns to incentivize reinvestments, to incentivize capital, and solve the pain point of the DIY-er who’s thinking, “I want to do this but I don’t want to do all this myself.”
Is this more of a fond or more of syndication?
They are highly very similar in many ways. Depending on the words you want to use here. We syndicate capital in a fund-to-model, for lack of a better word.
The investors get the benefit of an interest rate. They are basically lending you money. You are calling it a preferred rate. Do they benefit on the back end of the sale because you put in a lot of improvements? You buy this place, and then you add value. The value of that when you sell it is hopefully going to go up, especially when you prove the numbers of what it’s paying you.Do the investors get any benefit from that?
Investors share in everything, cashflow, and depreciation, which is huge for taxes. We pass 100% of depreciation along to our LPs. They share in the upside in sales. When we exit, we have to return all their money back first before we make any money. All of these things are what we call pro-rata. Investors sharing every possible revenue stream from that property on the cashflow, depreciation, appreciation, cap rate sale or whatever ends up happening with that property get their share.
You say that most of your terms are about five years. You started this model probably in 2021. Have you closed any of these out yet and paid out your investors? Tell me a little bit about that.
We distribute capital quarterly or distributions quarterly. We haven’t missed a distribution. We had one of our best distributions, one of our best quarters in Q3, so that distribution is coming up. We’ve exited eight total assets. Of our eight exits, we’ve delivered about a 42% IRR on the ones that we have exited. Our track record, while it may be young to an extent because we are only about a year-old company.
We’ve been able to prove the model out with those first-aid exits. The reason we sold those eight early is for that reason. It’s to prove we could buy this asset, which is a single-family home, turn it into this other asset of a short-term rental, and sell that short-term rental as a business, for lack of a better word. Revenue-generating business like your one-bedroom was.
If your entire home is making $30,000 a month and your alternative is to sell it for $600,000. You are thinking very differently about what the value is of that home as you can a revenue-generating asset. Not only do we do that one time. We did it eight different times to prove that we could execute and scale that way. That’s why our traction has picked up a lot of steam over these last few months.
Could you explain IRR again, just so my ladies know?
IRR is your Internal Rate of Return. It’s arguably one of the best metrics to understand your time value of money. It factors in your returns from cashflow and your returns from the sale. It does not factor in anything like depreciation. IRR weights capital differently. The earlier you get a return back, AKA earlier cashflow, the it weighs that higher, and it formulates the algorithm way rather than if you were to get all your money back in year five.
I would give you an example. If you doubled your money in five years and you put in $100,000 on day 1 and in month 60, you got $200,000, that’s about a 14.8% IRR. Alternatively, if you were getting 10% a year and then a lump sum in year five. Your IRR may be higher because you earned more money earlier, so it weighs time as well. We believe it’s one of the best understandings holistically of a return.
Talk to us about your team.
There’s one thing I’m proudest of. It’s that we have been able to build an incredible operating team. This is a huge reason why a lot of people have considered investing with us or have invested with us. We have an incredible STR-specific team. What I mean by that is everyone from our Head of Acquisition, Taylor, to John, our Head of data, to people on our investor relations team, to myself and Sabrina, to Austin Decorbin, our Head of Revenue, Head of Property, everything. We come from this world.
Short-Term Rentals: We’ve been able to build an incredible operating team, which is a huge reason why many people have considered investing with us or have invested with us.
We’ve dealt with this world. We’ve scaled portfolios before. We’ve scaled infrastructure. Sabrina built AirPods at Apple and got to a billion dollars in revenue. I’ve built teams from 90 people to over 1,100. John is literally known as the Airbnb data guy. I’ve never met a hunter or a sniper from an acquisition perspective in the STR space more capable than Taylor.
These are people who are on our team exclusively. They are the ones who are managing this portfolio to drive this performance. If there’s any one piece of advice that I would share with anyone is if you are investing in syndication or a fund or you are giving your money to someone else, 9 times out of 10, the team matters more than the investment team.
I agree with you on that.
A good team will be able to navigate choppy waters. A good team will be able to drive better-than-average performance. A good team will earn whatever their share in their weight of gold easily. A bad team can easily drive your investment to the ground very fast. It’s not hard to lose money. It’s very hard to make it.
Team and expertise within the domain that you are investing in are important. You are betting on that team. That team or that horse is the one that’s going to get you through the finish line. That’s why we are awesome to have the talent. Out of any companies in this space or any other syndications in this space, we believe we, by far, have the best operating team in the space.
How did you find them? How did you build that team?
They will joke with you. My role at Facebook was that I built teams and recruited hundreds of people over the years. I slid into all their DMs. Taylor introduced John to us. I was like, “Taylor, here’s what we are doing. I love what you are doing. You clearly have a passion for this. I would love to talk to you about what we are doing.” We headhunted our team.
They were purposely built the way that it was built. Coming from my background at Facebook and what I saw in the years that I was there, a lot of people can agree that Facebook is a massively successful company, whatever your perspective is on it. The one thing that was obvious, especially being on the inside. The level of talent that they have was the number one reason that they got to where they could be.
Short-Term Rentals: Facebook is a massively successful company. Whatever your perspective is on it.
You look at acquisitions like that they had of Instagram. They bought Instagram for a billion dollars back in the day, and people were like, “That’s a lot of money.” It was one of the first billion-dollar acquisitions of an app, and they took that in 30 exits. Why? It’s because of the talent and the infrastructure that they have. The ethos here is bringing talent together, great talent in the space. We believe we can 50X this space because we are all working towards the same goal.
This is a technical question but when you build a business like this, your individual homes, you buy as single-family homes. Is that true?
Correct.
When you sell them, you sell them as a business. Do you sell them with a commercial lender or do people buy them with a residential lender? How does that work? I know that’s super nitty-gritty but I’m curious.
The short answer is that you can technically do either. It depends on how much cash you probably want to bring to the table and who’s buying it. I would say, more often than not, you are going to use a commercial product, often known as a DSCR loan or debt service coverage ratio loan. The reason that one is going to be more ideal is that if that property is a truly successful Airbnb, it will likely be worth more than a traditional single-family home that’s based on appraisals and comps.
Traditional single-family is sold based on what the house next door sold, for lack of a better word. If your property is generating all this revenue, it’s going to be worth a multiple of that revenue. Not necessarily what the guy next door sold for. To get proper lending on that, you are going to need to show financials. We would provide those financials to our buyers in the future. They would be able to get lending based on the historical performance of this asset. Therefore, secure lending in a commercial way.
You must have records for at least two years to get any commercial loan on this. Is that true?
You don’t need to. For all of the properties we buy, we use commercial debt. We use DSCR, and it’s not an existing short-term rental 9 times out of 10. There are two ways to do it. You can either underwrite it as a single-family home because our ethos is buying it based on value and selling it based on revenue. It’s very easy to do.
There are several companies out there now that will lend on projected Airbnb revenue. There are tools that they use out there like AirDNA, Rabbu, all the rooms or other analytics and APIs. Alternatively, you can also buy it the traditional residential way and then turn it into an Airbnb. Depending on what income you have. If you have a W-2, you might be able to qualify for a residential loan with better terms. Commercial lending will have higher debt costs. It is what it is in the business world.
It’s easier to qualify in the commercial world because they are not looking at your income. They are looking at, “Is this asset a good investment?” It’s a lot easier to scale. If you are thinking about scale, that’s a great option. If you are looking at buying a single property, you are going to house hack or do half of it in Airbnb, you should consider your options on the W-2 side and what those rates and programs look like.
I feel like we could talk forever because I’m interested in this topic but we are running out of time. Sief, why don’t you tell everybody how they can reach you?
If anyone is interested in learning a little bit more about Techvestor or short-term rentals, we often will hold videos, webinars or other content. Follow Taylor on Twitter or on some other social platforms but you can also talk to us. We are at Techvestor.com. You can request to learn a little bit more about what we do, how we do it, and if it’s a good fit for what you are looking for or if you are curious about short-term rentals.
That question on debt is a question that we get quite a bit because people come to us, and they are like, “I want to buy a turnkey short-term rental,” which is another line of our business that we do. They are like, “Can you help me find one for myself? The reason I want it is that I want to use it with my family for two months out of the year. Can you help me with that?” If any questions you have, please reach out to us. We are happy to help you out. We are all about education and educating this space.
I love that. Thank you so much. Ladies, we are going to talk a little bit more about EXTRA on how to pick your markets for short-term rentals, how he does do it, how he specifically uses his software to do that, and all of that stuff. Stay tuned for that. That’s going to be a great conversation. Before we do that, Sief, are you ready for three rapid-fire questions?
I’m ready. Hit me.
Tell us how to get started in real estate investing. Give us a super tip.
Go for it. You are going to make mistakes. The very first property I ever did when I was a young kid, I lost $30,000 in the height of 2008. I stayed away from real estate arguably for the next 7 or 8 years because I was terrified. Don’t be me.
Do as I say, not as I do. I love that. What is one’s strategy to be successful as a real estate investor?
Tell your story. I think stories sell. Oftentimes, the person you are selling is yourself. You have to sometimes understand your why to why what you do and why you do it and why you get up every morning to grind the way that you do. Real estate isn’t easy. It’s a grind, especially in the early years, so you must have a why.
What is one daily practice you do, Sief, that you think contributes to your personal success?
I sit down and talk with my wife. The reason that’s important to me is that I’m a workaholic by trade. Taking 10 or 20 minutes of dissecting and getting away from everything that is the chaos of Airbnb at times, allows me to feel a little bit more grounded in what I’m doing on a daily basis. As a father of 2, especially 2 young boys, it’s important to me to understand my why on a daily basis. Finding time for them is my biggest motivator.
This has been a great conversation. Thank you for all you’ve shared, Sief.
Thank you for having me, and I appreciate the opportunity.
Ladies, thank you for joining Sief and me for this portion of the show. It was amazing, wasn’t it? I loved it. If you are interested in more, we’ve got more. In EXTRA, We are going to be talking about how he picked his markets, why he picked the mind that he picked and what he look at. If you are subscribed to EXTRA, stay tuned, there’s more.
If you are not but would like to be, go to RealEstateInvestingForWomenEXTRA.com, and you can sign up there. For those of you that are leaving us now, thank you so much for joining us for this portion of the show. I super appreciate you. I look forward to seeing you soon. Until then, remember that goals without action are just dreams. Get out there, take action and create the life your heart deeply desires. I will see you soon. Bye.
Sief is the CEO and Cofounder of Techvestor, which acquires and operates STRs (short term rentals) AKA those wonderful things we know as Airbnbs. HNWI, private equity partners, family offices and institutions work with Techvestor to start, scale and grow portfolios in 15+ markets.
Previously, he founded Scoutpads, helping thousands of tech employees diversify into real estate after spending nearly 5 years at Facebook. Collectively, Investors have contributed to acquisitions totaling more than $100M.
In addition, he’s a Young Entrepreneur Council Member sharing strategy and thought leadership on scaling/growing a business.
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Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.
Moneeka Sawyer
Joe DiSanto is a fractional CFO and consultant to small businesses and high-income individuals. He also founded the blog Play Louder (
Sief is the CEO and Cofounder of Techvestor, which acquires and operates STRs (short term rentals) AKA those wonderful things we know as Airbnbs. HNWI, private equity partners, family offices and institutions work with Techvestor to start, scale and grow portfolios in 15+ markets.