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Gregg Cohen: Cash Flow Properties, Screwing Up & Creating Culture

On this episode, we are talking about passive income. I'm talking about turnkey rental properties. We are talking with Gregg Cohen. He is a Founding Partner of JWB Real Estate Capital.

From humble beginnings, this guy has gone from roughing it to serving over 550 clients and that keeps climbing worldwide. He and his team have $250 million of assets under management. He is doing business with folks in 43 different states and around the world.

In this show, we are talking about the benefits of turnkey passive income with rentals. In particular, we go to his hometown, Jacksonville, and talk about the indicators of what makes a great turnkey rental property. What are some of the market indicators? What neighborhoods do you want to invest in and what returns are possible? We get a little hint of culture because his team is over 70 people. Part of their success is how he has developed culture. It's a little bit of investing, a lot of real estate and some sprinkle of entrepreneurship there with culture.

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Dustin
Gregg, you're at a seminar. You're so motivated to do your first deal. You leave the event before it's even finished. You drive hours, cross the state line to talk to a motivated seller. You knock on the door and there's no answer. What's going through your head at this moment?
Gregg
You are bringing me back. I remember that moment like it was yesterday. I remember knocking on that door feeling this intense surge of defeat because I was running on emotion, energy, passion and excitement for the first time to do this. When you're running like that, you're expecting all of these like normal things that normally happen to happen. If you knock on the door, somebody is supposed to answer. That was the first moment when I realized that what I was doing was absolutely crazy. I was following a hope, a prayer and a dream at that point of building this real estate business and that it wasn't going to be easy. I remember feeling defeated. I walked back along the walkway from the house. I remember walking into my business partner's car partly because it was such a beat or upper car. It was this old Honda Accord and the front passenger side door didn't even work. I remember being completely deflated, thinking that there was no way that this was going to work. That was a pretty low moment, Dustin. Thank you for reminding me about it.
Dustin
Were you incredibly nervous knocking on that door with it being your first one?
Gregg
I wasn't incredibly nervous at that point because the story goes that we were at a conference in Atlanta. We drove in the middle of the night to come down to Jacksonville to speak to the seller, who had no idea that I was coming. I had seven hours or so to drive in the middle of the night. I had seven hours to think about this. I wasn't nervous at that point. I was excited.
Dustin
I'm curious to know that deal, what did you learn from jumping out of the seminar, driving all night and doing it? What do you take away from that experience?
Gregg
Just how important it is to take action. All of us get overwhelmed or we're all scared to do something new. For me, I feel like I do something new every single day and I'm scared to do it. I know I have enough confidence in myself and the people around me that I know I'm going to figure it out. I go into it knowing that I'm going to screw it up in the beginning. What I took from that experience was go out there and do something, take action and get something going. You don't have enough confidence in yourself and the people around you that within your network you're going to figure it out and I think that's guided me ever since then.
Dustin
I remember when we first met, shortly beforehand, I had gotten into the business. I wasn't even in the real estate investing business. I was in the business of selling foreclosure leads at the time. I remember I made myself go knock on doors. I remember being incredibly nervous, not knowing what they were going to say, not gone through the number of boot camps or training that you had gone through. Do you think it's important for folks that are getting into real estate that they go knock on doors? Do you think it's a rite of passage or there are other ways to do it?
Gregg
I do. That is where I started. You started there too. You talked to the most successful real estate professionals. They started there especially real estate investors. While it might not be the most fun thing to get rejected over and over again, it teaches you. It tests your passion. It tests your commitment to your craft. There are certain ways to do it and to make sure that you don't put yourself in danger, which I learned the hard way. You learn that quickly. That's the thing about doing some of these somewhat crazy ideas is you learn quickly what to do and what not to do. I do believe that you’ve got to get out there. You’ve got to try something. You've got to put boots on the ground. Go out there and not be afraid to fail and not be afraid to get told no. When you do that consistently, doors started opening up for you.
Dustin
I want to take you back even a little bit further than that first real estate deal. Although you liked what you were doing at the time, you defected from Corporate America, Johnson & Johnson. The reason why you defected is you had a terrible manager. Are we talking the world's worst boss here?
Gregg
He ranks up there. I still remember him. I remember after leaving that job that I was very angry with him. I felt like he was responsible for crushing my dream at that point. I did have the dream to work in Corporate America. I remember being angry for probably a year afterwards or two years. It was a long time. I look back on it now and how thankful I am to have that experience. What I know about myself and where I was at that point in my life is that if he had been a halfway decent manager, I absolutely would still be there. It forced me and I'm a big believer that things happen to you for a reason. It forced me to find a different way. I know that I was not going to find a different way or go down a different path unless it was that bad. I have turned to be eternally grateful to that individual. I still remember his name. I hope to see him one day, shake his hand and tell him to thank you. He effectively turned me from Corporate America into doing something that I'm much more passionate about. Something that I can surround myself with positive people like yourself, my team and hopefully get more out of life. That's the way it has been for me personally.
Dustin
Gregg, people love the juicy details. I want you to go a little further with that. What was the satisfaction level like? What was going through your head when you handed in your resignation?
Gregg
There was no satisfaction at that point. Satisfaction came many years later. I was scared. At that point, I was 23. I had worked hard to get this job. My whole family was proud of me. I remember how proud they were that I got this Fortune 500 company job. I remember myself wearing that as a badge of pride, "I got this job." Here I was throwing it away to go and follow, more or less, a late-night infomercial dream. I had to get over that emotionally. It wasn't easy when I left that job. I remember being so scared handing in that resignation. The other thing that I will never forget is that when I was leaving, I remember walking out of that office and other people, my colleagues, managers two levels above me, directors, whatnot, they all had heard that I was leaving. I was “following” a real estate dream.
Would you know that they were all sitting outside? They never talked to me while I was there. It wasn't a very team-centric environment. Every single one of them came out of their offices and they mocked me. They made fun of me. They say, "Look at you, you think you're going to be the next Donald Trump." I was scared of going into that meeting. I was completely deflated and almost like hurt leaving. I was a scared individual at that point. I remember those times. I know it's hard for other folks who were thinking about doing something similar to do the same thing. All I can tell you is it's a momentary feeling, through hard work and a wonderful network and support team around you, you'll come out the other side okay. It was certainly tough.
Dustin
It's easy to imagine having that bad boss. We've all had our share of horrible bosses. I'm curious because you said for about a year, you had this boss. What was the actual turning point? Was it a chance encounter? Did you get the support of your wife or family at the time? What made you say, "Today is the day?"
Gregg
I owe a lot of that credit to my business partner, Alex. People are motivated by fear, greed and pain. For me, the pain became too much. I remember waking up every single day wishing that I was going to be done with my workday. I projected that out for the next 30, 40 years. I said, "That's a pretty terrible way to live." The pain had become too great there. The opportunity was knocking at my door. My business partner, Alex, who at that time had stayed in Gainesville. We went to the University of Florida. He had stayed in Gainesville for an extra football season. Clearly, he's a visionary. He got the memo there. That was the right move.
He knew that I was struggling and he pounced on that opportunity. He moved into my condo and slept on my floor. We had started going to real estate conferences together, read a few books and made a few connections. He was there when I woke up in the morning. He was not going to work. He was looking for real estate, which I wanted to do. When I got home, he made sure he was there to welcome me into the house and talk about all the fun he had going and looking for properties and whatnot. It was a combination of those two things. I'm eternally grateful for him. He pushed me over the edge and quite honestly, I probably wouldn't have done it myself. I am not a serial entrepreneur. I needed a helping hand of one and that's where my business partner jumped in there.
Dustin
I want to talk to you about flips. I know you're big into rentals. We'll invest a lot of the time in the show talking about rentals and that opportunity. Do you still do flips?
Gregg
We do a very small percentage of our business. Our business overall is what we call our hedgehog based on the book by Jim Collins, Good to Great. Our hedgehog is what we are built to do and that is turnkey rental properties. We always need to be a few steps ahead to take care of our clients, take care of our team. We give about 10% of what we do to being opportunistic. We do flip properties, a small percentage that would fall into that 10% box. We do a few other things. We have gotten into land development, developed raw land and also been able to build a number of townhome communities and also single-family homes. We do a lot of new construction, which we'll talk about.
The main reason that we do this opportunistic activity is to be a few steps ahead, we were very committed to being in Jacksonville. We are not the type of outfit that wants to go from city to city. In order to make sure that we have enough opportunities for turnkey properties for our clients, we need to get into some of this opportunistic stuff so that we can create a runway of cashflow investments for our clients. Flips are a small percentage of what we do. We always want to make sure that we're up and available to capitalize on some opportunities. It's not the majority of what we do because we do turnkey rental properties is what our team is built to be the best at.
Dustin
There are so many different ways to make money in real estate. Obviously, a lot of people get started in the business with flips. At what point in the biz, did you realize your hedgehog was to focus on turnkey rental properties?
Gregg
I would love to say it was this great epiphany. We're forward thinkers. I want to be real. At the beginning of our business, we were like a Jack of all trades. We tried every single type of real estate out there partly because it was about survival and we didn't know what we were great at. When the market crashed, it was a scary time for all of us. That was when we'd said to ourselves, "We need to make some decisions as to what we are truly passionate about, what we are truly built to do." For us, turnkey rental properties became our core. It was a factor of, at that time, we had a lot of properties that we had a lot of high-interest debt on.
At this point, I was probably 25 or 26 or 27 or whatnot. We had a number of flips that we were doing at that point and selling them. At that time, the market crashed. It was not easy to sell that property. Also short time later, the lending market crashed. Our source of income at that point had a lot to do with financing. When they took that opportunity away from us, I remember looking at my business partner, Adam. Up until that point, what hit us was that we were good at renting homes. We were doing our own property management for about 40 units that we had at that moment. We were good at financing. We were not good at selling. We had never been forced to sell. We said, "The clock is ticking. That interest is running. We need to get good at selling." At that moment we said, "What are we great at? What do we build to do?"
We realize the conversations that we had with friends and family, who had been along for our journey of building up these 40 rental properties for ourselves. They said, "How are you doing this?" They knew we were young. We didn't come for money or whatnot. Our families weren't in real estate. I said, "How are you doing this?" We said, "There's probably something there. We can package this. We believe in ourselves. We can package this experience for clients and turn this into something that's great." We have over 1,000 properties sold later. We have clients in 43 states and thirteen countries. They are all buying into that turnkey experience. Like most things, it was a matter of survival in the beginning. It was taking what the market had thrown at us and saying, "We need to get a lot better quickly." What's that intersection of what you're passionate about and how you're built? That's what turnkey rental properties became for us.
Dustin
You mentioned Jacksonville and I know you're big on your city. You absolutely love your city. I know it's not because you love it and that's where you live, but you have other reasons for why you feel Jacksonville is a great market. Will you get into some of those?
Gregg
There are a few different options out there. Once folks understand and are passionate about passive income, that's the first thing. Once you get there, you've got a few different opportunities out there, a few markets that I think are great. You can earn positive cashflow and whatnot. Then you're trying to decide, which of those markets is the right fit? That's where Jacksonville stands out because when you're looking at evaluating a cashflow property, a turnkey investment property, most people in this country look at one thing and one thing only. They look at positive cashflow. They look at the rent to price ratio. That is a very important thing to look at. It's not the only thing to look at.
What I see most people doing is they have these blinders on, these cashflow blinders are what I call it. All they think about is the most cashflow in the market. There are a number of other things that are important to the decision. If you are thinking about holding on to rental properties for the long haul for 10 years, 20 years, 30 years, I would challenge you that other things other than cashflow are going to determine your success more. Things like tax savings, things like principal pay down where your tenant or your resident is paying down the mortgage for you and long-term appreciation. To get back to your question, Dustin, the reason why I am so passionate about Jacksonville, why I have my own money here and why I don't go elsewhere is because Jacksonville is the best-balanced approach.
When you look at the numbers, it will dictate that after a ten or a twenty-year cycle of holding onto these assets, you're probably going to wind up with a better return on investment once you look at the full picture. On the other hand, I would tell folks that are purely lynch interested in cashflow that Jacksonville might not be the best market for you. We have strong cashflows. Our rent to price ratio is great but it's not the best. If you're purely looking at cashflow and that's the only thing you want to think about, you probably want to go somewhere else. You probably want to go to the Midwest. We have lower purchase prices. You could probably get $25 a month or $50 a month extra. If you want a holistic view of total returns taking in all of those profit centers and you're planning on holding on for the long haul, Jacksonville is the best bet. That's why we're here. That's why all of our clients come here.
Dustin
You mentioned new construction rentals. I don't want to make big, broad strokes here but I will for the sake of this conversation. Sometimes people will buy a house, they'll fix it up and they'll put a renter in it. You are going on a different route. You're doing new construction rentals. Why?
Gregg
If I'm going to be a good steward of my clients' funds, I have to look at what are the key factors that will lead to a positive return and achieving their net returns. The goals that I've laid out for them, when it comes to a success story of rental properties, it is always about limiting maintenance and vacancy costs. You’ve got to invest in with the right team. You’ve got to invest it in the right market. You’ve got to choose the right property, all that good stuff. Once you have that asset, that's where the opportunity to succeed or fail happens. It's that long-term relationship that you have with that team and that property but it all comes down to, “How was that management team performing? How's that asset performing when it comes to maintenance and vacancy costs?”
If I can limit that, you are going to be a very happy camper. The choice of new construction makes a lot of sense when you put it against that backdrop. If you've got the opportunity to own a home that was built in 1950 and maybe you bought it off of the multiple listing service and maybe they said that it was renovated but maybe it wasn't. All of those variables come into play with something that is not new construction. When it's brand new and it comes with a warranty, there are no questions about that. The numbers dictate that you will probably have lower maintenance and vacancy costs. From an owner perspective, from an investor perspective, that's the reason why we've gotten so big into new construction. From a resident perspective, that's the other side that nobody thinks about. I don’t know the last time you were renting a home. Did you ever get the chance to move into a brand-new construction home when you were renting one?
Dustin
No.
Gregg
Me neither, the homes that I rented when I was in college at Gainesville, there were definitely not any new construction there. When you have this opportunity to rent a brand new construction home, you're probably going to want to pay a premium for rent. You're probably going to want to stay there for a long time. That is the biggest correlation to long-term success. That's how we limit maintenance and vacancy costs for the owner is we get a wonderful resident who wants to stay there for a long time. New construction serves both of those purposes. That is the reason why it's so successful. That's why we go so big into it. We'll complete about 300 new construction homes. We'll start at about 400, up from about 200. You can see our progression is more and more in the new construction. It's working out very well.
Dustin
You talked about new construction homes, people wanting to move into. What I have down here is you created a course for us at WealthFit. You obviously know that. For our audience, Gregg has got an amazing course on how to get into cashflow rental properties. In the course, which I thought was genius was you recommended doing two to three-year leases. It makes sense on a new construction home. There's that pride of ownership. People are probably going to want to stick around. Why are you so big on signing two to three-year leases when other people out there, other property management companies, other people in general, they're only signing one-year leases with their tenants?
Gregg
It's something that is completely different than how most property management companies run. I'm not shy about the fact that most property management companies' goals are not aligned with the end investor, with their client. They make money in a situation where their client may lose money. A lot of this comes down to long-term tenant stays and a lot of it comes down to long-term leases. You ask why we do it. It's because if you run the numbers if you look at what it costs for a typical turnover, meaning that the resident moves out and a new one eventually will come in, you look at the costs that come along with that. You're going to be out of pocket to put into the rental property, bring it right back into rental shapes.
You’ve got an expense there. You look at the costs of the mortgage and the principal interest taxes and insurance that you're going to cover. It might be 45 days for you to get a new tenant in there or maybe longer. You look at all of those costs, there is absolutely no way that you're going to be able to hit your return expectations if you have a turnover every year. If we know that, why are people signing one-year leases? If you're doing that, what you're doing is you're basically hoping that you can convince this tenant, I call them residents because they stay forever, but you're hoping to convince this resident to re-sign not once but twice. I don't like a strategy that's based on hope. If you run the numbers on it, you need your tenant or your resident to stay three years.
It's an unwritten rule that we know in our office, the three-year rule. We need our residents to stay for three years. If we know that we need them to stay three years in order for us to, at the end of the day, perform for our clients, then why don't we do the hard work up front and sign two and three-year leases? We know that it's going to pay off. We've been doing this for a number of years. If you ask another property management company to do that, you're probably going to be told no. They're not going to do it. A lot of it comes down to how they make money and that it's a lot of hard work. You would think that it's a lot harder to sign somebody up as a resident and tell them that they can only sign a two or three-year lease versus a one-year lease.
I'm a sales and marketing guy. Normally when I see low conversions, I'm like, "That's on me." I've got to figure that out. This is one that I'm okay with being lowered. It's because our criteria are so much harder. We have very strict criteria as it is. A lot of other property management companies have that same criteria. We say, "If you're interested in signing a one-year lease, I'm sorry we can't help you." That drops our conversion. It's a lot of hard work. It's a lot of extra resources that we spend as a company to do this, but the payoff is there. We have more successful clients. They continue to come back to us. That's why we do it.
Dustin
Gregg, people reading this might say, "Those guys have it easier to get someone to sign for a two to three-year lease if they'd gotten new construction." Do you feel that this strategy still applies to that 1955 house that maybe we fixed up a little bit? Can we still do the strategy there?
Gregg
I absolutely believe it does. I know it does because before we went so strong in new construction, we were renovating homes. We've renovated over 1,500 homes. There's two and three-year leasing strategy applied then it applies now.
Dustin
I feel like this industry is ripe for disruption because it makes sense that the owners of these properties would want a two to three-year lease. Do you feel the same way or is it a few select people that are savvy, that know about it or are going to use this strategy?
Gregg
You've hit the nail on the head. I'm shocked that more people don't require this. It's not a complicated calculation. We know what our estimates for maintenance and vacancy costs are. We simply look at what if you have that actual real number of turnover costs? What if you had it every year? There's no way that those line up. You're going to be way over on your maintenance and your vacancy costs if you go through this every single year. It's challenging historical norms. I can tell you when we rolled this out, it was probably several years ago, we were met with people telling us that it wasn't possible. A few people told us that it was illegal to do.
Some real estate professionals throw whatever they can out there to throw obstacles. It wasn't illegal. Do you know a challenge that they didn't want to overcome? At one point, you had to have two witnesses to sign the lease if it was a two-year lease. There was a notary requirement or whatnot. In order to have a two-year lease or a three-year lease, don't quote me on it. It's not even that way anymore. They change the rules. That was the obstacle that was preventing realtors or property management companies from doing this. It is challenging historical and industry norms but it makes so much sense. I know what it feels like to experience a property turn. I know what it feels like for our clients to have to go through that. I want to stop that as much as possible. This is a great way to do it.
Dustin
I have to ask this question. If traditional property management companies are built off of these fees and a one-year lease is how they remain profitable, how do you stay in business if you're putting people into three-year leases?
Gregg
In essence what you're doing, if you ask a property management company to sign long-term leases, you're asking them to work twice as hard and to make half as much money in the short run. This is why historically you're not going to find a lot of property management companies that are going to jump to do this. It's because 25% to 50% of revenues of a typical property management company comes in the form of tenant placement fees. The tenant placement fee is the fee that is earned by that property management company when they place a new tenant in there for you. This is a significant part of their revenue. If you ask them to sign a year lease every two years or every three years, you're cutting that revenue significantly and that is not going to work for most property management companies, even if it does benefit their clients, they can't do it. A company like JWB is incentivized differently and this is why I'm so big on making sure goals are aligned. A company like JWB knowingly forgoes potential tenant placement fees that we know we could earn. We know that the industry norm is to sign one-year leases. I know that we would make more money as a property management company if we only signed one-year leases.
The reason that we're different is we have different care than a typical property management company. The typical property management company does not sell properties. They don't sell a lot of them. For JWB, our goal is to help to bring on clients that want to build up a portfolio of rental properties. We want to help them fulfill that plan, whether that is five, ten or twenty rental properties in their portfolio or whatever the right number is. We want to help them fulfill that plan. We make the majority of our money in home sales. The bet that we make is let's give up the short-term tenant placement fees. Let's sign much longer-term leases and if we do this consistently, we're going to have our tenants and our residents stay for a lot longer than that three-year rule.
Our tenants, our residents stay 49 months on average. At the core of it, when we do that, we're going to overperform on returns. We know that clients coming in already have plans to add five, ten, twenty properties or whatever that number is. It makes sense that if we overperformed, they're going to come back to us and continue to buy additional properties and they're going to refer their friends and their family. That's our business in a nutshell. That's why we're willing to do it whereas a typical standalone property management company is not going to do it. They can't stay in business that way.
Dustin
What I'm hearing and what I appreciate is your long-term approach. Obviously, rental is a long-term approach. It's not a flip. It's not instant cashflow. It's not a big chunk of change from doing a flip. I love your model putting people into two to three years. I love the fact that you benefit as a company playing the long game. You know if they're happy, they're going to buy multiple turnkey properties from you. It calls to me so much because I've been such a short-term guy most of my life. I'm coming to appreciate the long-term approach. You, your company and your network have done a lot of deals. I'm curious about how you look at a neighborhood. Let's say someone's excited about this idea of passive income. Maybe they're even excited about new construction. What do they need to know? What do you know about entering into a particular neighborhood that's going to yield great tenants or residents in a two to three-year lease?
Gregg
The neighborhood is very specific. You have to make sure that you focus on some criteria. The criteria to focus on is not how the neighborhood looks. That is not going to get you the type of returns that you're hoping for. You want to focus on those middle income to below middle-income type of neighborhoods where you're seeing low prices and high rents that create this opportunity for positive cashflow and for an opportunity for an asset that pays for itself every single month. That's the most important thing. If you go to the nicest neighborhood that you know out there, in Jacksonville, we're blessed to be on the beach. I'm not too far from the beach. There are no properties that I'm going to buy that are on the beach. The neighborhood is wonderful.
What you're going to find is that your principal interest, taxes, insurance, the property management fees, everything else that goes along with the expenses are going to be way higher than what the income is from the rental side. You can't go to that above middle-income neighborhoods. The numbers aren't going to work. You've got to focus on those sweet spots, which are below middle income to middle income. That's the sweet spot. You find low prices, high rents, there's high rental demand there. People want to rent. They want to rent for a long time. You've got to be surrounded by jobs. You've got to invest in an economy that's a strong stable economy with Fortune 500 companies there as anchors. They should have over a million people in that economy and you want to be surrounded by jobs. That's where we focus.
Dustin
You're not building a house like a crappy foundation or one stilt-like you've got multiple things in there. In Jacksonville, give people understanding of the prices of the homes and what kind of returns people are looking at?
Gregg
In Jacksonville, the median home price is about $230,000. Talking about how we focus on those below middle income to the middle-income type of neighborhoods. For a JWB investment, you're going to see purchase prices between $160,000 and $200,000. Your $180,000 new construction home will rent for about $1,350. Ultimately what you'll see is when you've taken the net rental income, you add in the tax savings and the principal pay-down components to it, you're going to wind up with between 7% to 9% estimated return on investment. That does not include property appreciation, which again is an added bonus there. That's what you'll see in investment property here.
Dustin
I want to talk about the return and how you're calculating that. I want to talk also about appreciation. Let's go with appreciation first. What typically have you seen over the last couple of years? I know that's a bonus and that's gravy. What have you seen in terms of appreciation in the Jacksonville market?
Gregg
If I quote with a real appreciation rate in the last couple of years in Jacksonville, I'm going to give the wrong impression. Things have been hot here in Jacksonville, in Florida as the market has heated up. I would rather give long-term about everything, especially about long-term appreciation. I look at as every ten or twenty years as far as appreciation rates, things are going to get back to the norm. If you look back from 2001 to 2019, the historical norm for Jacksonville has been repeated even though we had a way high appreciation and way low depreciation. Now, we're back to where we are.
Historically, things come back to normal every ten or twenty-year cycles. If you go back from 1985 all the way, this is what we know to be our long-term historical growth rate in Jacksonville. It's 3.7% per year from 1985 all the way through 2019. If you even take a smaller segment here from 2001 to 2019, you'll see that even through the ups and the downs, we're right back there at that normal appreciation rate. This is the key though. The reason why Jacksonville is the best place to invest and why put all my money here is because if you compare that across other cashflow markets out there that may earn you $25 a month more in cashflow, you look at what their long-term appreciation rates have been since 1985 you're in the twos.
There isn't another cashflow market that is near 3.7% if you go back from 1985. When you look at an asset that is $200,000 purchase and you'll hold onto that for ten, twenty years and you get an extra point or point and a half of appreciation on a $200,000 asset. That's why I challenged people and say, "Take off those cashflow blinders. Let's look at the real total return here." It doesn't mean that we're speculating here and basing everything on the appreciation. We're going to make sure it pays for itself every single month. If you want to look at what the total return after a ten or a twenty-year cycle, that's why I have my money here. That's why I encourage others to do the same.
Dustin
Gregg, I want to ask you a question. I've always heard this thing in life. It's like if you asked the chiropractor of what the solution is to your ailment, they're going to say crack a back. If you go and you ask the carpenter what needs to be done, they're going to tell you, "You need me to come in and fix the house." I'm a little hesitant but I want to give you an opportunity to sell it a little. What I mean by that is here on the Get WealthFit! show, we talk a lot of different investments. We talk stocks. We talk even crypto. Oil and gas are coming soon. Since we talk about all these different investments, why are you so big on rentals versus other forms? Do you have other forms of investments outside of real estate?
Gregg
In a nutshell, the reason why I put my money on rental properties is because I love consistency. If you know me, I'm a consistent type of dude. I like the routine. I like consistency. Consistency helps people to make better decisions. Consistency helps people enjoy their lives more. Real estate has proven to be consistent. When you look at some of the other alternatives out there, we'll take the stock market. When you look at the stock market, over time history would tell you that you're probably going to earn a decent rate of return in the stock market if you're in long enough. History will also tell you and real-world experience will tell you that it goes way up and way down. The reason why people are not happy with the stock market is not that they can't get the returns that they want. It's because they can't handle the variability. They've looked for an alternative. That's what rental properties are. That's why I love it. I also think that it does have significant upside if you hold on long enough. More than anything, consistency is what brings me there. Do I have investments outside of rental properties and real estate? I try not to.
We have a company 401(k) that I haven't figured out how to invest in real estate. There are some legalities that it's hard to do that. Even with our company 401(k), what I figured out is that you can lend against your 401(k), which is what I've done. I pull that money out and I invested in real estate in one way, shape or form. I don't put everything into rental properties. I do believe that diversification is a smart thing. I like to be diversified. I do it within the things that I know and within the things that make sense to me. Private lending is something that I do with my own investments. Obviously, rental properties are a big deal. My business partners and I have a little over 300 rental properties that we own and manage. There are a few other investments that I've done. They're real estate-based. There are funds and other types of opportunities there. I practice what I preach. If I could pull that last remaining amount of money out of a stock market, I would because I don't see where it makes sense for me to invest in the stock market. For real estate, it beats bonds and it's something that I know. You won't find me putting much money in there if I can help it.
Dustin
I should disclose. I have rental properties but one of the things you talk about in addition to all the benefits, I don't think we talked about was the tax benefit. I know we're not dispensing tax or legal advice here, but there's also that added benefit of depreciation and benefit on taxes. What are your thoughts on that?
Gregg
Tax savings are incredibly important. I didn't realize that early on in the business when we weren't making any money but it's incredibly important. When you compare the tax benefits of investing in a market that is higher priced through the tax benefits of investing in a market that's a lower price, the higher price market wins. This is no tax advice. What you're able to calculate is the tax write off that you get based on the purchase price of the asset. If your purchase price is a lot higher in Jacksonville than it is in Cleveland, you're going to get a much larger right off. That's going to write off against the rental income there. These tax savings I feel like I speak until I'm blue in the face about it and some people get excited about it. Some people glaze over and they don't put enough attention into it. Come tax time, we know how beneficial more write-offs can be.
Dustin
One more thing I wanted to ask you about before we get into WealthFit round is your operation. You have from what I understand over 70 employees. I understand you are big into the culture. Will you talk to all the entrepreneurs and the investors too in terms of why you think culture is important to an organization?
Gregg
Do you remember when we got together? It was probably several years ago. We did that mastermind together. I remember being there. I felt like I was surrounded by a bunch of incredible talents and guys that were so far beyond me. I was like, "What am I going to contribute to this group?" I don't even know if I was prepared to speak about culture and maybe Francis mentioned it. He said, "You should talk to Gregg." At that point, we had 30 people or something. You looked at me and he said, "You have a real business."
Our team is something that at the end of the day is the reason why people buy from us. This was a strategic decision that we made when the world was falling around us in 2008 and 2009. We had the opportunity to scale back or run away as most people did or we had the ability to double down on our investment. We have always believed that real estate investments are a team sport or at least that's the most fun way to do it. We said, "Let's double down. Let's invest in our team and our system." We were hiring while others were running away, which that took a lot of guts back in the day. Now we know we have 75 people in the office. We've won the best places to work, locally and nationally, six of the last several years.
We know the payoff but it wasn't always there in the beginning. We didn't know. It took a long time. I can certainly empathize with others out there that are thinking about developing a high-functioning culture. It's something that takes work every single day. It's like a marriage. It takes so much work. It takes so much investment. The payoff is there. Few things that we do, we are big into charity. We're big into our mission, which is to change people's lives. We do that and we live it out. Every month or two, we take an entire day off out of the office for our entire team, which is costly for 75 people. We go out and we either do a charity volunteer activity or sometimes we go out and have fun.
In fact, we set up a scavenger hunt in Downtown Jacksonville and we had a wonderful people on our team that planned for months for the scavenger hunt. We drove up two full school buses of teammates. We went downtown. We spent the day enjoying time together. Our belief is that when people are highly talented and they liked each other that the clients are going to see it. They're going to feel it. When the phone gets picked up, people are going to know that it's a positive working experience. Also, the teammates are going to do the little things to take care of their teammates and take care of their clients. We do invest in it. We also provide for our team every single day, which is a very cool thing to do. We do these charity events that matter to people.
We were able to build a new construction home. We were able to give it away to a wounded warrior. This was an awesome story. Rick was the wounded warrior who we got to know and his family had fallen on hard times. He didn't have a place to live for him, his son and his dog, Berkeley. We connected with K9s for Warriors. Rick was selected as a deserving wounded warrior. JWB and our partners built this home. We were there to be able to give them the keys and do that. We involve the entire team. You go to work. You work hard but how cool is it to see a culmination of all of your efforts and to do something that's going to be there forever. A new leave a legacy for that individual in his family. It's a well-rounded effort. It takes a lot of effort. It's many years in the making. It does not happen overnight but it's worth it. I would encourage all of you to do the little things to make that happen too.
Dustin
Gregg, I appreciate you big time for sharing that. I am fortunate to be in a different opportunity where I see the power of this and only looking to catch you in everything that you're doing in terms of culture. I want to move us into WealthFit Round, which is basically my fancy name for rapid fire questions. What is your most worthwhile investment?
Gregg
Education.
Dustin
What is that investment you don't want to talk about? Where's that misstep?
Gregg
We made some boneheaded decisions early on. We have lost a lot of money on different properties in the beginning. I remember when the market crashed, we had to make the conscious decision to sell for some substantial losses in order to free up cashflow. Those were not fun.
Dustin
When you're not selling for losses, life is good and the cashflow is coming in, what is your guilty pleasure spend? What do you like to splurge on?
Gregg
I love watching the Florida Gators beat the Florida State Seminoles. That probably is my guilty pleasure. I love having people over for the big game. I built a new home. I went crazy on the back yard in the patio area. I have three TVs in the back area there. My wife loves Dolphins. I love the Gators and the Steelers. When we have friends over, they may have a different team of choice as well. That's probably where I splurge.
Dustin
In the last several years, what have you become better at saying no to?
Gregg
My kids. I have a six-year-old and a four-year-old. I learn something new every single day as being a parent. My six-year-old is quite the negotiator. I don't know if I'm a negotiator or my wife or whatnot, but this little one is ten steps ahead. I start with no with everything with her to make sure I'm on the defensive. It's probably saying no to my kids.
Dustin
Any special routines or rituals that you have to start your day or get you into like peak state?
Gregg
Every night before I go to bed, I think about what I'm going to accomplish the next day. There's certainly isn't anything scientific about this, but I believe that I come up with good thoughts or good ideas or whatnot. When I'm sleeping, there is some science behind it. It's like your subconscious or whatnot. If there's a challenge, I try to think about it. I try to pick the ones that are not going to stress me out at night. If there's a cool marketing, sales or client service-related opportunity, I'll think about it before I go to bed. I wake up in the morning a lot of times, I'm hitting the ground and running. Your subconscious is a lot smarter than you are.
Dustin
Fear and self-doubt often stop people. I'm thinking about folks that want to get into whatever form of real estate investing. What is your advice for folks that feel fear or self-doubt? Think back to a time, Gregg, when you felt that fear or self-doubt, what did you do to overcome it?
Gregg
This happens often for me. I feel like I'm scared to do stuff a lot. It comes back to taking action. For me, I enjoy failing. I don't see the big deal for failing. It's never something that's bothered me all that much. The worst part is procrastinating and building yourself up to that, "I got this terrible thing coming down the pike.” I like to take action, do something and figure it out along the way rather than theorize and spent all this time wondering about the what if. Do it. You're going to figure it out. Surround yourself with people who are supportive. They know that you're going to fail and challenge to get the best out of you.
Dustin
From what I remember in that mastermind meeting, you had a book club for the entire company. Do you still have that?
Gregg
We have a library in our office where we encourage people to read books, to check out the books that have helped us along the way. We used to do book reports in our office. This was something that was cool. It used to be mandatory to give a book report. As we're 75 people deep, it would be literally two years between when people could get the opportunity to do book reports. It's an optional thing. I'm a product of Toastmasters way back in the day. I learned all of the success traits from Toastmasters. I thought it was incredible. We brought it to the company. We allowed our team to do a book report on anything that they were passionate about. We have had some incredible book reports. People talking about love, loss, personal things and some people talk about business things. We had a person on our team the other week, he was talking about a book that he wrote. He did a fantastic job. It reinforces what we're all about education, challenging yourself. Public speaking is important. We still do it.
Dustin
Gregg, I truly appreciate you being on the show. For people that want to keep tabs, maybe check on some of the cultural stuff that you're doing, maybe investigate some turnkey rental properties in the great city of Jacksonville, Florida, where can people best find details about all that I said?
Gregg
People can go to JWBWebClass.com. I've put a training there that is going to show people how we build a rental property portfolio for you, the ins and outs of it and how you can benefit from a strategy that maybe diversified you out of the stock market, puts you into rental properties and something that create consistency for you. You can go to JWBWebClass.com. You can also give our office a call at (904) 677-6777 and we'll get you started.
Dustin
I appreciate you being on the show. I can't wait what the next ten years bring in terms of your business evolution and all the things that you're up to. Thanks again for sharing with the Get WealthFit! show.
Gregg
Thanks, Dustin. I appreciate the opportunity.
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